In this article, we provide insights into the US legal environment. The rise in social inflation is linked to the public’s sentiments regarding the corporate world’s responsibilities towards employees, customers, and the general public, increasing jury verdicts against corporations for alleged wrongdoing. These high damage awards are blamed for a growing number of claims, and settlement values, causing unrest amongst insurers.
While social inflation is a term that has been floating around for decades, it has become one of the more highly discussed topics throughout the insurance and legal worlds. Social inflation is rooted in a fundamental philosophy, the “us vs them” struggle, between capital rich corporations and the hard working yet financially insecure, and vulnerable individual. This mentality may provide prospective jurors with a desire to even the score card and punish corporations with nuclear verdicts, typically described as verdicts over $10M or more, even when the dollar amount exceeds the damage caused to an individual.
Often, nuclear verdicts are depicted in the U.S. media as celebratory wins, where “evil corporations” are punished, and justice is served. This sentiment is especially true with younger and more diverse jurors who are consistently wary of corporate intent and perceived greed.
While precise data concerning nuclear verdicts is often varied, studies consistently demonstrate an upward tick in nuclear verdicts, with an increase of over 27% in 2023.1 Perhaps more startling is the that the number of verdicts over $100M in 2023 was up nearly 400% from 2013.2 Not surprisingly, California, Florida, New York and Texas were the states topping the chart with the most nuclear verdicts from 2013–2022, with California and Florida reaching nearly 200 verdicts.3
Third party litigation financiers (TPLFs) remain controversial amongst insurers as they are viewed as enablers of social inflation. TPLFs pay legal costs such as attorney fees and court expenses and the plaintiff only pays back the funder if they win the case, typically in the form of a percentage of the settlement or judgment. Critics believe litigation financing provides attorneys with the valor to file prohibitively expensive, frivolous lawsuit with the goal of reaching large settlements or obtaining nuclear verdicts against deep pocketed corporations.
Alternatively, some studies have determined that TPLFs merely provide access to justice for those who cannot otherwise afford it. These studies indicate that TPLFs do not have an impact on the number of cases filed or the dollar amount awarded to a plaintiff through settlement or a jury verdict.4 It is therefore arguable that, litigation financing merely provides a vehicle to finance larger, high stakes cases that demonstrate a probability of success of the merits. Proponents of TPLFs assert that litigation financing weeds out frivolous cases that would not be fruitful to pursue and may reduce bullying and delay tactics utilized by disingenuous defense firms.
Certain trial tactics used by plaintiff’s attorneys have been attributed to the increase in large jury verdicts that contribute to social inflation. In particular, the tactic known as “Reptile Theory” has come under significant scrutiny by the insurance industry. The “Reptile Theory” is most often used in cases involving automobile accidents, premise, and construction liability, typically painting the defendant corporation or insurer as an unscrupulous and dangerous bully. Demonizing the corporate defendant triggers a jurors’ ‘survival instincts,’ leading them to consider the corporate defendant as a threat to public health and safety, requiring punishment in the form of large jury verdicts. The tactic is utilized to convince a jury that the power is in its hands to award damages to punish corporate bad actors and further deter future bad behavior.
International corporate defendants may be an easy target for Reptile Theory tactics.
Jury anchoring occurs when the plaintiff’s attorney suggests a large and often exaggerated damage award early in the case, relying on jurors to use this number as an ‘anchor’ or a reference point in determining the actual damages awarded. This tactic can be effective as most jurors have never been placed in a position to award damages to an individual and will rely on the “expertise” of a seasoned attorney to guide them. Even if the number appears egregious to the rather naïve juror, they will usually consider it throughout a trial as the reference point on which to move up or down.
International corporate defendants may be an easy target for Reptile Theory tactics. It is practically inevitable that a zealous plaintiff’s attorney will attempt to villainize the foreign defendant as a greedy corporation who looks to capitalize on the U.S. market while undermining the safety of its residents. This tactic may more significantly impact jurors who have become jaded by the idea of imports due to recent tariff discussions and executive orders issued by the Trump administration.
However, an experienced defense attorney will recognize reptilian tactics during the preliminary pleading stage, providing the opportunity to work with the client to prepare an effective defense. Specifically, pleadings referencing violations of safety rules or allegations that the corporate defendant has endangered the public or community through its actions, should raise a red flag that the corporate defendant will be villainized as a habitual bad actor. Further, allegations of negligent hiring, training or supervision indicate the plaintiff’s attorney will attempt to introduce prior incidents or accidents that may not be relevant to the lawsuit. In order to avoid poisoning the jury pool into thinking the defendant consistently places the public in danger by ignoring or violating safety rules, it is important for defense counsel to limit the evidence to only the accident or incident at issue.
The Reptile Theory can also be challenged through testimony by past or current customers’ positive experience with the defendant as well as expert testimony stating that the practices and procedures implemented by the defendant provide a safe environment or product for the public. It is therefore important to advise insureds to prepare and regularly update documents setting forth their practices, safety measures, quality control, and employee guidelines to demonstrate their prioritization of safety and/ or quality through diligent implementation and record keeping of proper procedures. However, defense attorneys should ensure the jury does not believe that a company’s violation of stringent internal policies and procedures automatically implies that it breached its legal obligations.
Jurors inexperienced in the law and/or insurance claim handling are typically more susceptible to anchoring techniques as they are uninformed about the realistic settlement value of a case. The high verdicts often publicized in the news media also normalize these types of verdicts in the mind of the average juror. In order to combat anchoring tactics, defense counsel should acknowledge plaintiff’s egregious demand during opening and closing arguments, informing jurors that plaintiff is utilizing a psychological technique to detract plaintiff from the evidence that will be presented. The defense may also use realistic examples of how anchoring affects sentiment in everyday negotiations such as setting the price of goods or salary discussions.
While the Trump administration has promised to serve as a zealous business advocate, it remains to be seen whether this will impact social inflation and associated nuclear verdicts. However, it should be noted that most nuclear verdicts arise from state court cases while policies and orders arising out of the Trump administration will have a greater impact at the federal level. It is clear that the plaintiff’s bar has worked hard and effectively to incite feelings of anger amongst jurors who ultimately believe a nuclear verdict will deter future corporate bad acts. Unfortunately, it does not appear this tactic will become any less effective during 2025. Therefore, defense attorneys should work closely with insurance carriers and their insureds to implement stringent internal policies and procedures to avoid litigation, or aggressively defend reptilian trial strategies in order to humanize the alleged corporate wrongdoer in the mind of a jury.