In May, the U.S. Chamber of Commerce Institute for Reform (“the Institute”) published a study on nuclear verdicts in personal injury and wrongful death cases. The Institute analyzed approximately 1,300 nuclear verdicts (verdicts of $10 million or more) awarded nationwide over a 10-year period from 2013 to 2022. The study found that the frequency with which juries award nuclear verdicts rose during that period, with only a brief dip in 2020.

While various litigation types made up the pool of verdicts — including automobile accidents, intentional tort, and medical liability — the study found that product liability cases comprised a quarter of the nuclear verdicts in the pool. Since KCIC is dedicated to helping our clients manage their product liabilities, we wanted to look further into the nuclear verdict trend and investigate what may be behind it.

The Institute noted that during the study period, the average nuclear verdict across litigation types was $89 million, with a median value of $21 million. As seen in Table 1 from the report below, product liability cases top all litigation types, with a whopping average nuclear verdict value of $216 million. This high average value is reflective of the fact that “the risk of a mega nuclear verdict is greatest in product liability actions, which accounted for one third of nuclear verdicts of $100 million or more.” 

Although the median value of product liability nuclear verdicts ($25M) trails Intentional Tort verdicts ($28.6M) over the full 10-year horizon, we can also see that this figure too is on the rise: “median nuclear verdict in product liability cases peaked at $36 million in 2022—a 50% rise over a decade”.

Source: U.S. Chamber of Commerce Institute for Legal Reform

Figure 3 from the report, shown below, illustrates how the median nuclear verdicts for product liability cases (in purple) compare with all verdicts (in black) over time. Product liability nuclear verdicts (median) exceed all verdicts (median) in almost every year. Although product liability nuclear verdicts looked to hit a peak pre-pandemic, they have rebounded swiftly and appear to be on the rise again. With a peak median nuclear verdict value of $35 million in 2022, it is projected that product liability verdicts may well continue to rise in the coming years.

Source: U.S. Chamber of Commerce Institute for Legal Reform

While asbestos-related personal injury claims have historically, and in recent years, produced high-valued verdicts — such as a $107 million verdict against Union Carbide and a $40 million verdict against John Crane Inc., both in 2023, a rise in talc-related exposure claims is also contributing to the rise of product liability verdict values. For example, in early June, a plaintiff in Oregon was awarded $260 million from Johnson and Johnson, one of many high-value nuclear verdicts in recent years against manufacturers who have used talc in their products.

Although these inflated verdict values can be clearly observed in certain litigation types (such as product liability) and emerging mass torts (including talc-related claims), there is evidence to suggest that there is an underlying, more broadly observed phenomenon occurring. “Social inflation” is a term used to describe the rising cost of insurance claims above the increase that can be attributed to economic inflation. In recent months some of our most closely observed economic inflation indicators have been suggesting that inflation is returning to expected levels. August 2024 saw economic inflation of 2.5% according to the Consumer Price Index (CPI) and 2.2% according to Personal Consumption Expenditures Price Index (PCE). These are both lows since February 2021 and are close to the Federal Reserve’s target rate of 2%. However, the social inflation trend does not yet appear to be following the same decline.  

Last month, a research article published by sigma of the Swiss Re Institute, — titled “Social inflation: litigation costs drive claim inflation” — took a closer look at the trend. As seen in Figure 1 from the report, social inflation has been outpacing economic inflation for most of the past 10 years.

Of course, there has been much ado about rising economic inflation in recent months and years, and rightfully so, as it affects the broader population much more directly. However, social inflation has significantly outpaced economic inflation: 5.4% vs. 3.7%, respectively, from 2017 through 2022.

We have seen peaks of social inflation in the not-so-distant past. However, as seen in Figure 1 of the Swiss Re Institute report above, those events were more directly tied to discrete changes in the litigation environment. Alternatively, the current rise in social inflation seems to be attributed to a broader “rising frequency of single claimant events” per the Swiss Re Institute report. As a result, social inflation may remain a factor when a defendant is facing a potential verdict, even as we see positive developments on general economic inflation.

Sources:

Nuclear Verdicts: An Update on Trends, Causes, and Solutions - ILR (instituteforlegalreform.com)

sigma 4/2024: Social inflation: litigation costs drive claims inflation | Swiss Re