Rising verdict severity ripples through casualty lines
As liability/casualty writers adjust to ever-increasing verdicts, TransRe’s Rich Henderson analyses the causes and consequences of such decisions.
The frequency of large verdicts has increased significantly in recent years across all product lines. As liability/casualty underwriters adjust to “aberrational”, "nuclear" and even "thermonuclear" outcomes, the era of $100mn+ verdicts is upon us.
Because only a small percentage of claims are actually tried to conclusion, the overall financial impact of verdicts may seem small. However, trial outcomes also impact claim/legal strategies and send strong societal signals to which the insurance industry must be alert, even if the awakening is a rude one.
This discussion focuses on medical malpractice verdicts but much of the commentary is equally applicable to other areas of the casualty world.
Analysing the verdict data
Over the past 20-plus years TransRe has built and maintained a substantial proprietary database comprising thousands of medical malpractice verdicts, compiled from various sources and regularly cited and used (with our permission) by claims, underwriting, actuarial and legal professionals.
For the purposes of this discussion, we look first at the rising frequency of $10mn+ and $25mn+ verdicts between 2012 and today (as of 31 July 2023).
It is clear the number of $10mn+ and $25mn+ verdicts is increasing. Each of the three years prior to the Covid-related interruption of trials set a new record for such verdicts. As trials resumed in 2022, juries picked up where they left off by equalling the prior record for $10mn+ verdicts, and surpassing (by far) the previous record for $25mn+ verdicts. Put another way, 2022 saw an average of one $10mn+ medical malpractice verdict every week and (of those) a $25mn+ verdict every two weeks. 2023 is already shaping up to equal or exceed these records.
As an aside, a recent report by Marathon Strategies supports this conclusion. Titled “Corporate Verdicts Go Thermonuclear”, the report focused on all corporate defendants, not just in the medical malpractice space. The analysis showed fluctuations in the number of verdicts, but the growth in total sum awarded each year (from $6bn in 2015 to over $18bn in 2022) is striking.
Another way to view the data is by taking the 10th, 25th and 50th largest verdicts that were returned in each year. This view takes us past the headline verdicts and into the ‘working layer’ decisions that may not reach the media, but which affect industry practitioners.
The data is consistent. Pre-Covid we see a steady increase in the number of substantial verdicts, particularly the 25th and 50th largest verdicts. This shows it is not just a handful of mega-verdicts that are skewing the overall outcome. As the courts reopened for trials in 2022, the results in all three bands reached or exceeded the prior records. Those who believed in (or rather hoped for) a “halo effect” because of the efforts of medical professionals during Covid have been disappointed. Note the data for 2023 is on a year-to-date basis, with another four full months of trials to inflate current levels.
Social inflation and other explanations
Social inflation is not a new term but is regularly cited as a major factor driving up the frequency of large verdicts, in medical malpractice as well as other product lines. On the flip side, there are others who argue that social inflation either does not exist or is, at best, an over-referenced excuse for other factors.
We do not attempt to determine whether social inflation exists. However, it is clear that many of the variables cited in respect of social inflation are also variables which might lead juries to return large verdicts. Such variables include evolving views of social responsibility and the righting of perceived wrongs, as well as society’s desensitisation to the value of money (the salaries of athletes and entertainers, $1bn lottery awards etc.). Significant media coverage and advertising around large verdicts plays a part, as does the lowered trust in corporations in general. Hospitals and medical professionals are not immune to this phenomenon. Highly polarised debates concerning mask mandates and vaccinations are examples of Covid-related tensions and stress that can impact the public perception of medical professionals, including in the courtroom. If there was a “halo effect”, it has quickly dissipated in the eyes of jurors.
To seek evidence for or against the social inflation narrative, we sorted the data into blocks of three years: 2012-2014, 2015-2017 and 2018, 2019 and 2022 (we excluded 2020 and 2021 given the massive disruption to trial calendars). We then looked at the percentage of verdicts of at least $10mn which also exceeded $25mn. Within the world of medical malpractice insurance practitioners, it is commonly assumed that defendants continue to successfully defend ~80 percent of claims that go to verdict. That may still be true, but we wanted to look more closely at the verdicts in favour of the plaintiffs. Are the amounts involved rising?
The answer is a resounding “yes”. For 2012-2014 and 2015-2017 29 percent of $10mn+ verdicts also exceeded $25mn. In 2018/19/22 35 percent of $10mn+ verdicts also exceeded $25mn. As courts reopened, that figure increased to a record 44 percent in 2022 alone, and so far this year the results are even more ominous, with more than half (53.5 percent) of verdicts of at least $10mn now reaching or exceeding $25mn. Thus, while the frequency of defence verdicts has remained generally consistent, the severity of adverse verdicts has unquestionably and significantly increased.
This trend has a ripple effect throughout the (re)insurance of medical malpractice, creating challenges for underwriters, actuaries and claim/legal professionals. Should we settle or defend? How are demands to settle within limits/”hammer” letters to be addressed? When is national counsel necessary, and how should they be woven into the defence? What’s the right attachment point? How much coverage should we offer, and at what price? It also affects clients as they decide how much coverage to buy and fear the exposure if they don’t buy enough.
In addition to the increased severity of verdicts, we have also seen a significant increase in the frequency of both $10mn+ and $25mn+ verdicts. In 2018/19/22 there were 150 verdicts of at least $10mn, compared to 98 such verdicts in 2015-17, and 91 in 2012-14. Of those 150 verdicts, 53 exceeded the $25mn threshold, compared to 28 in 2015-17, and 26 in 2012-14.
Social inflation is one proposed explanation for the rise in the size of jury verdicts. Other explanations focus on the plaintiffs’ bar and its ability to tap into factors that anger juries, the increased use of so-called “Reptile” strategies, and more effective anchoring techniques. Conversely, the defence has been more reluctant to put forth defence anchors and cohesive damages arguments. It may be a common defence refrain that mentioning “damages” is a display of weakness that will “set a floor”, but there is growing evidence that proper defence anchoring and well-constructed damages defences help mitigate the downside verdict potential.
To conclude this analysis, the causes of verdict inflation may be debated, but the effect is clear. Although final settlements rarely approach the verdict amount, rising verdicts lead to higher settlements in those cases that go to trial. As those verdict amounts rise, so too do the settlement demands in future claims, which can both increase the size of such settlements and also prolong litigation, adding to the legal expenses.
We may disagree on the significance of medical malpractice jury verdicts, but they cannot be ignored. The increasing frequency of ever-larger verdicts ripples through all casualty lines. Will the current trend of rising verdict severity slow down? The legal standard of care has not changed, but the factors which influence juries continue to evolve and today’s world is not the same as pre-Covid. The defence bar and those managing medical professional claims should take every opportunity to better understand why juries are responding the way they are, and we should adjust our approach based on these insights.
The plaintiffs’ bar has done an excellent job of effectively communicating successful outcomes and the approaches used. Which tactics worked? Which did not? Can we quantify the impact of each tactic? For many years TransRe has shared our experience with the defence bar and medical malpractice professionals. We work closely with our business partners, using our database to offer insights on claims. We host industry webinars and podcasts and publish articles and analysis. We actively participate in American Legal Connections, a platform that brings medical malpractice professionals together to share knowledge and best practices. We welcome each and every opportunity to discuss these issues in more depth.
Rich Henderson leads TransRe’s medical malpractice claims group and can be contacted to discuss any aspect of this paper, including the work of American Legal Connections.