Nuclear verdicts of $10 million or more are increasing, according to a new report from the U.S. Chamber of Commerce. Between 2013 and 2022, the average nuclear verdict was $89 million; half were between $10 million and $20 million, a third were between $20 million and $50 million, and 19% were considered “mega” nuclear verdicts at over $100 million, Insurance Journal reported.
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“It is not a shock in the slightest that this is going on, specifically in the U.S.,” said Jordan Muckway, Manager, Commercial Insurance, Burns & Wilcox, Dallas/Ft. Worth, Texas. “Once you have one verdict that hits that level and makes headlines, it is a snowball effect.”
The trend reinforces the importance of Commercial General Liability (CGL) Insurance and Excess Liability Insurance to help cover large losses, though the large verdicts can also make these policies more costly and potentially more restrictive.
Once you have one verdict that hits that level and makes headlines, it is a snowball effect.
“Affordability of liability insurance is one problem as a result of these huge nuclear verdicts, and then another result might be the unavailability of liability insurance in some cases,” said Ken Brooks, Senior Underwriter, Commercial Insurance, Burns & Wilcox, Tampa, Florida. “Business owners may not be able to afford insurance anymore.”
‘Anybody doing business’ could face nuclear verdict
Based on preliminary data from the U.S. Chamber of Commerce Institute for Legal Reform, the median nuclear verdict in 2023 was $23.8 million, Risk & Insurance reported June 11. Nuclear verdicts were most common in cases involving product liability, auto accidents, medical liability, and premises liability, the chamber’s report noted.
Affordability of liability insurance is one problem as a result of these huge nuclear verdicts, and then another result might be the unavailability of liability insurance in some cases
For product liability, specifically, the median nuclear verdict in 2022 was $36 million, representing a 50% increase over the past 10 years, Insurance Journal reported. Earlier this month, a judge in Pennsylvania reduced a $2.25 billion verdict against Bayer over its Roundup weedkiller to $400 million, according to Reuters. In May, Johnson & Johnson said it would move forward with a $6.48 billion proposed settlement of tens of thousands of lawsuits over its baby powder and talc products being linked to ovarian cancer, Reuters recently reported.
No industry is immune to the risk of a nuclear verdict, however. “Anybody doing business in any realm could open themself up to a nuclear verdict in today’s world,” Muckway said. “With social inflation, the media platforms we have at our fingertips, and the way lawyers are advertising and spreading the idea that individuals can obtain more money in a lawsuit than they have before, it can happen to any segment for any business.”
Still, some may be more vulnerable than others, he said. “We have seen it on the liquor liability side, which relies heavily on the state and venue of the operations, as well as the construction industry,” Muckway said.
It is just a matter of what the courts do. In any high-severity operation in which a death or bodily injury could occur, you are going to see those nuclear verdicts occur more regularly. You cannot fully control all of your risks.
In December of 2021, a jury in Texas awarded the family of two drunk driving victims a verdict of over $301 billion, the largest-ever personal injury compensation in the country, CNN reported at the time. In 2021, a jury in Boone County, Kentucky, ordered a construction company to pay $74 million to the children of a woman killed in a 2019 auto accident, according to the Cincinnati Enquirer.
Business owners should know that “a nuclear verdict can really happen in any situation,” Muckway said. “It is just a matter of what the courts do. In any high-severity operation in which a death or bodily injury could occur, you are going to see those nuclear verdicts occur more regularly. You cannot fully control all of your risks.”
Impacts on insurance
Nuclear verdicts have been a growing trend for the past several years, Property Casualty 360 reported in 2023. In response to these extreme verdicts, insurance carriers are often forced to increase rates, whether on Products Liability Insurance for product manufacturers, Truckers Auto Liability Insurance for transportation companies, or other policies. In some cases — for example, gas stations in areas with higher crime rates — it may be extremely difficult to access some types of premises liability coverage, Brooks said. “In Florida ZIP codes with a certain crime score, you cannot get insurance anymore for assault and battery,” he said.
In other cases, insurance policies may begin to have more exclusions, according to Brooks. “The number of pages in these policies continues to grow,” he said.
As verdicts continue to grow, “that is naturally going to drive the insurance rates up,” Muckway added. “Carriers are going to be less likely to offer as high of limits, and the limits that are offered are going to be at a higher premium,” he said. “Somehow, some way, the insurance companies have to be profitable in order to stay around and be able to survive if there were to be a large nuclear verdict. When you look at it from a carrier’s standpoint, a nuclear verdict could put a carrier out of business quickly.”
There are lots of solutions for Excess Liability Insurance, so shop around and make sure your broker has approached all of the different excess markets.
When a verdict exceeds a business owner’s insurance limits, the company would be left to pay the remainder out of its own funds, which is why Excess Liability Insurance is so important. “Excess limits are affordable,” Brooks pointed out. “There are a lot of solutions for Excess Liability Insurance, so shop around and make sure your broker has approached all of the different excess markets.”
Although nuclear verdicts are unpredictable, regularly reviewing insurance coverage with a knowledgeable broker is key, Muckway said. “For a business owner, one of the first steps I would suggest is to review what you currently have from an insurance perspective. Talk with your insurance broker and really do a deep-dive on the coverage and limits you have,” he said. “Look at it not from the angle of what you are required to carry by contract or what the bank is requiring, but more so whether it is adequate for the business you have running. I do not think anyone can predict or even combat a nuclear verdict. We live in a society that is very sue-happy. That is kind of the cost of doing business. You take that risk.”
Ultimately, Muckway said, “insurance is risk transfer,” but it can only take a business so far amid the risk of a nuclear verdict.
“Not all risks can be fully transferred in their entirety. Just because you have insurance does not necessarily mean you are 100% fully backed in a situation or scenario,” he said. “There is a risk and a cost to doing business. Some of that responsibility ends up falling on the business owner doing things properly, taking on loss control measures.”
How companies can move forward
By prioritizing quality control and safety, companies can reduce their risk of a serious claim and improve how they may be assessed by insurance carriers for both coverage and rates, according to Muckway. “Do not look at insurance as your end-all, be-all. Insurance companies do want to see you providing some form of mitigation and safety checks to ensure you are not the one they have to defend in a nuclear verdict claim,” he said. “The more information you can provide and mitigation you can do as a business owner to ensure you are not going to be on the other end of a nuclear verdict, the better off you are going to be.”
This may include reviewing internal processes and hiring guidelines, staying up-to-date on state and federal regulations, and ensuring any subcontractors working on your behalf are also following regulations. “Document everything, and get ahead of anything that could be a potential area of negligence,” Muckway said. “Look at anything that could come back to you.”
In the meantime, existing business owners should remember to “cross your T’s and dot your I’s 100%,” Muckway said. “That is super important right now in a way we have not seen before,” he said. “Everyone is looking to point a finger. You do not want to be the one being pointed at.”
