Liability Loss Trends Driving Nuclear Verdicts
U.S. juries have ordered a record number of supersized verdicts against companies in recent years. “Nuclear” verdicts have almost tripled since 2020, while the median verdict value has more than doubled.
In 2023 alone, the number of nuclear verdicts (more than $10 million) grew by more than 27%, while the number of “thermonuclear” verdicts (more than $100 million) increased by 35%, affecting industries ranging from chemicals to automotive to entertainment. These verdicts are not just a problem for U.S. companies as they also affect international firms doing business in the U.S., according to a new report from Allianz Commercial.
Such verdicts are not just a problem for companies in those industries, as mega losses impact insurers providing cover for a much broader variety of businesses, and can cause reinsurance rate increases that inflate how insurance carriers charge consumers for coverage across entire portfolios. In other words, large liability loss trends on the national stage have effects that trickle down to impact smaller local businesses in unrelated industries like yours.
The rise in nuclear verdicts
Growth in the number and size of these verdicts is coming from multiple drivers, including growing mistrust of corporations, the changing tactics of plaintiff attorneys, the erosion of tort reform, changes in jury pool demographics, and the normalization of such larger verdicts, including the rise of billion-dollar awards for personal injury. Awards can be driven by a combination of punitive, compensatory, and non-economic damages, such as pain and suffering, all of which are increasing. Such upward trends in social inflation are not sustainable for the long term, as the increasing costs from nuclear verdicts ultimately fall back on businesses, consumers, and insurers.
Pharma class actions are more complex and volatile
Recent years have also seen a growing list of pharmaceutical, food, and chemical products become the target of billion-dollar class action litigation, including opioids, talcum powder, indigestion remedies, and herbicides. Cancer is increasingly a feature of such litigation. Scientific research, regulatory orders, or voluntary withdrawal of products that may be carcinogenic can trigger litigation. Such claims create volatility for liability insurance due to the long latency of cancer symptoms, with risks only understood many years after a product was sold and the insurance underwritten.
PFAS litigation mounts
A class of synthetic chemicals used widely in industrial and consumer products such as food packaging, cosmetics, household goods, and even firefighting foams since the 1940s, PFAS, also known as forever chemicals because of their resistance to degradation, have been the subject of mounting litigation in recent years. This has largely been focused on three main areas: environmental pollution; water and waste treatment/contamination; and personal injury, such as people working directly with products, like firefighters.
While litigation has so far concentrated on the U.S. – environmental contamination-related PFAS settlements are already in the double-digit billions of dollars – there have also been cases elsewhere, for example in Europe. The extent of future litigation is uncertain, although further regulatory measures may play a part in shaping the trends.
Major causes of liability claims
Defective product incidents account for more than 40% of the value of all liability claims over the past five years, with the other most expensive causes of claims including collision/crash incidents, faulty workmanship/maintenance, and bodily injury.
Takeaway
We live in a connected world, and developments in one sector can have ripple effects that land close to home. While these statistics may not be coming from sources directly related to your particular business, understanding how large loss trends are taking shape nationally can help today’s small and mid-sized business leaders make informed decisions on managing their own risks and charting the best path forward.
About the Author
Larry St. John is a 20+ year veteran of insurance and risk management for the construction and electronic security industries.
He can be reached at LStJohn@eclipseinsurance.com