Social inflation and early intervention
Nuclear verdicts and social inflation are critical challenges for all litigation and claims executives. In February of 2020, Bob Tyson, managing partner of the California-based law firm Tyson & Mendes, wrote an article for CLM magazine outlining the ever-growing problem with runaway jury verdicts. Bob is well versed in this topic, having just published an entire book on the subject: “Nuclear Verdicts: Defending Justice for All” (available on Amazon).
On the most immediate level, it means (as Bob shows many examples of) that individual cases can all of sudden spiral out of control, resulting in unexpectedly high verdicts.
One potential cause for these high verdicts is of course that jurors, from a societal perspective, are now continually exposed to huge dollar figures as compensation (or as punishment) for certain civil actions. Million-dollar verdicts barely make the news now. Billions are being awarded. TV is full of law firm ads that feature clients who say how much they received in compensation.
This is social inflation. What was once enough is now not enough. Social inflation has raised the price of what was once considered appropriate compensation, and just like economic inflation it affects all businesses with litigation.
At a higher level though, these nuclear verdicts have the potential to raise the value of all litigated disputes. If juries no longer are reluctant to balk at very high awards and if litigation professionals can’t depend upon juries to apply “reasonable” numbers, perhaps the next case should be valued at a higher number. Maybe I, as a claims professional, should pay more money to get the certainty of a settlement, rather than the roll of the dice in front of a jury.
So how are these high amounts triggered in a jury? All of this reaches back the effective use of the Reptile Theory, which focuses on a jury’s emotion, mostly anger, pushing jurors toward exorbitant awards by portraying defendant organizations as profit-focused and unfeeling. With numerous examples to call on, it appears that the tactic is working, and will continue on this course for the foreseeable future.
What can be done to effectively mitigate this problem? Tyson sees the defense industry as one that’s slow to change, traditionally focused on fighting liability at all costs, too often relying on hope as a strategy.
So what can the insurance industry do to combat this trend? In our view, the risk can be mitigated in two core ways:
- Achieving higher visibility into the litigation process and strategies on individual files; and
- Making sure to identify which cases have core attributes that lend themselves to nuclear verdicts.
Here are five questions you can ask yourself about your current litigation practices:
- How often do your litigation management leaders dig into the details of their ongoing cases?
- How easy is it to see the entire defense strategy clearly outlined in one place, with all next steps and responsibilities clearly delineated
- Are your claims handlers communicating effectively and clearly with defense attorneys?
- Have you established key triggers in your case evaluation process that would flag a file with the potential to trigger Reptile Theory arguments?
- Are you maintaining and consistently updating data regarding your outside counsel to understand who best to assign a case to reach a favorable settlement?
At CaseGlide, we’ve seen our more successful clients pursue a number of tactics to resolve their litigated files more quickly and with better outcomes. First, they optimize their litigation process by deploying strategic tracks and associated workflows. This ensures that their processes are followed closely and they drive more efficiency and see more positive settlements as a result.
Second, they understand the importance of clearly organizing file information into more usable data points. Gone are the days (for them) of cutting and pasting from emails. Email was never designed to be an effective document management solution or functional activity tracker, or calendaring tool. Instead, document repositories, activity hubs, key litigation event management and scheduling, and task management tools all mean that no case is going to spiral out of control. There are no surprises.
Lastly, they understand the power of data-driven attorney selection and overall outside counsel optimization. Utilizing historical results and pinpointing the right attorneys for the right claims can substantially increase an organization’s likelihood for a positive outcome and/or early settlement. Which attorneys get the best results? The earliest settlements? These customers understand the effectiveness of knowing the answers to those questions.
There doesn’t look to be a near-term solution for social inflation. However, as juries continue to turn out nuclear verdicts against both large and small organizations, claims and litigation leaders do not need to rely on hope as a strategy. Instead, by closely defining and measuring what they do and how they do it, they’re using data to help drive crucial resolution decisions and leaving less to chance.