Nuclear verdicts have been a consistently increasing theme in trucking over the past several years and the heat and pressure on carriers from rising insurance premiums appears to have no end in sight. This is despite the fact that the number of deaths and injuries from accidents involving large trucks have been declining (down double digits year-over-year as of the latest count).
A nuclear verdict is defined as a jury award in which the penalty exceeds $10 million (though there are several alternate definitions that are more intricate as I describe later). Rising insurance premiums and nuclear verdicts are often cited in carrier bankruptcies as the primary causes for shutting down. In addition, the growing trend of juries awarding nuclear verdicts have forced some insurance providers to exit the trucking industry altogether.
Nuclear verdicts are changing the face and complexion of the trucking industry. Economists often argue that there is little to no inflation in the economy, with consumer price index (CPI) readings consistently registering below 2%. The inflation deniers must have never looked at trucking insurance; it is not unusual for premiums for a smaller fleet to rise 50 to 100% or more in any given year (while overall premiums are growing roughly double digits by my math). The inflation of trucking insurance rates makes healthcare inflation (which makes endless media headlines for being out of control) look downright paltry in comparison.
For an industry with profit margins that average just 5%, insurance as a cost line item (now averaging 3 to 4% of revenue) doubling every few years is an enormous problem and represents a systemic risk. With the end of 2019, estimates are that trucking bankruptcies nearly quadrupled compared to 2018. Even worse, this trend is growing ad infinitum, with nuclear verdicts continuing to grow in both prominence of occurence and absolute dollar amounts. If trucking insurance rates continue to inflate at recent levels, a significant portion of the industry may no longer be "going concerns" and be at risk of going out of business. The potential negative impact of nuclear verdict risk is that dramatic.
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One challenge of analyzing and predicting nuclear verdicts is their intangible nature. They are often so disconnected from reality in terms of the award amounts compared to actual economic damages that there are no computers or algorithms that can be effectively employed for forecasting or managing risk.
At the most basic level, the plaintiff's primary strategy is to trigger the reptilian, emotional side of jurors' brains while the defense's strategy is to counter by appealing to facts and rationality. Whichever side is most effective in influencing the jurors wins. And if the plaintiff attorneys win in the sense that they have really "triggered" the jurors, there is theoretically no upper limit on the potential verdict – leading to runaway inflation in insurance premiums. The open sharing of best practices among plaintiff lawyers is magnifying this phenomenon, creating fast followers and thus nuclear verdicts that are rapidly growing in number.
This is certainly not to say that carriers are usually innocent or not often well-defended by highly prestigious and expensive defense attorneys (they often are). But the rising incidence of nuclear verdicts is indisputable. When civilians die or are permanently injured in an accident involving a large truck and there are dependents that need to be cared for, a large remuneration is absolutely necessary and justified.
(Photo credit: Shutterstock)
But what is the proper amount to measure the loss of human life? Is it seven figures? Eight? Nine? This is a very difficult question to answer and represents why nuclear verdicts are such an important and relevant topic. The numbers are trending ever higher and at some point the trucking industry will reach a tipping point where something has to give: insurance becomes unaffordable and carriers go out of business, insurers exit the market or insurance premium inflation eventually levels out because the underlying nuclear verdicts do too. Perhaps defense attorneys will devise their own clever strategies to quell the tide. Time will tell.
What Is A Nuclear Verdict?
As noted above, a "nuclear verdict" is commonly defined as a jury award of $10 million or greater. However, this definition is simplistic and bears further clarification. Upon further reflection, I believe there are two classifications of a nuclear verdict – one numerical (a $10 million or greater jury award) and one based on the outcome relative to expectations (e.g. if "x" is the expectation a priori but the jury award is 5-10x ex-post).
A key distinguishing factor of a nuclear verdict is that it is disproportionate in terms of having little to no relation to a plaintiff's actual economic damages, meaning the majority of the award is due to punitive and compensatory damages. Therefore, one good way to summarize a nuclear verdict is an award that is significantly higher than would be expected given the injuries in the case, compared to any particular threshold.
Why Do Some Cases Go To Court In The First Place?
First, to prevent any confusion, my research shows that only about 5% of cases go to trial. In other words, the vast majority of cases do not. When it comes to blockbuster nuclear verdicts relative to commercial vehicle accident-related deaths in the U.S. (approximately 5,000), it is a miniscule number (maybe five to 10) of massive nuclear verdict cases per year. However, a handful of nuclear verdicts is enough to drive double digit annual insurance inflation for the entire trucking industry.
Viewed from the defense side, cases often go to court because some defense lawyers want to make a name for themselves. Reputations in law are based around trial experience and lawyers can be opportunistic. While it is risky to try, the reward for winning can be a career-maker in some cases. In general, however, the rising trend of nuclear verdicts is causing more defendants in severe injury and death cases to choose to settle because otherwise they risk being liable for a nuclear verdict.
From the plaintiff side, their obligation is to the client. In cases with large medical bills, until the trucking company and its insurance firm(s) offer enough to adequately cover the cost of the bills, there is no risk in going to trial. From the plaintiff's perspective, the needs of the client are of utmost importance. If the needs of the client are not met, going to court is the only option.
On the insurance side, many times the insurance company will want to go to trial even when the trucking company does not want to. Critics argue that rising nuclear verdicts and cases going to court are due to insurance companies being unreasonable and increasingly refusing to accept fair pre-trial settlement offers , instead opting to gamble on their chances of winning in court. Thus, critics contend that insurance companies could avoid nuclear verdicts and pay out far less by simply agreeing to settle. Legal experts say that insurance companies and the defendant's executives usually control the settlement process and not the defense attorneys.
Why Do Nuclear Verdicts Occur And Why Are Award Amounts Increasing?
Nuclear verdicts typically occur because the jury determines that the defendant is willfully or purposely denying any responsibility or involvement in the accident.
The proliferation of nuclear verdicts in trucking has really gained steam over the last decade or so. The Wall Street Journal recently published an article analyzing data from VerdictSearch that reports a more than a 300% increase in the frequency of $20 million-plus verdicts in 2019 from the annual average from 2001 to 2009. The trucking industry is no different – Alan Pershing, CEO of CaseMetrix, a database of court verdicts and settlements primarily in the southeast, says, "…there are five times as many verdicts that are $20 million-plus in the last five years compared to the prior five years (2010-2014)."
A big reason nuclear verdict settlement values are increasing is due to the rampant underlying medical bill inflation that must be covered. Other reasons include an effective shifting of strategies by plaintiff attorneys (Reptile Theory) as well as the highly publicized nature of major large trucking accidents. Plaintiff's lawyers are increasingly moving away from blaming individual drivers to blaming a lack of systemic corporate oversight and adequate safety procedures and regulations.
Another huge driver is an increasing punitive damage component in these nuclear verdicts, whereas in the past there was more correlation to a formulaic approach based on economic costs incurred by the plaintiff. There is also the now widely accepted societal expectation implicit in nuclear verdicts that verdicts should sustain plaintiffs and their dependents for the remainder of their lives, in addition to providing monetary compensation for suffering.
Regarding plaintiff strategy, the overriding conclusion that I found in my research is that plaintiff lawyers are much better connected and collaborate to a much higher degree than their defense counterparts. This is strategic in nature and driven by the common good on their behalf. On the plaintiff side, what is best for the individual attorney is best for the group.
Furthermore, before trial, plaintiffs will often go to defendants to determine their policy limits and then target that number for awards to avoid going to trial. When this is not effective and the defendant (or its insurer) refuses to settle, plaintiff attorneys typically employ one of four primary strategies in the courtroom to obtain nuclear verdicts, as explained below.
Reptile Theory: The Primary Plaintiff Strategy
What is Reptile Theory? It is the principal strategy of plaintiffs and when employed, plaintiffs attempt to activate the jurors' reptilian brains and send them into survival mode – where they look to protect their genes and process information presented to them using emotions.
A byproduct of Reptile Theory is that the jurors feel personally threatened and fear for the safety of the community. The courtroom becomes viewed as a safe place (which they seek when they sense they are in danger) and awarding damages is believed to increase safety and decrease danger.
Gamesmanship is defined as games played by the defense; the jury comes to perceive that the defendant is not fully accepting responsibility for what occurred. This scenario is often painted as a large greedy corporation emphasizing profits over the public's safety.
"Anchoring" is another strategy employed by plaintiff attorneys in which they start by tossing out a gargantuan, unreasonable number and then get the jurors to focus (or "anchor") on that number as a baseline expectation. By anchoring around such large numbers, juries will often then tweak the large value up or down depending on how angry they are. At least this is the hope of the plaintiff's attorney.
The "Dirty Five"
The "Dirty Five" generally refer to the following:
- Distracted driving
- Driving under the influence of drugs and/or alcohol
- Lack of equipment maintenance
- Inexperienced/improperly trained driver
If a plaintiff attorney can effectively prove or demonstrate any of the above took place, the potential for a nuclear verdict grows significantly.
Defense strategy is primarily organized around pre-trial preparation and selection of the jury and witnesses, the "Primate Brain" strategy and offering counter numbers.
The Primate Brain strategy is a way to defend against Reptile Theory and refers to appealing to jurors' intelligence and reason, rather than their emotional side. By doing so, this strategy attempts to flip Reptile Theory on its head and make it backfire. If the plaintiffs' strategy is to emphasize the frequency and danger of the risk, the defense attempts to prove the opposite. Also, in response to plaintiffs attempting to demonstrate corporate greed and fat cats with deep pockets, defense attorneys can effectively combat the Reptile Theory by attempting to demonstrate that the defendant is a caring corporate citizen.
Another particularly important strategy for the defense is "motions in limine," which is when the defense files a motion to exclude certain reptilian evidence from being admissible during the trial at all. This approach cuts off the Reptile Theory before it can even be attempted and is sometimes effective if the judge grants the motion.
A final strategy that is apparently effective and growing in momentum is offering counter numbers when plaintiffs throw out an unreasonably high anchor number. This strategy is often seen by defense attorneys as unorthodox or counterintuitive because it may seem that by offering counter numbers that a defense attorney is conceding or giving in. In cases in which plaintiffs employ a high anchor number, defense attorneys almost never counter with a number in response. But, maybe they increasingly should, or that is what the evidence demonstrates at least.
Whether the trucking industry hates it or wants to debate the inherent fairness, nuclear verdicts are a reality and increasingly a way of life. This fact will not be changing and soon the liability and risk will spread to brokers and shippers in my view.
I believe the most effective strategy for avoiding a nuclear verdict is an avoidance strategy whereby carriers acknowledge responsibility and settle – not legal skill or tactics in court. It is also paramount that carriers, brokers and shippers have the proper procedures and training in place that will help protect them to the greatest degree possible.
Large payouts in trucking death- and injury-related accidents are statistically unpreventable in my view and a cost of doing business in trucking. However, exposing oneself to the asymmetric, unlimited risk from a nuclear verdict is only possible if the defendant or its insurers insist on going to court.
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