• ITVI.USA
    15,538.090
    8.420
    0.1%
  • OTRI.USA
    25.170
    0.110
    0.4%
  • OTVI.USA
    15,497.910
    7.270
    0%
  • TLT.USA
    2.720
    0.000
    0%
  • TSTOPVRPM.ATLPHL
    2.550
    -0.030
    -1.2%
  • TSTOPVRPM.CHIATL
    3.030
    -0.080
    -2.6%
  • TSTOPVRPM.DALLAX
    1.450
    0.150
    11.5%
  • TSTOPVRPM.LAXDAL
    2.910
    -0.030
    -1%
  • TSTOPVRPM.PHLCHI
    1.700
    -0.040
    -2.3%
  • TSTOPVRPM.LAXSEA
    3.020
    -0.010
    -0.3%
  • WAIT.USA
    120.000
    0.000
    0%
  • ITVI.USA
    15,538.090
    8.420
    0.1%
  • OTRI.USA
    25.170
    0.110
    0.4%
  • OTVI.USA
    15,497.910
    7.270
    0%
  • TLT.USA
    2.720
    0.000
    0%
  • TSTOPVRPM.ATLPHL
    2.550
    -0.030
    -1.2%
  • TSTOPVRPM.CHIATL
    3.030
    -0.080
    -2.6%
  • TSTOPVRPM.DALLAX
    1.450
    0.150
    11.5%
  • TSTOPVRPM.LAXDAL
    2.910
    -0.030
    -1%
  • TSTOPVRPM.PHLCHI
    1.700
    -0.040
    -2.3%
  • TSTOPVRPM.LAXSEA
    3.020
    -0.010
    -0.3%
  • WAIT.USA
    120.000
    0.000
    0%
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Are nuclear verdicts out of control?

Nuclear verdicts have been a consistently increasing theme in trucking over the past several years and the heat and pressure on carriers from rising insurance premiums appears to have no end in sight. This is despite the fact that the number of deaths and injuries from accidents involving large trucks have been declining (down double digits year-over-year as of the latest count).

A nuclear verdict is defined as a jury award in which the penalty exceeds $10 million (though there are several alternate definitions that are more intricate as I describe later). Rising insurance premiums and nuclear verdicts are often cited in carrier bankruptcies as the primary causes for shutting down. In addition, the growing trend of juries awarding nuclear verdicts have forced some insurance providers to exit the trucking industry altogether.

(Photo credit: Shutterstock)

Nuclear verdicts are changing the face and complexion of the trucking industry. Economists often argue that there is little to no inflation in the economy, with consumer price index (CPI) readings consistently registering below 2%. The inflation deniers must have never looked at trucking insurance; it is not unusual for premiums for a smaller fleet to rise 50 to 100% or more in any given year (while overall premiums are growing roughly double digits by my math). The inflation of trucking insurance rates makes healthcare inflation (which makes endless media headlines for being out of control) look downright paltry in comparison.

For an industry with profit margins that average just 5%, insurance as a cost line item (now averaging 3 to 4% of revenue) doubling every few years is an enormous problem and represents a systemic risk. With the end of 2019, estimates are that trucking bankruptcies nearly quadrupled compared to 2018. Even worse, this trend is growing ad infinitum, with nuclear verdicts continuing to grow in both prominence of occurence and absolute dollar amounts. If trucking insurance rates continue to inflate at recent levels, a significant portion of the industry may no longer be “going concerns” and be at risk of going out of business. The potential negative impact of nuclear verdict risk is that dramatic. 

SONAR: INSURE.VCFOO, INSURE.RCFOO, INSURE.FCFOO

SONAR: OPRAT.VCNS, OPRAT.RCNS, OPRAT.FCNS

One challenge of analyzing and predicting nuclear verdicts is their intangible nature. They are often so disconnected from reality in terms of the award amounts compared to actual economic damages that there are no computers or algorithms that can be effectively employed for forecasting or managing risk.

At the most basic level, the plaintiff’s primary strategy is to trigger the reptilian, emotional side of jurors’ brains while the defense’s strategy is to counter by appealing to facts and rationality. Whichever side is most effective in influencing the jurors wins. And if the plaintiff attorneys win in the sense that they have really “triggered” the jurors, there is theoretically no upper limit on the potential verdict – leading to runaway inflation in insurance premiums. The open sharing of best practices among plaintiff lawyers is magnifying this phenomenon, creating fast followers and thus nuclear verdicts that are rapidly growing in number.

This is certainly not to say that carriers are usually innocent or not often well-defended by highly prestigious and expensive defense attorneys (they often are). But the rising incidence of nuclear verdicts is indisputable. When civilians die or are permanently injured in an accident involving a large truck and there are dependents that need to be cared for, a large remuneration is absolutely necessary and justified. 

(Photo credit: Shutterstock)

But what is the proper amount to measure the loss of human life? Is it seven figures? Eight? Nine? This is a very difficult question to answer and represents why nuclear verdicts are such an important and relevant topic. The numbers are trending ever higher and at some point the trucking industry will reach a tipping point where something has to give: insurance becomes unaffordable and carriers go out of business, insurers exit the market or insurance premium inflation eventually levels out because the underlying nuclear verdicts do too. Perhaps defense attorneys will devise their own clever strategies to quell the tide. Time will tell.

What is a nuclear verdict?

As noted above, a “nuclear verdict” is commonly defined as a jury award of $10 million or greater. However, this definition is simplistic and bears further clarification. Upon further reflection, I believe there are two classifications of a nuclear verdict – one numerical (a $10 million or greater jury award) and one based on the outcome relative to expectations (e.g. if “x” is the expectation a priori but the jury award is 5-10x ex-post).

A key distinguishing factor of a nuclear verdict is that it is disproportionate in terms of having little to no relation to a plaintiff’s actual economic damages, meaning the majority of the award is due to punitive and compensatory damages. Therefore, one good way to summarize a nuclear verdict is an award that is significantly higher than would be expected given the injuries in the case, compared to any particular threshold.

Why do some cases go to court in the first place?

First, to prevent any confusion, my research shows that only about 5% of cases go to trial. In other words, the vast majority of cases do not. When it comes to blockbuster nuclear verdicts relative to commercial vehicle accident-related deaths in the U.S. (approximately 5,000), it is a miniscule number (maybe five to 10) of massive nuclear verdict cases per year. However, a handful of nuclear verdicts is enough to drive double digit annual insurance inflation for the entire trucking industry.

Viewed from the defense side, cases often go to court because some defense lawyers want to make a name for themselves. Reputations in law are based around trial experience and lawyers can be opportunistic. While it is risky to try, the reward for winning can be a career-maker in some cases. In general, however, the rising trend of nuclear verdicts is causing more defendants in severe injury and death cases to choose to settle because otherwise they risk being liable for a nuclear verdict.

(Image credit: Shutterstock)

From the plaintiff side, their obligation is to the client. In cases with large medical bills, until the trucking company and its insurance firm(s) offer enough to adequately cover the cost of the bills, there is no risk in going to trial. From the plaintiff’s perspective, the needs of the client are of utmost importance. If the needs of the client are not met, going to court is the only option.

On the insurance side, many times the insurance company will want to go to trial even when the trucking company does not want to. Critics argue that rising nuclear verdicts and cases going to court are due to insurance companies being unreasonable and increasingly refusing to accept fair pre-trial settlement offers, instead opting to gamble on their chances of winning in court. Thus, critics contend that insurance companies could avoid nuclear verdicts and pay out far less by simply agreeing to settle. Legal experts say that insurance companies and the defendant’s executives usually control the settlement process and not the defense attorneys.

Why do nuclear verdicts occur and why are award amounts increasing?

Nuclear verdicts typically occur because the jury determines that the defendant is willfully or purposely denying any responsibility or involvement in the accident.

The proliferation of nuclear verdicts in trucking has really gained steam over the last decade or so. The Wall Street Journal recently published an article analyzing data from VerdictSearch that reports a more than a 300% increase in the frequency of $20 million-plus verdicts in 2019 from the annual average from 2001 to 2009. The trucking industry is no different – Alan Pershing, CEO of CaseMetrix, a database of court verdicts and settlements primarily in the southeast, says, “…there are five times as many verdicts that are $20 million-plus in the last five years compared to the prior five years (2010-2014).”

(Photo credit: Shutterstock)

A big reason nuclear verdict settlement values are increasing is due to the rampant underlying medical bill inflation that must be covered. Other reasons include an effective shifting of strategies by plaintiff attorneys (Reptile Theory) as well as the highly publicized nature of major large trucking accidents. Plaintiff’s lawyers are increasingly moving away from blaming individual drivers to blaming a lack of systemic corporate oversight and adequate safety procedures and regulations.

Another huge driver is an increasing punitive damage component in these nuclear verdicts, whereas in the past there was more correlation to a formulaic approach based on economic costs incurred by the plaintiff. There is also the now widely accepted societal expectation implicit in nuclear verdicts that verdicts should sustain plaintiffs and their dependents for the remainder of their lives, in addition to providing monetary compensation for suffering.

Plaintiff strategy

Regarding plaintiff strategy, the overriding conclusion that I found in my research is that plaintiff lawyers are much better connected and collaborate to a much higher degree than their defense counterparts. This is strategic in nature and driven by the common good on their behalf. On the plaintiff side, what is best for the individual attorney is best for the group. 

Furthermore, before trial, plaintiffs will often go to defendants to determine their policy limits and then target that number for awards to avoid going to trial. When this is not effective and the defendant (or its insurer) refuses to settle, plaintiff attorneys typically employ one of four primary strategies in the courtroom to obtain nuclear verdicts, as explained below.

Reptile Theory: the primary plaintiff strategy

What is Reptile Theory? It is the principal strategy of plaintiffs and when employed, plaintiffs attempt to activate the jurors’ reptilian brains and send them into survival mode – where they look to protect their genes and process information presented to them using emotions.

A byproduct of Reptile Theory is that the jurors feel personally threatened and fear for the safety of the community. The courtroom becomes viewed as a safe place (which they seek when they sense they are in danger) and awarding damages is believed to increase safety and decrease danger.

Gamesmanship

Gamesmanship is defined as games played by the defense; the jury comes to perceive that the defendant is not fully accepting responsibility for what occurred. This scenario is often painted as a large greedy corporation emphasizing profits over the public’s safety.

Anchoring

“Anchoring” is another strategy employed by plaintiff attorneys in which they start by tossing out a gargantuan, unreasonable number and then get the jurors to focus (or “anchor”) on that number as a baseline expectation. By anchoring around such large numbers, juries will often then tweak the large value up or down depending on how angry they are. At least this is the hope of the plaintiff’s attorney.

More test failures likely to show up in Drug and Alcohol Clearinghouse. (Photo credit: Shutterstock)

The “Dirty Five”

The “Dirty Five” generally refer to the following:

  1. Fatigue 
  2. Distracted driving 
  3. Driving under the influence of drugs and/or alcohol 
  4. Lack of equipment maintenance
  5. Inexperienced/improperly trained driver

If a plaintiff attorney can effectively prove or demonstrate any of the above took place, the potential for a nuclear verdict grows significantly.

Defense/carrier strategy

Defense strategy is primarily organized around pre-trial preparation and selection of the jury and witnesses, the “Primate Brain” strategy and offering counter numbers.

The Primate Brain strategy is a way to defend against Reptile Theory and refers to appealing to jurors’ intelligence and reason, rather than their emotional side. By doing so, this strategy attempts to flip Reptile Theory on its head and make it backfire. If the plaintiffs’ strategy is to emphasize the frequency and danger of the risk, the defense attempts to prove the opposite. Also, in response to plaintiffs attempting to demonstrate corporate greed and fat cats with deep pockets, defense attorneys can effectively combat the Reptile Theory by attempting to demonstrate that the defendant is a caring corporate citizen.

Another particularly important strategy for the defense is “motions in limine,” which is when the defense files a motion to exclude certain reptilian evidence from being admissible during the trial at all. This approach cuts off the Reptile Theory before it can even be attempted and is sometimes effective if the judge grants the motion.

A final strategy that is apparently effective and growing in momentum is offering counter numbers when plaintiffs throw out an unreasonably high anchor number. This strategy is often seen by defense attorneys as unorthodox or counterintuitive because it may seem that by offering counter numbers that a defense attorney is conceding or giving in. In cases in which plaintiffs employ a high anchor number, defense attorneys almost never counter with a number in response. But, maybe they increasingly should, or that is what the evidence demonstrates at least.

Conclusion

Whether the trucking industry hates it or wants to debate the inherent fairness, nuclear verdicts are a reality and increasingly a way of life. This fact will not be changing and soon the liability and risk will spread to brokers and shippers in my view.

I believe the most effective strategy for avoiding a nuclear verdict is an avoidance strategy whereby carriers acknowledge responsibility and settle – not legal skill or tactics in court. It is also paramount that carriers, brokers and shippers have the proper procedures and training in place that will help protect them to the greatest degree possible.

Large payouts in trucking death- and injury-related accidents are statistically unpreventable in my view and a cost of doing business in trucking. However, exposing oneself to the asymmetric, unlimited risk from a nuclear verdict is only possible if the defendant or its insurers insist on going to court.

In the full whitepaper, the Freight Intel Group examines nuclear verdicts from all relevant angles on a much deeper level, including our carrier survey with their perceptions on why nuclear verdicts occur, what can be done to prevent them and how much insurance inflation they are experiencing.

This white paper, “Are Nuclear Verdicts Out of Control?,” and all Freight Intel research can be found in SONAR by clicking on the lightbulb icon in the top menu.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com, Seth Holm at sholm@freightwaves.com or Andrew Cox at acox@freightwaves.com.

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Seth Holm

Seth Holm is a Senior Research Analyst for the Freight Intel Group at Freightwaves, which publishes proprietary research on all things transports and logistics. Most recently, Seth spent 9 years as an analyst covering consumer and technology, media and telecom (TMT) stocks at a hedge fund. Prior to that, he was as an analyst at a high net worth wealth advisory firm. Seth is a graduate of the University of Georgia with a major in Finance.

7 Comments

  1. What does a nuclear verdict have to do with a primary insurer taking the first million dollars in risk and increasing their rate? That insurer is out $1,000,000 whether the loss ends up being $10,000,000 or $100,000,000. Nuclear verdicts are blowing up the excess layers. These suits are already impacting freight brokers and shippers… This was an interesting read.

    1. Most insurers taking the primary layer have reinsurance treaties (or place facultative re-insurance) for a share of first $1M for trucking accounts. When the treaty is renegotiated annually, the re-insurers are looking at the makeup of the book, and if it’s heavy with large vehicles, they raise their rates which trickle into the primary layer pricing. The Re-insurers are the ones footing the bill the the excess layers too, so that then brings their total payouts into consideration when pricing.

  2. It’s not just the nuclear verdicts that are hurting the industry, Frivolous claims in general are killing us. Now, if a truck hits the car in front of someone and that car touches theirs, they sue the trucking company claiming PTSD. This is insane. These nuclear verdict attorneys are 80% of the blame. If they were only allowed to charge an hourly rate, not to exceed $300 per hour and a cap on the number of hours per week that can be billed. That would be a step in the right direction but these attorneys are suing for themselves, (to make themselves richer) not because of any righteous candor.

  3. The way I see it is the attorneys for the defense are incompetent !

    On another note it’s called KARMA ! Most carriers(trucking employers) ripped off and rip off truck drivers . Now carriers are getting ripped off through these verdicts !

    They aren’t going to receive any pity on my part !

    Furthermore ,what’s the “value” of a life ? PRICELESS !

    In my humble opinion …………..

  4. I can only restate what my insurance agent told me when she called to inform me my rates were going up 30% to 100% at the first of the year. She stated that there are only two or three underwriters left out here. The accident rates since 2018 have increased. The cost to repair and or replace these trucks is through the roof, and then she got around to the nuclear verdicts. I would point my finger at the ELD. It was the straw that broke my back, 31 years of safe driving out here. I was no longer a safe driver playing beat the clock running down the road. Put it all together, it was very easy for me to park the truck and find employment elsewhere. The truck will be sold in the Spring, I start my new job, that does not require me to play “Beat the Clock” next week.

    1. Find another Insurance company. There is a lot of other insurance companies, unless you gave up on the dream, than there you’ll find a million reasons to quit.

      1. Not quite a million reasons to quit, but enough…

        I have been out here 31 years, started in the 1980’s, and rates are lower today than when I started when you figure in inflation and expenses…

        And yes, I called multiple agencies, rates were going up, even with my clean record. My auto insurance went up too, clean record and I don’t even drive the vehicle, a 2017 Silverado that I leased, 8710 miles on the odometer, no tickets, no claims, and it went up $200 a year, as did the tag, that is hitting near $300 for a year. Home Owners Ins, same deal, went up another $100, no claims, property taxes went up $400 a year when the idiots voted for every damn tax increase and millage on the ballot. The apportioned plate on my tractor, that went up to $2200 a year! They are pricing me right out of business. 2290, they say that is going up, as are the IFTA taxes.

        A truck service, near $400. Paying for parking, $15 to $18 a night, and that is getting to be a few times a week. Even a trip to Walmart is $100, breakfast in a truck stop, $20. It never ends. I save a few thousand a year by brewing my own coffee in the truck, and cook as much as I can stand.

        Trust me, the dream is now long gone, trucking left me, I did not leave it. Truck is parked, start a good paying job next week, with benefits and lots of time off, and no more ELD. The industry is broken, the expenses will continue to go up as will the regulations as the accident rates will continue to climb. Most of my friends are out, others are on the edge. We are all veterans, youngest in the bunch has 22 years out here. The ELD was the straw that broke our backs.

        I could struggle and work through this current bust, the longest I have ever experienced in my 31 years, but honestly do not see a reason why I should. The industry is saturated with trucks and the border is still wide open to the off shore 1099 gang, I cannot compete with that bunch. A good week here and there does not make for a good year. Pretty sad state, I really like the work, truck is running great, and paid for. But in the end, the stress is just not worth it, especially this Beat the Clock game we are forced to play, too stressful and too dangerous a game for me. I will put her up for sale this Spring. My family is happy, as it has been a rough year and getting worse, time to move on.

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