What are nuclear verdicts and why are they occurring?

The insurance industry is no stranger to high-stakes claims. However, over the past several years, there has been a growing trend of what is known as “nuclear verdicts,” or exceptionally high jury awards that surpass what should be a reasonable or rational amount. Nuclear verdicts can have a devastating impact on insurance companies and their clients, and it’s critical for insurance claims executives to understand how to manage them.

Nuclear verdicts are a relatively new phenomenon in the insurance industry. While litigants have always faced the possibility of large verdicts in high-stakes litigation, the risk of nuclear verdicts has risen significantly. In fact, a long-term study of nuclear verdicts from 2010-2019 found that the median nuclear verdict increased by 27.5% over the ten-year study period. Interestingly, six states (California, Florida, New York, Texas, Pennsylvania, and Illinois) are responsible for 63% of nuclear verdicts, far greater than their share of the total US population. The term “nuclear verdict” refers to any court award or settlement that is higher than expected, but legal experts officially define a “nuclear verdict” as one that exceeds $10 million. These verdicts often include disproportionally large non-economic damages awards, but the real hallmark of nuclear verdicts is juror anger.

Several causes have contributed to the increase in nuclear verdicts in recent years, but changing societal attitudes toward corporate responsibility stands out as a key factor. In the past, companies were often given the benefit of the doubt in high-stakes litigation. However, an increase in anti-corporate attitudes and unequal wealth distribution due (in part) to the success of corporations and their executives, have led today’s juries to be more likely to side with a plaintiff and award larger damages in an attempt to level the playing field and redistribute the wealth. A large verdict is often a jury’s way of making “an example” out of a defendant to take some power back and slow this trend.

The challenges of the pandemic years have also illustrated bad behavior on the part of some corporations by exploiting inflation, supply chain problems and staffing shortages, as well as appearing to use the pandemic as an “excuse” to provide poorer/lesser/more expensive services. The result is that many jurors extrapolate these examples as applicable to most, if not all, corporations, leaving a bad taste in their mouths. Anger towards corporate behavior like this has become so prevalent in fact, that we now see legislative efforts aimed at dealing with these issues (for example, the “No Surprises Act” which limits or prevents surprise billing in the healthcare insurance industry).

Jurors’ anti-corporate attitudes are also driven by a growing sentiment among many U.S. citizens that things in the country are off track or going “in the wrong direction” (general unhappiness/discontent) as well as in response to the reptile strategy. The reptile strategy, the technique of appealing to jurors’ elemental personal fears to generate anger over corporate safety issues, has been a coordinated effort by the plaintiffs’ bar to increase jurors’ anger at defendants (corporations in particular) based on the premise that companies increasingly favor their profits over the safety of the public. When effectively deployed, this effort capitalizes on jurors’ corporate distrust and creates a feeling of vulnerability in jurors such that they are empowered to protect their community through a large verdict.

The reptile strategy is effective against defendants’ typical “standard of care” arguments because it demands “more” or “the safest option,” for example, regardless of what the law requires. The tactic puts jurors at risk for burden shifting, leading with emotion, and in some cases, taking a punitive tone in their assessment of damages where no punitive claim exists.

Another factor in the rise of nuclear verdicts is the increasing involvement of juries in determining damages. Juries often comprise laypeople who may not have the same level of expertise as judges or attorneys. As a result, they may be more likely to be swayed by emotional appeals or other factors that are difficult to quantify. Because they have little experience and appreciation for what a “reasonable” award is, they are more likely to gravitate towards a potentially extreme damages suggestion from plaintiff’s counsel.

The nuclear verdict trend continues to be perpetuated as jurors hear about other cases with large awards; these once-extreme verdicts become normalized and begin to set a new standard for what juries consider to be reasonable, and the growth of the social media landscape has amplified this effect. This is particularly true as inflation continues to progress at a higher-than-comfortable rate for many jurors.

In some parts of the country, housing prices and cost of living expenses are so high that $1,000,000 is no longer seen as a large number, so a $20,000,000 (or more) award against a corporation feels well within reason, particularly if jurors harbor a negative impression of the defendant or perceive the defendant as having “deep pockets.”

The impact of nuclear verdicts

Nuclear verdicts can have a significant impact on insurance companies and their clients, particularly in the following industries: commercial auto, product liability, directors and officers, medical malpractice, and professional liability. In some cases, the damages awarded can exceed the limits of the insurance policy, leaving the insured to cover the remainder of the damages out of pocket. This can be particularly problematic for smaller companies, which may not have the financial resources to absorb such a large loss.

In addition to the financial impact, nuclear verdicts can also have a reputational impact on insurance companies. When a large verdict is awarded against an insurance company, it can be seen as a sign of weakness or a failure to adequately protect its clients. This can damage the company’s reputation and make it more difficult to attract new clients in the future.

Managing nuclear verdicts

Managing nuclear verdicts is a complex issue that requires a multi-faceted approach. From the ground level, insurance companies can work more closely with insureds to help them identify and mitigate potential risks before they result in a claim. This can involve providing risk management services or offering training programs to help clients better understand their potential liabilities.

Similarly, insurers should take a proactive approach to litigation and witness preparation. During the discovery phase of litigation, encourage defense counsel to educate key witnesses about how to defuse “loaded” questions designed to gin up jurors’ fears.

Insurance companies can also develop more sophisticated risk models that take into account the specific factors driving nuclear verdicts in different types of claims. Most seasoned insurance professionals likely would not attach a $50,000,000, $100,000,000, or more value to any singular plaintiff case, which is why nuclear verdicts can often catch insurance companies off-guard. By understanding the factors that contribute to larger verdicts, insurers can better assess their risk exposure and develop strategies to mitigate that risk. One such example may be challenging collateral source headwinds in states where defendants are barred from reducing the damages the plaintiff receives by the value of the third-party payments already received by the plaintiff.

Finally, early in a case lifecycle, retain defense counsel to begin evaluating the claim from a jury’s perspective. Conduct jury research to help assess the risk of a nuclear verdict in a particular case and gain a better understanding of jurors’ motivations for awarding excessive damages to avoid being blindsided by an unexpectedly large award.  Jurors, who don’t often encounter catastrophic claims or deal in millions of dollars, typically view a case through a more “human” and empathetic lens than a seasoned claims professional may, and it is crucial to understand this difference in perspective.

Because we know that juror anger drives nuclear verdicts, insurers must understand what factors are creating this anger. Jury research will help inform insurers and defense counsel on how to guide discovery, mitigate anger points before trial, and successfully counter the reptile strategy to reduce exposure. It also can help identify strategies to recognize those jurors who will likely be most susceptible to reptilian arguments and thus may be more apt to push for a nuclear verdict.

Nuclear verdicts are a complex and evolving phenomenon that pose significant challenges for the insurance industry. Ultimately, the key to managing nuclear verdicts is to understand what is driving them and how to minimize those effects. By staying up-to-date on the latest trends and working closely with insureds and jury professionals, insurance companies can help to reduce the impact of these large awards and ensure that they are able to continue providing the protection that their clients need.

Taylor Lyden (tlyden@magnals.com) is a litigation consultant with Magna Legal Services, which provides end-to-end legal services to support law firms, corporations, and governmental agencies throughout the nation.

Related:

$10.4M verdict over fatal pedestrian collision includes award against insurance brokers

Nuclear verdicts raise alarm: Preventing legal system abuse

‘They’re just killing us’: Defense Bar confronts rise in nuclear settlements