From 2010 to 2019, the average award for general liability verdicts increased by 224%. Since then, the cost of corporate nuclear verdicts has continued to rise to an average of $23.8 million in 2023.
Out of the top five risks business owners must watch for in 2024, nuclear risk shows no signs of slowing down. While it’s a problem for almost every industry, the challenge is especially pressing in commercial auto, product liability, directors and officers, malpractice insurance, and professional liability cases.
Here’s what business owners need to know about nuclear verdicts and how they can mitigate risks for a more resilient future.
What are nuclear verdicts?
Nuclear verdicts refer to jury awards exceeding $10 million, often during trials for personal injury or wrongful death. The civil justice system was originally established to address individualized disputes fairly. However, the system has seen more of these massive jury awards, generally caused by legal strategies and sympathetic juries. There are three types of damages awarded:
1. Economic damages
These damages are intended to compensate the plaintiff for actual losses due to the defendant’s actions or negligence. They’re designed to make the injured party “whole” again. For example, if a person is severely injured in a catastrophic accident, compensatory damages would cover the costs of medical bills and ongoing care.
2. Non-economic damages
As the name suggests, non-economic damages cover intangible losses that don’t have a clear monetary value. They compensate for suffering that can’t easily be calculated in dollar terms. This could include:
- Disfigurement or permanent disability
- Emotional distress
- Loss of enjoyment of life
- Pain and suffering
For instance, if a plaintiff has chronic pain or severe emotional trauma after experiencing a life-altering accident, they may receive non-economic damages to account for their impacted quality of life.
3. Punitive damages
Awarded to punish the defendant for particularly reckless, malicious, or egregious behavior, punitive damages are designed to deter others from similar conduct. Unlike compensatory damages, punitive damages are not intended to compensate the plaintiff but to send a strong message to the defendant about the consequences of their behavior.
This type of award is often granted in cases where a company is found to be grossly negligent, like failing to address safety violations. In these cases, punitive damages might be imposed in addition to compensatory awards.
The result of social inflation
In some instances, nuclear verdicts exceed $10 million. From 2022 to 2023 alone, the median verdict rose by 27% in the United States. As a result, “thermonuclear” verdicts—those over $100 million—have become more common.
Courts have seen an increase of these high-payout cases in recent years, making them a massive concern for business owners. A nuclear verdict can put companies on shaky ground, raise costs for consumers, and prolong the lawsuit process. The financial strain caused by these judgments can lead businesses to increase product or service prices as they attempt to absorb the costs or cover higher insurance premiums. In some cases, small- and mid-sized companies might not survive the blow of a nuclear verdict, leading to closures and job losses.
Social inflation and changes in how society views corporate responsibility contribute to these types of cases. As more people distrust large organizations, juries are more likely to award significant compensatory and punitive damages.
Factors leading to nuclear verdicts
Social inflation impacts how many nuclear verdicts are determined annually. However, several elements can lead to massive jury awards, including:
The reptile strategy
This is a legal strategy used by a plaintiff’s attorney to maximize damage awards. It instills fear and anger among jurors, promoting a jury verdict based on instinct rather than logic. Anchoring bias can keep a trial focused on juror anger and frustration, making it difficult to look at other areas of a claim. Decision-makers are more likely to award higher damages if they feel a strong emotional connection to the plaintiff, especially if perceived as vulnerable and sympathetic.
Attorneys using this tactic aim to frame the case to make the jurors feel personally threatened by the defendant's behavior, driving them to take action in the form of hefty awards.
Severity of the case
Cases involving severe injuries, fatalities, or egregious conduct tend to result in higher awards. The more serious the harm or the more outrageous the defendant’s conduct, the greater the likelihood that a jury will award a substantial amount. Jurors are often influenced by the visible suffering or loss experienced by the plaintiff, and cases with dramatic or tragic details can evoke a sense of moral responsibility to compensate for the harm caused.
Defendant’s conduct
As social inflation rises, people want companies to be held accountable for their actions. If the defendant is found to have acted with gross negligence, recklessness, or intentional misconduct, juries are generally more likely to punish with a large verdict. Public sentiment toward corporate accountability has evolved, and jurors may feel a sense of duty to deliver a message through large financial penalties. This is especially true when the defendant’s actions show a blatant disregard for safety or well-being.
How Marsh McLennan Agency can help
To mitigate the impact of nuclear jury verdicts, businesses must implement risk management practices. This includes strategies like having a plan for every case and treating each incident as if it could substantially threaten the longevity of the business. It’s also vital to recognize the shifting societal attitudes impacting the litigation environment and make changes to processes proactively. Business leaders should protect their organization and employees with risk transfer mechanisms like general liability business insurance to act as a safety net against harmful financial losses.
Business owners aren’t strangers to risky landscapes. However, by working with a trusted partner, teams can be better prepared for whatever happens next.
Nuclear verdicts and social inflation aren’t the only trending risks. Dive into other topics that should be at the forefront of your mind this year. Download our 2024 Business Insurance Trends report today to learn what risks your company may face and how to remain resilient amid uncertainty.
