FraudBlog: Nuclear Verdicts & Insurance Fraud

Posted by Kendra Smith
The latest FraudBlog edition comes from Matthew Smith, Executive Director of the Coalition Against Insurance Fraud.

BY MATTHEW J. SMITH, Esq. | July 1, 2021

The Coalition tries very hard to “stay in our lane” of fighting insurance fraud. We normally shy away from broader issues in the world of insurance, or at least until they impact the anti-fraud effort. One of today’s “buzzwords” in the area of insurance appears to be “nuclear verdicts.” As an insurance litigator for many years, I am well-acquainted with the high risks associated with insurance litigation, especially when issues are raised asserting allegations of insurance fraud and an ensuing bad faith lawsuit is filed.” I am reminded of one case where the plaintiff’s attorney placed a compensation demand in the lawsuit which simply asked for “all of the insurance company’s assets.”

Increasingly we are seeing the rise of nuclear verdicts impacting insurance fraud –– particularly in the arena of legislative advocacy. From no-fault in Florida to towing fraud, the specter of the “nuclear verdict” is now a part of the anti-fraud legislative vocabulary.

Anytime a verdict moves beyond fair compensation or reasonable monetary punishment, the result is not beneficial to anyone other than the litigant and the attorneys involved. But in the race to utilize “nuclear verdicts” to drive tort reform, or other insurance legislation, I would respectfully submit that laying the blame at the feet (or perhaps the mouth?) of overly aggressive plaintiff attorneys may be only part of the story. If we are going to fairly analyze why insurance carriers are now so concerned about these explosive jury verdicts, let’s look fairly at some other factors at play in our culture:

• Insurers most frequently cite the dramatic rise in jury awards over the past 20-30 years — a statistic that appears accurate and verifiable. However, two other things arose in America during this same period which are never addressed. First is the rise of state and then multi-state “power ball” lotteries and second, the expansion of gambling. Lest you think I am some arch-conservative, far from it and I support both. However, no one is analyzing the impact these events have on jury verdicts. If I can buy a $1 ticket and win $200 million or more, what is it worth for someone losing an eye, leg or their life? When lotteries started the big prize was $1M. Now most people will not even buy a $1 ticket if the “jackpot” is that low. Likewise, if I can bet on my team or play the slots and win “big,” by what reasonable measure do I then ascertain the value of monetary compensation? Televised poker tournaments routinely offer winner pools of $20 million or higher. The reality is these actions have “devalued” how many jurors may view what amounts to “reasonable” compensation.

• In 1985, the total national debt was $1.95 trillion. While a staggering number, it in no way compares to today’s $27 trillion. In March, the U.S. Congress passed and the President signed the most recent COVID-19 stimulus bill with a price tag equaling, in one bill, the same $1.9 trillion cost as the 1985 total debt. During this same time, by contrast, the U.S. inflation rate has been consistently low, in most years remaining below 2%. As government spending expands exponentially, many Americans have become numb to hearing dollar amounts in the billions and now the same appears to be true with trillions of dollars in spending. With those figures routinely touted as “reasonable” and “necessary” what has the ensuing impact been in the courtroom on awarding “mere” millions to compensate for injuries or what jurors view as unfair business practices? 

• So called “nuclear verdicts” occur when jurors get angry. Insurers are an easy target to get heated about for a number of reasons. Some deserved and some not. For years, I have said insurers themselves are creating a large part of the problem when it comes to losing consumer trust. Look at insurers TV advertising. It is unlike any other business. One national campaign says, “You didn’t buy the wrong policy, you bought the wrong company.” CURE insurance has TV ads running in which another company’s insurance executive describes the way they treat their policyholders as “not illegal but just immoral,” and Lemonade has taxi toppers in NYC which read: “Insurance without 100 years of screwing you over.” Insurers run these ads and jurors see them. No other business tries to sell their products based on telling consumers/jurors their competitors are immoral and unethical. Does Honda run ads saying if you buy a Toyota you will die in a crash? Does Budweiser allege if you buy Sam Adams you may die of poisoning? These ads send the message insurance companies are bad and should not be trusted. With such messages being sent repeatedly, insurers should not be surprised when jurors act in accordance with the messaging insurer’s own ads have delivered.

• Large verdicts often occur because the case was not presented properly in the courtroom –– something very near and dear to me for 35 years of my life. From the time I began practice in 1985 through my 2017 retirement, the world of insurance litigation changed dramatically, and in my view not for the better. Beginning in the 1990’s insurers started cracking down –– often legitimately, on outside panel counsel firms’ billing practices. Like many things though, they may well have gone too far. Overly restrictive litigation controls and billing audits were started and continue through today. When assigning defense counsel to an insured, it is often a race to the bottom to see what law firm will do the work for the lowest possible rate. One carrier started a web portal where cases are posted and law firms “bid” for the case, with the low bidder winning. As a result, many excellent law firms stopped and continue to refuse to take insurance cases. Also, the way I, and virtually every other new attorney, learned how to properly jury try cases for insurers was by handling minor injury cases. Today, insurers save money by either paying those claims or assigning them to “in house” counsel. The result is traditional insurance law firms lost that business which they used to cover  basic operating expenses of offices, health insurance, etc. while training lawyers to move up and take on more complex matters. 

As you may have guessed, I am somewhat circumspect when it comes to the term “nuclear verdicts.” After nearly 4 decades in the courtroom, I never lost faith in our American jury system. I did not win every case and those I lost continue to perplex me to this day. In the vast majority of the cases  jurors listen, understand and act in accordance with the facts and law. But my voice will not stop the hue and cry associated with “nuclear verdicts” or their use as an argument to support or oppose legislative efforts. In the final analysis though, we should be willing to consider the totality of the factors which influence and drive jury verdicts in the world of insurance litigation. The impact on insurance fraud is real.

If insurance companies are unwilling to jury try cases based on a real or perceived fear of “nuclear verdicts” the result will unfortunately support and encourage insurance fraud. Fraudulent claims will not be investigated, claim decisions will be made to simply pay the scammer to avoid litigation risks. And even after a suit is filed, cases will be settled rather than trusting the jury to see the fraud and support the insurer’s decision. No matter how you look at it, such actions create a never-ending downward spiral for both insurers and for consumers who ultimately pay the cost of fraud in higher premiums. Perhaps that is the “nuclear winter” we should all be more concerned about addressing.

About the author: Matthew J. Smith, Esq. is the Executive Director of the Coalition Against Insurance Fraud. He can be reached at [email protected]