Nuclear Verdicts: Understanding Causes and Impact
May 28, 2025
Discover what nuclear verdicts are, the trends driving them, their impact on insurance rates, and how to mitigate your risks.
Discover what nuclear verdicts are, the trends driving them, their impact on insurance rates, and how to mitigate your risks.
Nuclear verdicts are exceptionally high jury awards that exceed what most would consider reasonable, typically in excess of ten million dollars. These verdicts can have drastic effects on businesses, industries, and society, even if overturned or reduced later. They can increase the cost of goods and services, affect insurance availability, and undermine fairness and predictability in the law.
There are several trends that contribute to nuclear verdicts.
Social inflation refers to the phenomenon of unexpected rising insurance claim costs through societal trends and views toward litigation. A big driver of social inflation is society’s current anti-corporate sentiment, which started during the financial crisis and led to a greater division of wealth and feelings that someone needs to pay when damage or bodily injury occurs, regardless of negligence.
Third-party litigation financing is a deeply concerning trend, that adds fuel to the fire. This industry, estimated to be $11 billion to $12 billion in the U.S., involves outside investors funding lawsuits in return for a share of the settlement or award. This influx of financial support for litigation results in increased frequency of lawsuits, higher defense costs, and more time spent in the court system in lieu of settling.
Jurisdiction plays a role as well, with over half of the nation’s nuclear verdicts stemming from four states: California, Florida, New York, and Texas. The top ten venues known for litigation tourism or an eagerness to expand civil liability include:
Ultimately all of these factors culminate in higher claim payouts. These payouts lead to higher loss ratios for insurance companies. This means they are paying out more in claims than they are collecting in premiums, which forces them to raise rates to cover the increased costs.
In fact, social inflation and nuclear verdicts increased commercial auto claims by $20 billion between 2010 and 2019. Aside from auto, other lines of coverage, such as Medical Professional Liability, Directors & Officers, and Umbrella/Excess Liability, are also significantly impacted.
Nuclear verdicts and the trends driving them have a profound impact on the insurance industry, leading to higher rates for policyholders. Depending upon your business’s industry, operations, and location, you may be disproportionally impacted by the risk of a nuclear verdict. For more insights into your area, reach out to a risk expert at The Miller Group.
