Every year, more people are electing to resolve their disputes in a courtroom in hopes of a bigger payout. Nuclear verdicts, the phenomenon of jury awards that exceed $10 million, are impacting the commercial transportation industry and leading to an upsurge in litigation which in turn, is driving up insurance claim costs and premiums. Here, we’ll shed some light on this complex issue and explore its implications as the industry navigates this litigious landscape.

A big problem that’s getting even bigger

Over a seven-year time span, the number of lawsuits with verdicts of over $1 million increased by 335%, according to research by the American Transportation Research Institute. During that same period, verdicts between $1 million and $2 million increased by 300%.

While nuclear verdicts are putting a significant financial burden on the commercial transportation sector as a whole, it is smaller companies and independent operators that are being particularly challenged. Compared to larger operations, smaller companies are disproportionately affected in that they don’t always have the financial resources to absorb the increased insurance costs and risks.

Social inflation: A key contributor

A significant factor contributing to the rise of nuclear verdicts in the commercial transportation industry is social inflation. According to the Risk Placement Services Inc. 2021 U.S. Transportation Market Outlook, social inflation is a key driver of nuclear verdicts in the commercial transportation industry.

Social inflation in the commercial trucking industry refers to the rising costs of insurance claims that are increasing above general economic inflation. Social inflation is characterized by:

  • Increasing litigation costs brought by plaintiffs seeking large monetary relief for their injuries.
  • Sympathetic juries who perceive big businesses such as transportation companies as having deep pockets and being responsible for plaintiffs’ injuries.
  • Rapidly expanding third-party litigation funding sources (also known as litigation financing or lawsuit lending). This is a practice is where an investment company or other third party provides financial resources to a litigant to cover all or part of the trial costs. In return, the third-party source receives a portion of the damages awarded.

As the rise in nuclear verdicts continues to threaten the industry and increase claim costs, some of the larger commercial trucking carriers have scaled back on renewals, coverages, limits and excess insurance, with many exiting the transportation market altogether. Unfortunately, as the commercial transportation sector seeks out solutions to mitigate the impact of these verdicts and ensure its sustainability, many operations are offsetting insurance expenses by reducing coverage where they can in order to save on premiums.

“Scaling back on insurance puts a company at greater risk should they become involved in an accident,” says Colby Waltenburg, president of Transatlantic Underwriters. “For example, if a plaintiff is awarded a $30 million court settlement and the trucking company’s insurance policy will only cover the first $10 million, the company would be responsible for the remaining $20 million. I don’t know many operations that can easily absorb this type of financial hit in today’s economic climate.”

Conclusion

Mitigating nuclear verdicts in commercial transportation claims is an ongoing challenge, one that wholesalers that specialize in the industry are helping to solve. Serving as connectors, transportation wholesalers play a pivotal role in linking brokers to carriers, underwriters, and other industry players that can facilitate access to a wide range of markets, specialized products, competitive rates, and writing capacity. Today, brokers are leveraging these partnerships to find solutions that align with their clients’ needs and to better mitigate the risks associated with high-stakes legal outcomes.

“Nuclear verdicts can result in massive financial burdens for transportation companies of all sizes. As a wholesaler that specializes in the transportation sector, we’ve made it our business to help our retail brokers secure the coverage needed to protect their policyholders against potentially devastating verdicts,” says Waltenburg.

About Transatlantic Underwriters

At TAU, transportation is our sole focus — and has been for over 30 years. Our principals and underwriters have over 80 years of combined experience dedicated to the automotive industry, which has earned us a well-respected reputation in the transportation market. This recognition has opened global channels that include leading transportation insurance carriers, allowing us to deliver competitive options from a wide variety of markets for North American commercial auto liability, auto physical damage and motor truck cargo insurance.

If you have questions or want to learn more about our products and services, please contact Colby Waltenburg at cwaltenburg@tau-usa.com.

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