If unchecked, social inflation, driven by the myriad factors discussed in this study, will become a self-perpetuating phenomenon that sends improper signals regarding the value of damages to jurors, judges and defendants. This will lead to higher insurance premiums, financial strain on insurers, depletion of municipal resources and disincentives for businesses to take risks. This hidden “tort tax” benefits no one except plaintiff attorneys and their clients who engage in practices that lead to social inflation.
There are two broad responses that need to be pursued to combat the perpetuation of social inflationary pressures. One is to influence the development of public policy at the state and federal levels to reveal and control excesses. The second is for insurers and defense counsel to adopt and deploy more aggressive strategies that push back and formally object to tactics violating existing norms of courtroom behavior.
Younger, populist, anti-corporate juries are more prone to make larger awards than baby boomer jury pools. Plaintiff attorneys making good use of the “reptile theory” to provoke jurors to punish defendants painted as dangerous to society have led to staggeringly large verdicts. The combined impact of these trends has led to more and larger lawsuits, as well as year-over-year increases in “nuclear verdicts” — verdicts in excess of $10 million.
Some elements of the COVID-19 litigation torrent fit squarely in Buffet’s meaning of social inflation: expansion of what insurance policies cover. To be sure, the plurality of the 10,000 coronavirus suits filed involve insurance coverage litigation, with plaintiffs seeking coverage for business losses in policies where insurers maintain coverage does not exist.