Nuclear verdicts: how can insurers protect themselves?

How can insurance carriers protect themselves against the rising tide of 'nuclear verdicts', and what should they do if the worst comes to pass?

So-called 'nuclear verdicts' – jury trials that result in an award of at least US$10mn – are the latest problem troubling corporate America. These excessive verdicts, sometimes driven by anger and resentment stoked during the trial, can include punitive damages that are grossly disproportionate to the economic damages awarded in a case. Eventually, it's a problem that will come back to haunt a business' insurer. It may be them who has to fork out for sky-high costs, and it has a knock-on effect on the price of premiums.

What can insurers do to mitigate against the risk of nuclear verdicts among their insureds? We spoke to trial attorney and author Robert Tyson, who is Managing Partner at Tyson & Mendes and one of the founders behind a new tech solution called NaVel that can help insurers detect nuclear verdicts before they blow up.


Can you tell us what signals NaVel uses to determine whether a claim is going to become a nuclear verdict?

Like all machine learning products, NaVel was created by data scientists and computer software engineers, sourcing hundreds of thousands of closed claims files to create a superior algorithm. But what separates NaVel from other severity models or litigation propensity applications is our ‘secret sauce’. It is the experience of Tyson & Mendes’ 200+ trial lawyers who are in trial every day and are well-versed in plaintiffs’ attorneys’ latest nuclear verdict tactics and the defense methods proven to defeat those tactics. Our experience as experts and thought leaders in this field, combined with the expertise of our CEO Denise Tyson, a former top insurance executive, make this state-of-the-art software first in class.

Are larger insurers better equipped to absorb a nuclear verdict, and what does the nature of their exposure look like?

Unfortunately, the risk of nuclear verdicts to all insurance carriers, no matter their size, is substantial and growing every day. A common belief in the past was that large insurance carriers could more easily withstand a nuclear verdict, given the size of their balance sheets. However, our research has found that nuclear verdicts are not isolated events. Every time a nuclear verdict occurs, there are ripple effects in that insurance company and in the industry as a whole. Each nuclear verdict leads to additional nuclear verdicts, which in turn leads to what has been coined by Warren Buffett as ‘social inflation’.

So, while the bigger insurance companies can weather one nuclear verdict better than smaller carriers, the cumulative effect of nuclear verdicts across the country has a more significant cumulative effect upon larger carriers. This is also reflected in the initial interest in our product, with the country’s largest P&C carriers leading the way.

When it comes to lines like medical malpractice or professional indemnity, often by FNOL it’s already too late. Is there anything insurers can do to be more proactive?

Fortunately, NaVel is able to spot nuclear verdicts well before they happen. In fact, NaVel goes to work as soon as the first notice of the claim is received, and then it continually updates its risk score for the client as more information is obtained by the claims professionals. Our machine learning tool is constantly evolving and improving to help carriers be aware of potential nuclear verdicts in all types of claims, especially medical malpractice, employment and other professional malpractice claims.

In addition to being an early warning system to insurance carriers regarding nuclear verdicts, NaVel will also be a valuable tool for carriers to share and market to their insured clients, including medical professional lines. Armed with our state-of-the-art research and warnings, a carrier will be able to share this information with its defence counsel to resolve specific claims earlier and avoid severe outcomes.

Hefty jury awards are a problem even for insurers with broad balance sheets.

Some people suggest jury verdicts are often driven by resentment, or the chance to punish a big corporate. Are there any lessons that insurance carriers can learn about choosing their clients?

You are absolutely correct, juries are regularly ‘punishing’ corporate and other defendants, even when punitive damages are not awarded. Plaintiffs’ lawyers have completely changed the way they try lawsuits in the last 10-15 years. The two most radical changes plaintiffs’ lawyers have made are: first, they no longer focus on eliciting sympathy from a jury, but rather they try to get a jury angry. Second, plaintiffs’ lawyers now ask the jury for outrageously large awards, right in the beginning of a trial. This was not done 10 years ago, as lawyers thought it would be off-putting to jurors to hear such large sums. But psychology has proven the best way to get a large verdict is to ask for one!

Why this change in trial techniques is important to insurance carriers is because plaintiffs’ lawyers have now shifted their focus to the insureds, the corporate defendants. While we used to be worried about what kind of impression the plaintiff would make at trial, now all eyes are focused on the insured defendant. The plaintiff’s lawyer is trying to get the jury angry at the insured in several different ways. So, while insurance companies must always consider the overall risk of the business they are insuring, they should also now be evaluating, at the underwriting stage, the risk of putting that insured on the stand someday and how they will fare in front of a tenacious and manipulative plaintiff’s lawyer. Anger and a desire to punish perceived ‘bad’ corporate actors are fuelling nuclear verdicts. Who the insured is and what a jury might think about them are now more important than ever.

What should an insurer do if one of their policyholders is hit with a potentially nuclear verdict?

NaVel was created so an insurance carrier would never have to sustain a nuclear verdict. But when a jury returns a nuclear verdict, there are steps an insurance carrier can take to minimise their exposure. The most obvious is to appeal the decision. Unfortunately, these attempts are met with very mixed results across the country. Many courts are reluctant to substitute their judgment for that of a jury who actually sat through the trial.

In addition to appeals, Tyson & Mendes is routinely hired after a nuclear verdict to do a deep dive for the carrier to determine exactly what went wrong at the jury trial. This can be a very beneficial service we provide for carriers, as they are better able to understand what happened and then can implement best practices with their defence counsel to stop nuclear verdicts in the future.

Another first-of-its-kind service we offer to insurance carriers is to train their outside counsel and in-house counsel at our Nuclear Verdicts Defense Institute. Defence counsel from across the country will spend four days with us in San Diego this June to learn specific trial methods to stop nuclear verdicts. There are no other resources like this that provide hands-on, immersive jury trial training for experienced defence lawyers. This is our second institute after our successful launch last year.

And finally, settlement may be an option. However, the most favourable settlements always occur before a nuclear verdict is rendered. That is another value proposition presented by NaVel, as it is an early warning system for carriers to avoid nuclear verdicts in the first place.

What do you expect from the landscape for nuclear verdicts in the next few years?

When it comes to the future of nuclear verdicts, all signs point to an increase in frequency and severity. In just the last two years, the number of nuclear verdicts and the size of nuclear verdicts have both doubled. Will this continue? Unless insurance carriers and their defence counsels do something different, there is no end in sight to this crisis. Utilising NaVel is a great first step in the right direction to stopping nuclear verdicts.

Share

Featured Articles

Will insurers still invest in sustainability in hard times?

We ask Shane Cassidy, EVP within Capgemini’s Insurance Business Unit, if insurers will stay the course with sustainability despite rising economic pressure

Safe as houses: top 10 insurtechs and climate-techs 2023

We dip into the world of sustainability to see which companies in the industry are instigating behavioural change toward our climate

Talking embedded insurance with Cover Genius' Angus McDonald

The CEO of insurtech unicorn Cover Genius talks about their insurance distribution platform, the power of persistence, and why he looks up to tennis stars

When life gives you lemons: the socially conscious insurtech

Insurtech

Top 10 LinkedIn insurtech influencers 2023

Insurtech

Discussing the cyber threat landscape with IBM X-Force

Insurtech