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From trucking accidents to medical malpractice claims and employment discrimination cases, eye-popping damages are raising alarms for businesses and insurance carriers.
These awards are known as “nuclear verdicts,” an exceptionally high monetary award exceeding what most consider reasonable.
While some states limit punitive damages, others, including California, have no limits, so punitive multipliers can and often do reach double-digits of the underlying damages.
In two California employment lawsuits in late 2021, punitive damages assessed to Tesla were 18 times the underlying damages, while the multiplier facing Farmers Insurance hit 27 times. The jury in the Farmers trial reached its verdict in less than 40 minutes.
Growing Nuclear Verdicts
According to the MPL Association Data Sharing Project, the number of $1 million awards has increased over time. Between 2016 and 2018, 12% of verdicts exceeded $1 million. Additional data showed that the average verdict severity climbed by 50% between 2016 and 2019 to $23 million.
It’s not just verdicts that are on the rise. According to Allianz, there were 77 court-approved class action settlements in the U.S. totaling $4.2 billion in 2020, doubling in value from 74 settlements worth $2.1 billion in 2019.
Litigation Trends
Litigation financing as a business model contributes to large verdicts. That is where third-party investors provide capital to law firms in return for a portion of the financial recovery once the personal injury or liability lawsuits get resolved.
According to Bloomberg, hedge funds, private equity, and sovereign wealth funds turned litigation financing into a $39 billion global industry in 2019.
These litigation trends are one aspect contributing to “social inflation,” which refers to all the factors in which insurers’ claims costs rise over and above general economic inflation. Other factors contributing to social inflation include aggressive strategies of plaintiffs’ attorneys, changes to the perception of the value of money, a backlash against tort reform, and a growing mistrust of big business.
In a commentary for Best’s Review, head of U.S. national accounts for Zurich Paul Horgan wrote, “Just a few years ago, the top verdicts in the United States were measured in the millions of dollars, according to data compiled by TopVerdict.com. Today, it’s in the billions.”
Horgan believes corporations must pressure state and federal legislators for help.
“It’s a trend that will cause insurance rates to rise and capacity to shrink. Without a strong defense, nuclear verdicts will become the norm, and the fallout will be devastating,” Horgan wrote.
