How Firms Can Avoid Fallout From Exploding Nuclear Verdicts

By Chris Coleman, HUB International

The rise of nuclear and “thermonuclear” verdicts is sending shockwaves through industries, especially construction. These massive jury awards, exceeding $10 million and sometimes hitting $100 million or more, are dramatically escalating costs. For construction companies and their insurers, the financial strain is palpable, with skyrocketing premiums and tighter coverage options becoming the norm. And it’s not just construction feeling the heat. Overall, the class action trend in 2023 resulted in 27 of 89 thermonuclear verdicts, hitting a record-breaking total of $14.5 billion.

Construction firms need to brace for this growing trend by understanding the factors contributing to these verdicts and implementing strategies to mitigate their exposure to risk. Here’s how firms can better protect themselves from the fallout.

The Impact of Construction and Beyond

The construction industry has emerged as a key target for nuclear verdicts. Firms and project owners remain vulnerable in several areas, including defective work, life-altering injuries on job sites, and fleet-related incidents involving trucks and heavy equipment. These risks aren’t confined to construction alone, but their consequences ripple across the sector, significantly affecting insurance rates and coverage availability.

This has created a domino effect. Insurers, grappling with increasing payouts, are raising premiums, reducing umbrella limits, and tightening their underwriting criteria, putting even more pressure on construction firms to minimize their exposures.

What’s Driving the Surge in Nuclear Verdicts?

Three key forces are amplifying this trend of skyrocketing awards:

1. Social Inflation
   Social inflation reflects shifting public attitudes, and perceptions about who is responsible for absorbing the costs of risk.
2. Third-Party Litigation Funding (TPLF)
   A significant driver of nuclear verdicts is the escalating influence of litigation funding by private investors. Through TPLF, hedge funds, private equity firms, and individual investors provide resources to plaintiffs and law firms in exchange for a share of the awarded settlements.
   
3. Reptile Theory Legal Tactics
   Reptile theory refers to the increasingly popular legal strategy that plays on jurors’ primal instincts, convincing them that massive punitive awards are necessary protections against dangerous practices.

How ABC Members Can Mitigate the Risks

Given the rising tide of nuclear verdicts, construction firms must adopt proactive measures to safeguard their financial stability. Here are actionable steps to reduce risk:

1. Work With Knowledgeable Insurance Brokers
   Partnering with an experienced insurance broker is crucial in this environment. A skilled broker can help firms properly position themselves with underwriters and ensure their insurance coverage is optimized. They can guide businesses in structuring policies to address potential vulnerabilities effectively.
2. Conduct Comprehensive Claims and Financial Audits
   Firms should audit their claims history and financial data to identify patterns, weaknesses, and exposure points. This information can be used to generate risk scenarios, which will provide valuable insights into where they are most susceptible to litigation.
3. Leverage Analytic Modeling Tools
   Analytic modeling tools are invaluable for quantifying the projected loss frequency and severity of events for a better perspective of future risks.
4. Strengthen Risk Management Practices
   Companies should focus on improving their overall risk management practices, including stricter safety protocols, better employee training, and stronger internal oversight. This reduces the likelihood of accidents or incidents that could lead to lawsuits.
5. Monitor Legislative Developments
   Stay informed about regulatory changes. For instance, states like Florida have introduced bills requiring full disclosure of litigation funding arrangements. Such measures could impact the dynamics of future lawsuits. Remaining aware of new laws can help companies adjust their strategies accordingly.

Looking Ahead

The spread of nuclear verdicts shows no signs of slowing, and businesses across sectors are feeling the financial aftershocks. Third-party litigation funding, social inflation, and aggressive legal strategies are exacerbating the risks.

By working with the right partners, using data-driven risk assessments, and implementing robust safety measures, firms can mitigate their exposure to devastating litigation. While the environment remains challenging, taking proactive steps now can help protect both bottom lines and reputations moving forward.

Click here to read more from Hub International’s Chris Coleman.