Changing the Focus of Claims, Data When Talking About Nuclear Verdicts

The topic of nuclear verdicts took center stage at this year’s Target Markets Annual Summit in Scottsdale, Arizona, where a panel of carriers and reinsurers discussed rising settlement costs amidst an uncertain litigation environment.

Panelists representing Lloyd’s, Markel, MunichRe and TransRe shared how the insurance industry can combat social inflation through early identification of potentially severe claims and working together to share settlement data.

Nuclear verdicts, which are defined by the industry as a verdict of at least $10 million, reached an all-time high in 2023 with a median average value of $44 million, according to a report by Marathon Strategies. While the overall frequency of nuclear verdicts hasn’t risen dramatically, panelists said, the severity of bad claims has, catching insurers off-guard.

“The nature of a nuclear explosion is the person who is launching [the suit] knows it’s coming. The person that gets it has no clue,” said Carey Bond, head of U.S. claims, Lloyd’s. “In a similar fashion, when we see nuclear verdicts happen in the insurance industry, it’s a matter of in some cases a claim that seems run of the mill and the next thing you know you’re staring down a multimillion-dollar verdict.”

Types of Claims

The types of claims that develop into nuclear verdicts have changed in the last six years, said Mia Finsness, managing director, global casualty underwriting and claims, Markel. In the past, enormous verdicts usually were mass tort cases with hundreds or thousands of plaintiffs. Now it’s not uncommon for a single plaintiff to receive $100 million.

Claims that would have historically been captured in a primary layer are now into the umbrella layers. “You’re seeing especially for excess and umbrella lines, those really are the lines that are being most affected here, not only because of that increase in severity but also because those lines have the most limits deployed,” Finsness said.

It can seem that almost any bad claim now has the potential to reach a nuclear verdict, said Richard Henderson, senior vice president, TransRe. The reinsurer has tracked claims severity for the last 20 years and seen verdicts skyrocket during that time. Henderson, who manages TransRe’s medical malpractice claims team, said the unit was averaging one $10 million verdict per week by 2019.

After the Covid-19 pandemic, there was a theory that the public would gravitate towards having greater empathy towards medical professionals, said Henderson. “That lasted about 30 seconds,” he said.

Not only did the frequency of nuclear verdicts return to pre-pandemic levels but the severity of those verdicts also grew. Henderson said the proportion of medical malpractice verdicts to reach at least $25 million is now over 50%, whereas verdicts used to land around $10 million.

As the median nuclear verdict continues to increase, “definitionally it almost doesn’t make sense to call the threshold $10 million anymore,” said Bonnie Guth, head of government affairs, MunichRe.

Marathon Strategies this year introduced the term “thermonuclear verdicts” to define verdicts of at least $100 million, of which there were more than two dozen in 2023.

Venues

Another change in how insurers and reinsurers now view nuclear verdicts is looking past the venue of a claim, according to Finsness. Cities or states that previously might have been considered favorable places to fight a case are difficult to predict.

“You can’t rest on your laurels,” said Finsness.

Claims teams are spending more time focused on the nature of injuries and whether they’re the type of claim that warrant more nuclear verdict potential.

Finsness said casualty underwriters similarly need to do their due diligence writing risks and not rely on the reputation of a particular jurisdiction.

“What you’re putting on the books today, you won’t know what the litigation environment affecting that claim is until years down the road,” Finsness said. “It’s very hard to know underwriting something today, ‘Okay based on this litigation environment in these states I feel comfortable writing this’ because they could change. The laws could change. There could be a bad Supreme Court decision.”

Combatting Nuclear Verdicts

Panelists agreed that insurance companies face an uphill battle in their effort to push back against nuclear verdicts as the plaintiff’s bar becomes better skilled and well-funded.

Plaintiff’s attorneys will often persuade jurors to award enormous verdicts by arguing insurers are threats to the public that need to be punished. The tactic, known as the reptile theory, taps into people’s worst perceptions of insurance companies, said Bond.

“You as a plaintiff, you have a duty to protect everybody else from this very bad insurance company,” said Bond. “That’s the battle we have to fight as we go into the defense of a possible nuclear verdict.”

Reinsurers often get a close-up view of the different ways insurers approach the same case whether it’s insurers as co-defendants or on the same tower, said Henderson.

Some insurers follow a checklist of what they’ve done for the past 20 years while others are saying “we need to change this up, we need to think outside the box,” said Henderson.

“The companies that reach out and say, ‘Have you seen this attorney? Have you seen this pattern?’ Basically, they’re asking questions with us, and that’s something that’s very important.”

Henderson added, “The plaintiff’s bar has adjusted, and we haven’t adjusted a lot of the time on the defense.”

The fight in the court room can happen well before a case makes its way to trial, according to panelists. Insurers are often competing against plaintiff’s attorneys that benefit from third-party litigation funding and mass advertising.

MunichRe’s Guth said the industry has been engaged at getting third-party litigation funding disclosure and developing rules for how plaintiff’s attorneys can advertise.

“Having early attorney involvement, even if they’re hidden, seems to be driving the claims” said Guth. “A lot of that early attorney involvement, especially for some of the bigger firms, is coming from the vast amount of advertising that they’re doing.”

Furthermore, the plaintiff’s bar is successful at collecting and sharing data from cases, whereas the insurance industry is still finding ways to tap into available analytics.

Information is out there but not easy to find.

In the casualty space, insurers face the challenge of limited information coming from confidential settlements.

“As an industry, you see what you see in your own little world, but I think getting all this data collectively is really important so that we can really evaluate what true loss trends are,” said Finsness.

Ending the panel on an optimistic note, Lloyd’s’ Bond pointed to the number of insurtechs capable of supporting the industry with third-party products.

“All these whiz kids can gather data from wherever they get it and synthesize it into a product that we can use within the industry,” said Bond. “I think that is one of the best avenues we have to get to the data that will help us make better underwriting and claims decisions.”