The rise of nuclear verdicts—jury awards surpassing $10 million—has already significantly impacted the insurance industry, and this year the trend may intensify.
Brian Pierce (pictured), chief underwriting officer at Victor US, noted that these staggering payouts, driven by a well-coordinated plaintiffs' bar and shifting jury expectations, have doubled since 2020 and show no signs of slowing. In 2023, the median nuclear verdict rose to $44 million, up from $21 million in 2020.
The evolving legal landscape, combined with escalating risks in areas like general liability, commercial auto, and, in some cases, workers' compensation, is creating a storm for insurers.
As nuclear verdicts become more frequent, insurers face mounting challenges in managing reserves, adjusting coverage limits, and mitigating the financial fallout from these high-stakes cases. Meanwhile, insureds are grappling with rising premiums, higher deductibles, and the looming risk of out-of-pocket costs that can exceed policy limits.
“I think there are two things that come into play,” shared Pierce. “One is the plaintiff's bar being extremely well coordinated in the industry and positioning awards based on what they've seen in other jurisdictions throughout the country. We've also seen a real shift in people's expectations of what type of awards are reasonable, and that's caused an escalation.”
One of the main drivers behind these changing expectations is the shift in societal attitudes toward corporate responsibility. As the push to hold companies accountable grows, so does the support for larger payouts. Media coverage of high-profile cases can further intensify this pressure, influencing juries to impose higher awards.
Recently hitting a 15-year high, nuclear verdicts unfortunately go beyond holding insurance corporations accountable - they have far-reaching consequences that trickle down and impact insureds as well.
According to Pierce, in many cases, the damages awarded in nuclear verdicts can exceed the limits of an insurance policy, leaving the insured responsible for covering the difference out of pocket. This is particularly concerning considering the rise of thermonuclear verdicts (verdicts where more than $100 million is awarded).
“Insurers are going to be held to the limits that they're putting up to support a certain exposure. A carrier may pay out $15 million depending on what type of limits they're providing within an umbrella liability policy,” said Pierce. “But if the award is beyond that point, then suddenly it's going to hit the financials of a commercial entity or of an individual,” he confirmed.
This creates a significant challenge, especially for small and medium-sized businesses that may be less liquid and face difficulty growing or recovering after such large payouts.
On the flip side, Pierce pointed out that larger, more established insurers are closely evaluating their reserves to ensure they can absorb the growing impact of nuclear verdicts. For example, in Q3 of last year, Swiss Re added over $2 billion to its US casualty reserves. “We’ve seen some real changes in the marketplace and in reserves by some of the reinsurers,” emphasized Pierce.
To further protect themselves from the risks associated with nuclear verdicts, Pierce predicted that carriers are likely to continue reducing the limits they once provided.
“Reinsurers are no longer offering the same coverage limits they once did. For instance, where a business may have purchased a $25 million umbrella in the past, today they might only be able to secure a $10 million umbrella. This shift is a significant trend in the marketplace, with limited availability of excess casualty limits,” he explained.
When working with clients in higher-risk industries that are more susceptible to nuclear verdicts, such as commercial auto, indemnity or professional liability, or workers' compensation, brokers can take several key steps to help mitigate client risks:
“Brokers need to educate their clients on what to expect in the marketplace and position them for more self-insurance, which is, more and more what's taking place,” added Pierce.
