October 1, 2023

It’s No Fluke That Verdicts Have “Nukes”

Here is the key takeaway of this article.

When you buy or renew your professional and general liability insurance policies, buying at least a $2 million per occurrence limit makes sense.

First, we want to recognize that the social worker profession is noble and founded on service, integrity, and clinical expertise. At times, it can be a stressful and hazardous occupation. The nation is grateful for what you do. AND SO ARE WE! Thank you!

Why is this key takeaway recommended? Inflation on legal defense fees, damages, social justice lawsuits, and jurors’ decisions have blown litigation costs and claims awards up into the stratosphere. The recent description in the insurance and legal community is called the “nuclear verdict .” Landlords increasingly require higher per-occurrence limits and are named as additional insured in the insurance policy contract.

Here are the details. According to Insurancejournal.com, claims frequency and severity are up because of inflation – which drives up legal defense fee rates for litigation and higher jury awards from social inflation. Social inflation contributes to costly bodily injury claims, especially in general liability insurance. A 2020 report published by IRC (Insurance Research Counsel) noted a three-fold increase in jury verdict awards, greatly exceeding economic inflation.

Professional liability insurance carriers are responding with tactical defense measures. Some steps they use to mitigate losses are capacity caps on businesses written within the company, lower policy limits, adding exclusions, eliminating specific occupational trades previously insured, and increasing premiums on policies and endorsements. Professional liability rates jumped over 20% during 2023, in addition to the substantial medical malpractice premium spikes experienced since 2019, some of which doubled premiums. (Ibid)

Key tactical defense measures checklist to look for in your coverage that hurt you:

  • Premium hikes on base insurance policy and policy endorsements
  • Fewer coverage options which increase your risk exposure
  • More policy exclusions
  • Lower limits
  • Higher deductibles
  • Trade or occupational denials
  • Fewer carriers are available for the coverage that you need

Rough Notes put it succinctly: “…pricing continues to increase in response to inflation and loss trends”. (Rough Notes, April 2023, page 26). “Cases that go to jury are returning verdicts much higher than two years ago. Verdict inflation is real and here to stay.” (Ibid, page 29)

According to Cunningham Group, March 22, 2023, Medical Malpractice Specialists, broad medical professional liability premiums are increasing in all sectors with firmer prices throughout product lines in response to the consumer price index at 7%, the highest since the early 1980s. “Nuclear Verdicts” have large dollar amounts and increase claims loss costs exponentially.

There has been a tactical shift in the market towards Risk Retention Groups like Preferra Insurance Company RRG. The market shift has turned away from the top ten traditional insurance carriers in medical malpractice and Allied Health occupational risk classes. For example, in 2022, Risk Retention Groups had nearly a $100 million premium increase. (Ibid.)

While the impact is universal, your practice venue affects your risk exposure because states experience varying malpractice lawsuits. For example, New York State led in malpractice lawsuits from 2012 to 2022 compared to Wisconsin, which was the lowest. New York sustained 19 lawsuits per 10,000 residents. Georgia was second, with eight lawsuits per 10,000 residents. (Ibid.)

Another input to rising premiums is that increased verdicts are raising plaintiffs’ expectations, slowing down case resolution, and contributing to higher legal defense costs for case resolution. (Rough Notes, April 2023, p.-29) A.M. Best recently reported and affirmed premium hikes as well. It noted that expected premium rate hikes to gain momentum with a compounding effect. Carriers continue to face headwinds long term in the form of claims severity, movement to Risk Retention Groups, overall rising legal defense and indemnity costs, low-interest rates on investments with low investment income, “Nuclear Verdicts,” and social inflation eroding tort reforms nationally. COVID-19 uncertainties left a legacy of growing use of teletherapy, which opened up cyber liability security risks, slowed the accessibility to preventative care, and delayed diagnosis of non-pandemic illness and disease.

According to Reuters.com (“The Impact of Social Inflation on the Liability Insurance Industry,” M. Zigelman and K. Duffy, November 28, 2022), social inflation beyond economic inflation increased claims losses by 14%. Social inflation is caused by 1) society’s evolving values, trends, and perspectives and 2) other participants’ identification and exploitation of those changes, such as plaintiffs’ lawyers and expert witnesses, tort reform reversals, and jurors. Moreover, and very importantly, in the lawsuit, plaintiffs collapse the boundaries between the jurors and the plaintiffs to create the illusion that the defendant (YOU) is a danger to the jurors and society. As a result, premiums skyrocketed, some carriers stopped writing policies, and some insurance carriers failed. Many shoppers need help finding affordable insurance.

After determining the best coverage to fit your needs, buying higher per-occurrence limits for your professional and general liability policies makes sense. For example, purchasing an extra $1 million per occurrence coverage from Preferra for an entire year will only add to your annual premium cost, a dollar amount equal to a dinner at Cracker Barrel.

Thank you for all that you do! Your profession is genuinely noble and needed now more than ever. Good luck, and stay healthy!