Key Takeaways

• The increase in nuclear verdicts, with median awards reaching $44 million in 2023, is leading to higher premiums and reduced coverage availability for both personal and commercial insurance lines.
• As the risk of large claims increases, it’s essential for homeowners and businesses to regularly review their insurance policies, increase liability coverage, and consider purchasing umbrella policies for additional protection.
• Implementing safety protocols, employee training, and other risk management strategies is key to mitigating the risk of catastrophic claims and securing appropriate coverage in the face of rising nuclear verdicts.

In recent years, the insurance industry has been facing an increasingly significant trend—nuclear verdicts. These are jury awards that exceed $10 million and are often seen in cases involving bodily injury or liability claims. The rising frequency and magnitude of these verdicts are reshaping the landscape of both personal and commercial insurance lines, contributing to higher premiums, reduced coverage availability, and greater financial risks for policyholders and insurers alike. In this blog, we’ll explore what nuclear verdicts are, why they’re on the rise, and how they’re impacting the insurance industry in New Jersey and beyond.

What Are Nuclear Verdicts?

Nuclear verdicts refer to jury awards that are substantially higher than expected, often surpassing $10 million. These awards are typically seen in personal injury or liability cases, and their growing frequency is a major concern for the insurance industry. In 2023, the median nuclear verdict was a staggering $44 million, a significant increase from the $21 million median in 2020.

Several factors contribute to the rise of nuclear verdicts. One significant factor is social inflation, which refers to the rise in claim costs driven by a more favorable legal environment for plaintiffs. This environment often leads to increased damages being awarded in court. Another key factor is the use of aggressive litigation strategies, such as the “reptile theory”, which aims to appeal to jurors’ emotions and sense of safety, resulting in higher awards. Additionally, third-party litigation funding (TPLF), which enables plaintiffs to pursue high-cost litigation, is further inflating the value of these claims.

These larger verdicts have been escalating over time, with $14.5 billion in total nuclear verdicts awarded in 2023, marking a 15-year high.

Key Statistics to Keep in Mind

To understand the scale of the issue, it’s important to recognize some of the key statistics related to nuclear verdicts:

• $14.5 billion: The total amount awarded in nuclear verdicts in 2023, a 15-year high.
• $44 million: The median nuclear verdict in 2023, up from $21 million in 2020.
• 57% increase in liability claims over the past decade, largely due to nuclear verdicts.
• 38% rise in medical care costs and 40% rise in vehicle repair costs since 2020, further contributing to the higher verdicts and increased insurance claims.

These statistics highlight the sharp increase in the financial stakes for both insurers and policyholders, showing just how much the landscape has shifted in recent years.

The Impact of Nuclear Verdicts on the Insurance Industry

The rise of nuclear verdicts has had profound effects on the insurance industry. As insurers are forced to adjust to these rising risks, several changes have emerged in how coverage is provided and priced.

On a macro level, the industry is witnessing rising claims costs, as insurers must prepare for the possibility of large payouts resulting from these verdicts. The frequency and size of these claims are prompting a hardening insurance market, where insurers raise premiums and reduce coverage options in response to increased financial exposure. This shift is not limited to specific types of insurance; both personal and commercial lines are affected.

Impact on Personal Lines

For homeowners and auto insurance, the rise in nuclear verdicts means higher premiums and more limited coverage options. As insurers adjust to the growing financial risk posed by large claims, policyholders are seeing their insurance costs increase. For homeowners, the increased frequency of large liability claims in states like New Jersey, where plaintiff-friendly environments exist, is a significant driver of higher premiums.

Similarly, in auto insurance, the rising severity of accident settlements and repair costs is contributing to the upward trend in premiums. Repair costs have surged due to factors like inflation and supply chain disruptions, making it more expensive to fix vehicles after accidents. The complexity of modern vehicles, equipped with advanced technology, also drives up repair costs, which insurers must account for when pricing policies.

Impact on Commercial Lines

For businesses, the impact is even more pronounced. Companies, particularly those in high-risk industries like transportation, healthcare, and manufacturing, are facing significant premium increases. The risk of large verdicts is making it more difficult for these businesses to obtain adequate coverage, especially when it comes to high-limit liability policies.

The increased cost of insurance can be particularly burdensome for small businesses, which may have fewer resources to absorb these rising premiums. For businesses in sectors like transportation, where the risk of large liability claims from accidents is higher, the rising cost of coverage is especially concerning.

Moreover, insurers are placing a greater emphasis on risk management practices. Businesses seeking insurance are now expected to demonstrate comprehensive risk management strategies, such as employee safety protocols, safety training, and legal compliance, to help mitigate potential claims. Those that cannot provide this level of assurance may find it difficult to secure the coverage they need.

How Insurers Are Adapting to the Rise of Nuclear Verdicts

In response to the rise of nuclear verdicts, insurers are making significant adjustments to their policies and business practices. One of the most obvious changes is the increase in premiums for both personal and commercial insurance lines. As the risk of large claims increases, insurers are raising their prices to ensure that they can cover the potential cost of these high-stakes verdicts.

At the same time, insurers are reducing coverage or introducing new exclusions to limit their exposure. This may involve scaling back coverage for certain types of claims, especially those in high-risk sectors, or limiting coverage for liability claims that could result in nuclear verdicts.

Moreover, insurers are tightening their underwriting criteria. Businesses and individuals in high-risk industries may face stricter requirements to qualify for coverage, including demonstrating solid risk management practices and safety protocols.

Impact on Policyholders: What Can You Do to Protect Yourself?

Given the rising risks associated with nuclear verdicts, it’s essential for both personal and commercial policyholders to take steps to protect themselves.

For Personal Lines:

Homeowners and auto policyholders should regularly review their coverage to ensure it meets their needs. With rising premiums, it may be worthwhile to increase liability coverage limits to protect against large claims. Additionally, umbrella policies—which provide additional liability coverage beyond the limits of your standard home or auto policy—can offer extra protection in the event of a nuclear verdict. Implementing safety measures, such as installing home security systems or practicing safe driving, can also help mitigate risks.

For Commercial Lines:

Businesses must be proactive in managing risk. Implementing effective risk management strategies, such as employee training, compliance with safety regulations, and regular safety audits, can help reduce exposure to large claims. Businesses should also consider purchasing umbrella policies to provide an extra layer of coverage for large liability claims, especially those that could result from a nuclear verdict. Working closely with insurance brokers to ensure the right coverage limits and risk management strategies are in place is also critical.

Conclusion

Nuclear verdicts are reshaping the insurance landscape, driving up premiums, reducing coverage availability, and increasing financial risks for policyholders. Whether you are a homeowner or a business owner, understanding the implications of these rising verdicts and taking proactive steps to protect your coverage is crucial. By reviewing your policies, increasing liability coverage, and implementing sound risk management practices, you can ensure that you are prepared for the challenges posed by the increasing prevalence of nuclear verdicts.

FAQs

1. What exactly are nuclear verdicts, and how do they affect insurance?

Nuclear verdicts refer to extremely high jury awards, typically exceeding $10 million, often seen in personal injury or liability cases. These verdicts are becoming more frequent and have a significant impact on the insurance industry. Insurers must adjust to the growing financial risk of these large claims, which results in higher premiums and reduced coverage options for policyholders. Additionally, industries and individuals in high-risk sectors are seeing stricter underwriting and increased premiums.

2. How can I protect myself from the rising costs of nuclear verdicts in my insurance?

To protect yourself from the financial impact of nuclear verdicts, it’s important to review your coverage regularly, especially your liability limits. For homeowners and auto insurance, increasing your liability coverage can help protect against large claims. Consider adding umbrella policies, which provide additional liability coverage beyond your standard policy limits. For businesses, it’s essential to implement strong risk management practices and ensure that your coverage limits are sufficient to cover potential high-limit liability claims.

3. Are umbrella policies a good option for both personal and business insurance?

Yes, umbrella policies are an excellent option for both personal and business insurance. These policies provide extra liability coverage above the limits of your standard home, auto, or commercial insurance. In the case of a nuclear verdict, umbrella policies can help cover the difference between your standard coverage and the large claims that may arise. For businesses, umbrella policies are particularly valuable in sectors with high exposure to liability risks, offering extra protection for catastrophic claims.