“Social inflation” is a phrase that crops up these days when people are talking about civil damage awards. As an explanation for a wave in so-called “nuclear verdicts,” social inflation refers to the phenomena of typical damage award levels rising over time as the population gets more comfortable with those big numbers. While the idea is discussed most frequently in the insurance field (e.g., see Pain & Geneva Association, 2020) — often as a reason why premiums are increasing faster than baseline inflation — more broadly it signals an instance of “anchoring” at the societal level, and a broad and growing desensitization toward larger numbers. As we hear more examples of these big numbers — be they verdicts, or fines, or even business deals — the big numbers start to seem normal, and your average person will be less likely to experience a “sticker shock” reaction to a large ask, and more likely to think the situation might call for a high number.

There are both anecdotal and research-based reasons (see Oh, 2020) to believe we’re in a social inflation season. Both high-profile example verdicts, as well as median verdicts in a number of litigation areas have been increasing. Some have turned to caps and other tort reform steps as the answer, but there are reasons to not see that as the only answer, or necessarily an answer at all (see Klein, 2023). In this post, I will briefly look at what defendants ought to do to address the trend both inside and outside of the courtroom.

Outside the Courtroom: Better Case Assessment 

Insurers need to model the risks they face. That is the nature of their job. When it comes to litigation, however, quantifying risks has always been a difficult task. But with the trend in verdicts, as well as the trend in cases being resolved outside of trial, it has become even more difficult. Yes, you can look up past verdicts in similar cases in similar venues, but increasingly, the prior cases that go all the way to a courtroom verdict are unicorns. The prior cases can simply be unavailable, or those that are available can be a poor fit and a misleading baseline for many reasons.

So what is needed is research on the actual case. And if the concern is specifically with damages exposure, then what is needed is not just a mock trial, but a mock trial that is tailored to the damages question. The research can be customized so that mock jurors have time, not just to hear a few numbers thrown out by both sides, but also to hear some detail on the foundations for those numbers. One approach that we have used, for example, is to run a day-long conventional mock trial, then at the end of day, we pull aside those mock jurors who found for the plaintiff on liability and cause and invite them back for a second day where they hear greater detail on the damages that are being requested. Then we are able to get a better test of how the ultimate jury might respond to the more complete damages picture.

Once you have assessed the case, don’t be shy about getting it resolved. As I wrote in a recent post, there is also a benefit as a defendant in making the first offer.

Inside the Courtroom: More Attention to Defense Anchors 

The reality is that society has been doing some of the plaintiffs’ work for them in repeating and amplifying the message that today’s verdicts are coming in big. In response, defendants need to give more attention to the factors that keep damage numbers lower. One of those factors is motivation. When plaintiffs do well, it is often because they focus (as approaches like the Reptile counsel reveal) on what would make jurors want to favor their side: What would a jury be protecting, or advancing with that verdict? Defendants ought to ask themselves the same question: In returning no damages, or in keeping damages realistic and grounded, what principle would that be preserving, or what message would that be sending, and why might that message be a good one? Safety can be a strong motivator for plaintiffs, but there are other motivators that can work in defendants’ favor: protecting choice, responsibility, and an effective marketplace, for example. Answers will vary for each case, and judges will limit how much you can explicitly “socialize” the benefits of a verdict, but defendants ought to be at least asking themselves what societal benefit there would be in avoiding a high verdict, and working those values into the case message.

It is also more important than ever for defendants to be offering their own reasonable and grounded anchors if they feel there is any chance of jurors getting to the point of awarding damages. If the only anchor is the plaintiffs’, then that is going to elevate the dollar amount at the end.

Ultimately, an inflationary spiral on verdicts can be a self-perpetuating tendency. The more large numbers we hear about, the more large numbers seem like the norm. Defense attorneys and insurers need to account for that and strategically react.

Klein, K. S. (2023). A Critique of the Literature on Social Inflation. Available at SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4396611

Oh, S. (2020). Social inflation. Available at SSRN 3685667. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3685667

Pain, D., & Geneva Association. (2020). Social Inflation: Navigating the evolving claims environment,”http://doc.genevaassociation.org/sites/default/files/social_inflation_brief_web.pdf

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