By Sharen Groppell, Marsh McLennan Agency

The legal landscape, particularly within the construction industry, is profoundly influenced by various litigation trends. One trend making waves today is the rise of nuclear verdicts in civil litigation. This is especially true in cases involving personal injury liability.

Nuclear verdicts, a relatively recent trend in litigation, refer to legal judgments that bestow significant sums of money upon plaintiffs. The term “nuclear” indicates the potentially devastating financial impacts on businesses and the insurance industry. To be classified as a nuclear verdict, a payout must exceed $10 million, with some reaching astronomical figures in the billions. The exorbitant nature of these rulings is the subject of debate regarding the proportionality of compensation in relation to the damages suffered.

Several elements are contributing to the rise of these verdicts, including the strategic use of Reptile Theory, the phenomenon of social inflation spurred by the pandemic, and the practice of litigation funding. These factors collectively contribute to the escalation of court judgments. This is, in turn, leading to an upswing in business insurance rates. It’s critical for construction companies to understand this sizable risk and be prepared to address—and prevent—it from becoming a reality.

Nuclear verdicts in construction

The construction industry finds itself at the epicenter of these nuclear verdicts. For instance, a $74 million settlement ensued from an incident involving an improperly paved road. The substandard conditions of the road caused a truck to overturn, colliding with another vehicle carrying a mother and her 12-year-old twins. In another tragic case, a tower crane collapse resulted in an $860 million award to the family of a woman killed in an adjacent building. Another example involved a jury granting $1 billion to the family of an 18-year-old killed in an auto accident caused by the driver of a service company.

The construction industry—no stranger to operating fleets of vehicles—is witnessing a surge in costly rulings involving heavy trucks. According to the American Transportation Research Institute, between 2006 and 2019, there were 26 cases with verdicts exceeding $1 million out of 600. However, in the last five years, there were almost 300 cases with verdicts surpassing $1 million. The number of verdicts exceeding $10 million also doubled during that time. Moreover, from 2010 to 2018, the size of verdict awards grew at a staggering annual rate of 51.7%, far outpacing the growth rate of inflation and health care costs.

Reptile Theory

The Reptile Theory is a key legal strategy contributing to the likelihood of a nuclear verdict. The term stems from David A. Ball and Don Keenan’s book, “Reptile: The 2009 Manual of the Plaintiff’s Revolution.” The tactic itself is surprisingly simple and effective. Plaintiff attorneys strategically tap into jurors’ primal—or “reptilian”—instincts by appealing to their concerns about safety and security.

The theory aims to instill the belief that construction companies prioritize profits over safety, posing a direct threat to the community and the jurors’ loved ones. It suggests that jurors can only mitigate the perceived threat posed by these businesses through a substantial punitive verdict.

Social inflation

Beyond courtroom tactics, social inflation also plays a pivotal role in the upward trajectory of nuclear verdicts—particularly for construction companies. The pandemic heightened fears of financial hardship, unemployment, and a lack of community connection. Notably, the actual cost of accidents or injuries is often disregarded as plaintiffs and jurors seek to express their feelings of unease and victimhood through punitive financial judgments. Simultaneously, escalating health care costs, litigation expenses, and tangible property values contribute to the rising figures plaintiffs aim to secure in court.

Litigation funding

Litigation funding introduces another dynamic to the landscape. It’s not uncommon for law firms, hedge funds, or private equity firms to finance the legal costs associated with litigation in exchange for a predetermined amount or percentage of the ultimate verdict. These costs encompass attorney fees, court expenses, and sometimes, cost of living expenses. The plaintiff must only reimburse the funder if their case is successful. In return, the funder receives a predetermined share of the settlement or judgment. This practice incentivizes individuals who might otherwise not pursue legal action, especially if indemnified, to engage in litigation with the hope of a substantial financial reward. Funding companies, motivated typically by financial interest, often hire industry and trial experts to advocate for nuclear verdicts against construction companies.

Insurance and risk mitigation efforts

As a result of these trends and their financial impact on construction businesses, insurance companies are increasingly limiting their available funding to underwrite policies. The financial strain resulting from these verdicts prompts insurers to distribute the costs across all policyholders, regardless of their actual loss experience. This makes large sums of coverage harder to come by. It also presents a formidable challenge for businesses seeking to secure adequate coverage in an environment where insurers tighten their underwriting practices.

Despite their potency, it’s critical to remember that nuclear verdicts are often entirely avoidable. Navigating these litigation challenges requires strategic measures, including partnering with the right insurance broker. You need a partner who understands that managing casualty risk involves utilizing loss projection modeling for auto, general liability, and workers’ compensation claims. This approach gives businesses a more precise understanding of potential risks, allowing for proactive risk management strategies.

Safety consultants and risk transfer specialists can also play a crucial role in helping businesses determine best practices for managing everything from contracts to job sites, fleets, and premises. Additionally, working with a broker who can help gain control of the claims process through personalized coaching and guidance sessions can prepare you for accidents—mitigating the potential for nuclear verdicts.

Unfortunately, accidents are an inherent part of daily life. Remember, strategic preparedness can significantly lower the risk of facing nuclear verdicts. By staying informed about evolving legal trends, adopting proactive risk management measures, and leveraging the expertise of insurance professionals, businesses can fortify themselves against the financial implications of nuclear verdicts. As the legal landscape evolves, a comprehensive and adaptive approach becomes essential for businesses navigating the complex terrain of litigation risks.

About the Author:

Sharen Groppell is Executive Vice President at Marsh McLennan Agency. Sharen leads the Construction and Surety Practice in Houston, Texas. Clients include General Contractors, Subcontractors and Specialty Contractors. In her role, Sharen develops and builds relationships with carrier partners, construction attorneys, CPAs, and other stakeholders in the construction space. For more information, contact the author at sharen@groppell@marshmma.com or visit Marsh McLennan Agency’s website.