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‘Game Changer’: Florida Supreme Court Ruling Could Chill Punitive Damages Claims

Punitive damages, long the scourge of businesses named in lawsuits, and a tricky issue for insurers, may soon be much harder to come by in Florida after a recent opinion handed down by the state Supreme Court.

“This will definitely chill plaintiffs’ requests for punitive damages,” said Robert Jarvis, a professor at Nova Southeastern University College of Law in Fort Lauderdale.

In a 6-1 decision posted Jan. 6, the high court approved an appellate procedure rule change that will allow interlocutory appeals on whether lawsuits can include demands for punitive damages. The rule will take effect April 1. Until then, litigants have had to wait until the end of a trial to appeal punitive damage claims.

The practical effect of the new rule may be that the appeal, now to be allowed during the midst of a lower court lawsuit, could take months. That will add delays to litigation and will ultimately discourage many plaintiffs from seeking punitive damages and pressing ahead with trials, some attorneys said.

Defendants in lawsuits will like it when an appeals court bars punitive damages, and plaintiffs will smile when the damages are allowed to be considered, said Curry Pajcic, a Jacksonville plaintiffs’ lawyer. But despite the outcome, “It’s going to increase the cost of litigation” for both sides, he said.

A tort-reform advocate called the ruling a “game changer” that would help prevent rifts that often arise between insureds and insurers when hefty punitive damage awards are at stake. Many liability policies, per statute, will not cover punitive damages. That often prompts policyholders to settle suits prematurely, said William Large, president of the Florida Justice Reform Institute. In many cases, the insured will hire outside counsel to handle that.

“Prior to this rule change, parties had to wait until the conclusion of a trial to address the issue with an appellate court,” Large said. “Seldom did parties get to have an appellate review, because of insureds’ pressure on insurers to settle the case. Finally, defendants and insurers will be afforded the due process they have been lacking.”

A deterrent to punitive awards could potentially affect insurers in bad-faith claims. In some cases, insurance companies can be held liable for punitive damages if a court finds they behaved in a particularly egregious manner, according to an article by Orlando-area attorney Sean Schulz.

Kansas Gooden, president of the Florida Defense Lawyers Association, which spoke in favor of the rule change, said it is something that 20 Florida appeal court judges have asked for through the years.

“This will give an extra layer of protection to defendants’ right to privacy,” she said.

The Supreme Court’s new rule is striking because the court took the initiative on its own, attorneys said. Instead of the usual path for procedural rules – responding to a request from the Florida Bar or an action by the Legislature – the court in this case was the initiator that asked a Bar committee in 2020 to draft the rule.

“They used the Bar as fig leaf,” Jarvis said. “This was so unnecessary. No one was clamoring to change the interlocutory rules on punitive damages.”

It was not clear from the order which justice initiated the change, but the move is another example of Florida’s government and its governor-appointed justices taking a pro-business, pro-insurance, anti-plaintiff turn to the right in recent years, Jarvis argued.

“The courts, especially at the Supreme Court and the appellate courts, have become very hostile to punitive damages,” he said.

Justice Jorge Labarga wrote a sharp dissent to the ruling. Labarga, appointed by Gov. Charlie Crist in 2009, wrote that the “drastic change” will result in needless delays.

“Of particular concern are tort cases involving personal injury, where claims for much needed medical and economic relief will stall until the question of punitive damages is resolved,” Labarga wrote. “Access to our judicial system with claims authorized by law should not be impeded by unnecessary delay and resulting additional expense.”

He quoted from the Florida Bar committee that drafted rule, which noted that no other state has a similar procedure. While the committee and the Bar’s board of governors approved the change, the committee did so grudgingly, Labarga said.

In years past, the committee had declined to recommend the interlocutory rule change. But this time, the Bar members indicated they felt directed by a mandate from the Supreme Court, he said.

Labarga also pointed out that the majority of the justices had professed support for the change due to a concern about the privacy of litigants’ finances. State law forbids discovery of a defendant’s net worth until after punitive damages claims have been pleaded in court. Now, if an appeals court bars punitive damage claims, the plaintiffs cannot proceed with discovery of financial information.

Labarga noted that finances can easily be shielded by a confidentiality order, without abandoning the long-standing and efficient procedure the courts have relied upon.

Others said that businesses’ and jurists’ concerns over punitive damages may be overblown. Florida law already limits punitive awards, in most cases, to no more than three times the amount of compensatory damages or $500,000, whichever is greater. In cases in which the defendant knew the injurious activity was dangerous and pursued it purely for financial gain, punitives are limited to four times the compensatory amount, or $2 million.

In cases of deliberate intent to harm the victim, the law puts no cap on punitive damages.

Crash course: Injured patients who sign ‘letters of protection’ may face huge medical bills and risks

Jean Louis-Charles couldn’t afford spine surgery to ease nagging neck and back pain after a car crash. So he signed a document, promising to pay the bill with money he hoped to get from a lawsuit against the driver who caused the collision.

That never happened.

Louis-Charles, 68, died hours after the operation at a South Florida outpatient surgery center in March 2019. The surgery center had put him in an Uber with his wife, Marie Julien, according to depositions. After a 60-mile ride home, he collapsed, court records show.

Her husband’s death left Julien to deal with more than $100,000 in medical debt, as described in the “letter of protection,” or LOP, that Louis-Charles had signed.

In signing an LOP, people generally pledge to cover the costs of their care even if it exceeds what they win in a lawsuit or other settlement — and even if the prices are far higher than most doctors would charge.

The agreements are legal and binding in many states, though Florida appears to be the epicenter of their use in personal injury cases. Advocates say the letters throw a lifeline to low-income people who need vital medical care for injuries caused by the negligence of others and don’t have the money or insurance coverage to pay for it. Doctors and surgery centers that accept LOPs say they often wait years for a lawsuit to settle before being paid, if at all.

A KHN investigation found that letters of protection can saddle patients with medical debt — and drive a personal injury care system that operates with little oversight despite widespread complaints of grossly inflated billings and other problems that can place patients at risk.

Marie Julien blamed Dr. Kingsley R. Chin — a controversial Hollywood, Florida, surgeon who has accepted LOP payments for more than a decade — for her husband’s death after the spinal fusion procedure. Last year, she filed a malpractice suit against Chin alleging that Louis-Charles died after he “was discharged home while still in pain and with signs and symptoms of post-operative complications.” In court papers, Chin denied any negligence.

“We felt that the way the whole thing happened was very bizarre,” Julien, 71, a certified nursing assistant, recalled in a deposition taken in the case.

A ‘Terrible Situation’

Just before 8 a.m. on New Year’s Day 2018, Louis-Charles’ car was stopped at a red light near his home. Suddenly a white police vehicle, driven by a Palm Beach County Sheriff’s Office detective, backed into his Toyota Corolla, hitting the passenger side door, according to a police report.

In her deposition, Julien said Chin operated on her husband’s shoulder in 2018. But that didn’t help much, and Chin recommended more extensive surgery, she said. “I wasn’t happy at all with that idea,” she added.

Julien said she relented because Louis-Charles’ pain was getting worse “day by day” and he had confidence in the surgeon. The Aventura Surgery Center in Hallandale, Florida, where Chin had served as medical director, sent an Uber to collect the couple the morning of March 12, 2019, Julien said.

During the two-hour spinal fusion, Chin replaced three disks with an implant he invented, according to his deposition. The patient spent an hour or so in a recovery room before a nurse wheeled him out to a waiting Uber just after 3 p.m., according to Chin’s testimony.

Louis-Charles couldn’t speak, but signaled he was in pain and struggled to breathe during the hourlong ride home, according to Julien’s deposition. She helped him walk through the front door of their Riviera Beach home. Once inside he collapsed, she testified.

A fire rescue crew rushed him to a hospital in West Palm Beach, where he died just after 5:30 p.m., according to a Palm Beach County Medical Examiner’s autopsy report. The medical examiner ruled the death an accident caused by “post-surgical bleeding with airway compression.”

In his deposition, Chin said that Louis-Charles “looked great” heading out to the car and that traveling along the urban Interstate 95 corridor the driver was “at any given time probably within 10 minutes or so” from a “major hospital or emergency room.”

Chin called the outcome a “terrible situation” and told Julien’s lawyer during the deposition: “I just hope you can appreciate how much I regret what happened.”

Asked how her husband’s death has affected her life, Julien said: “How can you find words to explain such a thing?” The couple wed in 1987 in Miami after moving from their native Haiti, where he worked as a house carpenter.

“It’s been almost two years now. I have not been able to sleep on [the] bed” she shared with him, she said.

In late September, Julien and Chin settled the suit under confidential terms and the bills were “written off,” according to Kevin Smith, an attorney who represented Julien. Chin has denied any liability.

‘A Mixed Bag’

Though little-known to the public, letters of protection are commonly used to finance major medical care in personal injury cases, including costly orthopedic surgery.

Attorneys who refer injured clients to willing doctors say the liens are their best tool for ensuring clients not only gain access to care, but also are in a position to win fair settlements from insurance companies that fight to minimize their liability and costs.

An LOP form used by some Florida medical providers says they agree to wait for payment as a “courtesy” to the injured person, adding in boldface: “We understand insurance companies have unlimited resources, will hire defense lawyers and defense experts that will cause our payment to be delayed for months or years.”

The business community and insurers counter that LOP providers grossly inflate their medical fees to give juries a false picture of the costs of medical care.

“The sole purpose of the LOP, why it exists, is to drive up verdicts and settlements,” Lauren McBride, a lawyer for Publix Super Markets, a chain with more than 800 stores in Florida, testified in a state legislative hearing in February 2019.

McBride said that nearly two-thirds of “slip-and-fall” injury claims in Publix stores involve letters of protection. In more than half those cases, the injured person had some form of insurance but declined to use it, she said. In some cases, injured people traveled long distances for costly care they could have received closer to home at far less expense, she said. She also argued that LOPs give doctors an incentive to overtreat patients “to keep driving up medical bills” — and persuade juries to award big verdicts.

Kevin Leahy, an Austin, Texas, lawyer who has researched the practice there and represented clients on both sides of the debate, said LOPs deserve more scrutiny. “It’s a mixed bag,” he said. “There are definitely abuses going on. There are also hurt people getting care they need to get better.”

Leahy said LOPs have helped create a “liability-based” health care network with few checks on its financial dealings or other standards. He called it “unregulated, opaque and not fully accurate about charges.”

Across the country, LOPs have been tied to a range of alleged medical overcharges or other billing abuses, court records show.

Nearly 200 women from 42 states, for example, have joined a class-action suit that alleges doctors and lawyers talked them into signing LOPs promising to pay for surgical removal of pelvic mesh — whether they needed it removed or not.

The women allege that the doctors billed sky-high rates and told them their insurance would not cover the cost, so signing an LOP was the only way to safeguard their health. Private insurance would have paid about $8,000 for these services, far less than the $76,000-plus the women were charged under the LOP, according to the suit, filed in late August. The case is pending. Six doctors have filed motions to dismiss the case.

In a 2020 federal civil case, evidence emerged that a Texas spine surgeon charged nearly $400,000 under an LOP for procedures that Medicare would reimburse at less than $20,000, court records state.

Reviewing court cases in Florida, KHN found dozens of examples in which patients who signed LOPs alleged they were later sued for payment of excessive fees or received substandard medical care.

‘Unnecessary and Dangerous’

On the day of his spinal surgery, Louis-Charles signed a letter of protection that read in part: “While I am injured and need care, I cannot financially afford to pay your bill at the time services are rendered, I therefore, grant this provider a lien on my claim against any and all proceeds from any settlement, insurance benefits or judgment.”

The documents said he would be charged “what is usual and customary for our area.” But the fees were much higher than private health insurance would cover or what the Medicare fee schedule provides for.

The Aventura Surgery Center, co-owned by Miami personal injury attorney Sagi Shaked, billed nearly $100,000 for the operation, court records show. Two other Shaked-affiliated companies billed more than $35,000 for surgical supplies and anesthesia, according to the court records. Shaked did not respond to numerous requests for comment. In his deposition, Chin said he no longer operates at the Aventura Surgery Center.

Mark Woodard, 54, who was rear-ended in an April 2017 car crash in Fort Lauderdale, had three spine operations at the Aventura Surgery Center performed by Chin under a letter of protection.

His bills topped $430,000, including $179,500 for the surgery center, $177,972 billed by Chin’s medical office and $39,327 for implants from SpineFrontier, a Massachusetts medical device company Chin owns, court records show.

“These charges are way out of line,” said Michael Arrigo, a medical billing expert in California asked by KHN to review Woodard’s bills. Arrigo said “usual and customary” charges would be less than one-fourth of what was billed.

Woodard, who has worked as a painter and maintenance technician at beachfront hotels in Fort Lauderdale, argues in his lawsuit that his injuries from the crash were “nothing more than cervical and lumbar sprains and strains … such that no reasonable physician would have performed surgery other than for monetary purposes.”

According to Woodard’s lawsuit, Chin persuaded him to have multiple operations and during one tore a 1-centimeter hole through a nerve root, leaving him in “extreme agony and excruciating pain.”

The suit, filed in March 2021, alleges the surgery center offered Chin a “safe haven to perform his unnecessary and dangerous surgeries.” It also alleges that Chin “was unable to perform surgery at any hospital in the state of Florida and most if not all surgery centers where he had applied had either denied him privileges or he had his privileges revoked at multiple hospitals.” In court filings, Shaked has denied the allegations and any liability.

Chin also has denied any negligence in court filings and in a deposition called the fees he charged “reasonable within the community.” Woodard’s lawsuit is pending in Broward County Circuit Court.

Chin has been sued repeatedly for medical negligence, including several cases involving LOPs. He has been sanctioned by physician-licensing boards in three states, unrelated to his use of LOPs.

In early December, the Florida Department of Health, which licenses doctors, issued Chin a “letter of concern” and fined him $8,000. The action settled a state administrative complaint alleging that in August 2019 Chin sent home a 73-year-old man who suffered from complications of spinal surgery who should have been transferred “to a higher level of care in an inpatient setting (such as a hospital).” Chin disputed the allegations.

Separately, federal agents arrested Chin in early September in Fort Lauderdale on kickback charges as CEO at SpineFrontier, which sells spinal implants he invented and used in operations on Louis-Charles and Woodard. Chin has denied the civil allegations and has pleaded not guilty to the criminal charges.

In October, a federal judge ordered Chin to post a $500,000 bond secured by his Florida home. He is free to travel within the country “for business purposes only” and may travel one time per month to Jamaica “only for the purpose of practicing medicine there,” the order states. Chin has active medical licenses in Florida, Arizona, New Jersey, New York and in Jamaica, according to documents he filed with the court.

A ‘Complete Shock’

By its own account, the Broward Outpatient Surgical Center and its affiliates in Pompano Beach, Florida, have treated more than a thousand patients under letters of protection. But the billing practices — one lawsuit called its fees “astronomically unreasonable and inflated” — have been criticized in court filings for years. These cases often settle under confidential terms.

One patient argued in a lawsuit that injured patients were “bounced around” a web of affiliated clinics for services that included chiropractic care, pain injections, physical therapy and, finally, surgery, all done with no caps on the costs. The center denied the allegations, and the case has since been settled.

Albert Frevola, an attorney for the center, said that prior to treatment patients are given a price list and sign an agreement to pay the bills out of any settlement of their personal injury claims. He said the center serves many patients “who can’t afford to get medical care. It’s a service that is valuable and needed.”

Some three dozen former patients have filed a recent mass tort lawsuit alleging medical malpractice and billing fraud by the surgery center and its owners, chiropractors Brian and Craig Bauer, who are brothers. The suit also names spine surgeon Dr. Merrill Reuter, court records show. Neither Reuter nor his lawyer responded to requests for comment.

The patients allege they visited the center after a car crash or other accident and were persuaded to have spinal surgery. In some cases, the operations either were billed as more complex than they were, or not done at all, according to the suit. Patients often have run up bills of $100,000 or more under LOPs, court records show. “Due to the fact that personal injury patients rarely, if ever, use their private health insurance for such health care services, the Bauers and the Bauer entities were able to get away with charging inflated amounts,” according to the suit.

Frevola, who represents the brothers, said they “flatly deny” the allegations and “are sad and distressed that these accusations are being made by the same people they gave great care and medical treatment to.”

In a separate malpractice case, Terrell Harris, 37, alleged he was guided down a “treatment path” after a car crash in July 2017 that ended in surgery at prices “far beyond the scope of reason, let alone custom.” The center denied the allegations and filed a counterclaim accusing Harris of failing to pay for his care under the LOP.

The suit is one of eight pending in Broward County Circuit Court that make similar claims, including that of a woman who alleged she had the same pain after spinal surgery as she had beforehand. Nearly five years later, to her “complete shock,” an MRI found no evidence the operation she was billed for had been done, according to the suit.

In a February 2020 court filing in one of the cases, the center and Brian Bauer denied the allegations and called them “frivolous and scandalous.” They filed a counterclaim demanding to be paid for their services. The case is pending.

Warring Creditors

When fees are inflated under an LOP, patients can take home more money under an insurance settlement or jury verdict. But if a case settles for less than the sum of those bills, patients may be on the hook to pay the balance.

Lawyers who typically co-sign the LOPs try to persuade medical providers to reduce their fees, which often happens. When that fails, however, lawyers file a court action called an interpleader, which asks a judge to decide who gets what among warring creditors.

KHN reviewed dozens of Florida court cases in which medical creditors holding LOPs demanded payment in full. While many of these cases settled under confidential terms, court records show some accident victims ended up mired in debt or saw their damage awards drastically reduced by outsize medical billings and legal fees. In some cases, lawyers took home more than their injured clients.

That happened to Jose Merced, who fell and hurt himself after stepping into a hole outside his apartment in the Orlando area. He received a $75,000 settlement but incurred bills of more than $850,000 for operations and other medical costs, which he contested as “highly inflated,” court records show. The bills included more than $700,000 in orthopedic surgical and facility fees.

In August 2020, a judge allowed just over $35,000 to pay for the surgeries. Merced was awarded $10,000, while his lawyer got nearly $27,000, just over $18,000 of it for professional fees and the rest for expenses.

In some interpleader cases, lawyers asked judges for one-third of the total settlement for their fees, plus expenses, which can add hundreds, if not thousands, of dollars more to their share.

A law group founded by South Florida personal injury lawyer Robert Fenstersheib filed at least 50 interpleader cases in Broward County Circuit Court between January 2019 and October of this year. Fenstersheib, who was a fixture of local television ads as the “lawyer who listens,” was shot to death by his son in a murder-suicide in September 2020, though his Fenstersheib Law Group still operates under his relatives.

Many of the LOP patients now suing the Broward Outpatient Surgery Center and its owners were clients of the Fenstersheib firm, court records show. The center and the law firm did business for years, but the center sued the law firm in 2019 alleging the lawyers failed to pay it millions of dollars owed under LOPs. The law firm responded that it was a victim of a $6.5 million embezzlement by former employees who pocketed settlement money meant for the center. The suit was settled under confidential terms this year.

Federal prosecutors filed criminal charges against two former Fenstersheib employees in connection with the theft. In late November, one of the men, Michael Wihlborg, a 47-year-old high school dropout who had worked for the law firm for nearly two decades, admitted receiving more than $2.1 million in stolen funds from the scheme; he pleaded guilty to one count of conspiracy to commit wire fraud and three counts of filing a false income tax return, court records show. He faces up to 29 years in prison, according to court records. Co-defendant Matthew Matlock pleaded guilty to similar charges on Dec. 15, court records show. The law firm had no comment.

Ethics Question

Some lenders also accept LOPs as collateral for patients who borrow money to tide them over while their personal injury case winds through the courts, which typically takes years. Interest charges pile up fast.

A Miami man who was injured after a pile of wood fell on him at a home improvement store borrowed $51,400 from a finance company backed by an LOP in September 2014. He owed the company $140,322 three years later because of an interest rate of 18% charged every six months, court records show.

Doctors also can generate cash from letters of protection. While they argue they must wait years for payment, some spine surgeons sell the liens on a burgeoning medical debt market.

Court records in Florida show millions of dollars of these liens have changed hands when doctors sold them. Buyers paid 10% to 25% of the total amount of the bill and gambled they would be able to collect a tidy profit once a patient’s lawsuit was settled.

The ethics of doctors wheeling and dealing in patient bills and having a financial stake in the outcome of litigation has been questioned. An American Medical Association policy says such deals are unethical because “there is the ever-present danger that the physician may become less of a healer and more of an advocate or partisan in the proceedings.”

Dr. Scott Lederhaus, a retired California neurosurgeon who has reviewed personal injury cases for the defense, said some patients argue in depositions that under an LOP they never saw bills, so they had no idea of the extent of the medical costs they were incurring over time.

Lederhaus said there is little agreement on what is a reasonable medical fee and, as a result, doctors “are able to charge whatever they want” in personal injury cases.

And it remains unclear whether the No Surprises Act, which Congress passed last year amid a national outcry over huge and unexpected medical bills, offers patients who signed LOPs any protection.

“A lot of these doctors are under the impression they can do whatever they want and there’s not going to be any oversight by anyone,” Lederhaus said.

Kaiser Health News is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation which is not affiliated with Kaiser Permanente.

When fleets are hit with huge post-crash settlements, who pays?

By Matt Cole

This is the second of a two-part series on the growing trend of large court-ordered settlements in truck crash lawsuits.

In post-crash litigation in which juries order trucking companies to pay multi-million-dollar settlements, who actually foots the bill?

Mostly, it depends on the fleet, their size and their type of insurance.

Many larger fleets are self-insured up to a point, meaning they are on the hook for a certain amount of liability before their insurance company takes over. In the case of some of the largest trucking companies, they may be self-insured for $10 million, said attorney Charles Carr of the Birmingham-based law firm Allison Carr. If such fleets are hit with a verdict higher than $10 million, the trucking company would then have to payout $10 million before insurance comes in to pay the rest.

For smaller fleets that may just have $1 million in liability insurance coverage, which is common normal coverage amount (federal law requires a minimum of $750,000) the money owed in a verdict has to come from somewhere, Carr said.

“If there’s a $21 million verdict with only a $1 million policy, [the plaintiff’s] options are to either walk away and take the million and forget about the other $20 million or sue the insurance company that only offered $1 million for bad faith. Or if it’s a solid trucking company with trucks in their yard, send the sheriff in to seize those trucks and sell them,” Carr said.

Lee Parsley, general counsel for litigation reform group Texans for Lawsuit Reform, said the verdict amount announced from such cases isn’t always what gets paid out. In Texas, punitive damages, which are intended to punish the recipient on top of economic and non-economic damages, are capped based on a formula using economic and non-economic damages. That cap, however, is calculated post-trial.

“A jury is presented with the idea that a trucking company is rogue and needs to be punished, but in Texas, verdicts that have large punitive damage numbers won’t sustain into law,” he said. “After the verdict comes in, lawyers return to the courtroom, and the defense lawyer will say the damages are X and Y, so the punitive damages are capped at Z. We see a fair number of reductions in terms of judgements. There are no standards to punitive damages, and they can work purely off emotion. [Juries] think nothing of punishing companies for multi-millions of dollars.”

Mitigating chances of a verdict against your fleet

As noted in Part 1 of this series, the push for tort reform is in the works to try to reign in huge settlements against fleets. However, until any tort reform is accomplished, if ever, there are ways fleets protect themselves.

Annette Sandberg, CEO of TransSafe, said carriers should be sure to enforce all of existing safety policies and, at a minimum, enforce all regulatory requirements.

“Have processes on vetting and hiring drivers,” she said. “Some fleets might hire a driver and train them at the very beginning, and that’s the last time they’re trained. Have systems and processes in place for everything.”

Parsley said one thing he’s heard from trucking companies in Texas is that in-cab camera systems have helped protect them from liability.

Sandberg agreed, though fleets that adopt cameras also need to adopt processes for “how to enforce and use that tool,” she said. “You have to have a methodical process [on what to do with cameras]. What’s fireable, what’s egregious, what’s trainable?”

She also suggested that fleets work to get in front of the narrative post-crash.

“What you find with people on the defensive is they don’t talk to the press. I don’t know that that’s always a good strategy,” she said. “It doesn’t hurt to make it look like you’re aggressively investigating [an accident]. If you fire a driver, come out and say it. A lot of companies think they can hunker down and wait it out, but in this day and age, it never goes away. If your story isn’t out there, nobody’s going to hear it.”

Additionally, if you know your driver is at fault, “jump on it and deal with it early,” she said. “Don’t force them to take you to court.”

Carr said his firm has evaluated cases early to see if there is a chance a “case could ultimately become a nuclear verdict.”

If so, “we work really hard to resolve those kinds of cases early,” he said. “If you know what the value of [the case] is, and if your primary motivation is to get it settled within a few months after the accident occurred, you can do it. A lot of the industry doesn’t put the time and effort into doing that.”

Mega settlements in truck crash lawsuits ‘strangling the industry’ as calls for reforms mount

By Matt Cole

This is the first of a two-part series on the growing trend of large court-ordered settlements in truck crash lawsuits. Part 2, which will cover who pays for these settlements and how your fleet can protect itself against such verdicts.

Courts in recent years have taken up an alarming trend in crash litigation against trucking companies: Awarding mega settlements, sometimes regardless of fault, to plaintiffs who sue carriers after a crash. Often, this includes courts digging into fleets’ pasts – including driver training and orientation – to find justification for multi-million-dollar payouts.

Juries think “somebody has to pay,” in these cases, said Annette Sandberg, CEO of TransSafe Consulting and former administrator of the Federal Motor Carrier Safety Administration, even if the fleet or driver wasn’t at fault. “I think verdicts will keep going up and up,” she added. “Short of tort reform with some kind of limits, I just don’t know [where they will stop]. It’s unfortunate. It ends up costing all of us.”

Such “nuclear verdicts,” a term made popular by the American Trucking Associations and some media outlets over the past year, have had a ripple effect throughout the trucking industry, forcing some carriers into bankruptcy and causing insurance rates to skyrocket.

“Nuclear verdicts” generally refer to cases in which a jury returns a settlement of $10 million or more. That’s well above the $750,000 in liability insurance required and the $1 million that most trucking companies hold, often leading to lawsuits against insurers and, sometimes, fleets liquidating assets to pay. Verdicts have reached as high as $281 million, in a 2013 case, Aguilar v. Heckmann Water Resources, in which the drive shaft of a Heckmann truck broke off and killed motorist Carlos Aguilar.

Attorneys point to climbing medical costs, new tactics by plaintiff attorneys, changing societal views around money and court precedent as factors in the trend toward runaway verdicts.

“Really good plaintiff lawyers that had done product liability, medical malpractice, class-action and other cases began to move [away] from those areas,” said Charles Carr, president of the Birmingham-based firm Carr Allison. “There was a lot of tort reform in medical malpractice with protections against these runaway verdicts. They moved over to trucking litigation.”

Carr traces the rise of these verdicts to a 2011 case out of Georgia, Foster v. Landstar Ranger.

In that case, which involved a fatal crash, liability was clear – the truck driver had run a red light and hit a vehicle, killing one of its occupants. The consensus among those involved in the case, said Carr, was that the judgment against the fleet would be about $10 million, but the fleet’s insurer took the case to court, hoping for a smaller settlement.

When the verdict came back, it was for $40 million, Carr said. “It shocked everyone. It wouldn’t be so shocking today, based on what we’ve seen.”

The attorney that won the Landstar Ranger case then went on a speaking tour, teaching other attorneys how he won the case and plaintiff attorneys working truck crashes have since, in many cases, refused settlements with fleets, Carr said.

“They refused to settle for what were deemed to be reasonable amounts” and instead took them to trial, he said. “It was a snowball effect, and since that time, it spread like a virus. These verdicts went from Georgia to California to New Mexico, Texas, Louisiana, Alabama, Florida, South Carolina.”

Michael Langford, a partner at transportation law firm Scopelitis, Garvin, Light, Hansen and Feary, said rising costs of medical care is another key reason behind the trend toward huge verdicts against fleets.

“In most personal injury cases, a component is medical expenses, past and future,” he said. “We have higher medical expenses than in the past, so now you also have a person injured and needs future medical care, there is a projection about where healthcare is going.”

Likewise, he said, plaintiff attorneys have taken on new tactics in court, using what’s called the “reptile theory.”

“They want to stir [jurors] up with such emotion that, even at the most basic reptilian level, they have to award a big number to send a message,” Langford said. “They work hard at showing the trucking company is engaged in systemic failures designed at causing harm. They want to back it all up and go to what caused a trucker to blow through a red light, including a systemic failure to hire right, offer the correct orientation and training, etc. They want to prove a failure to engage in all safety measures to prevent all possible accidents.”

Langford says the theory is even used to score payouts from fleets even when truckers aren’t at fault in a crash.

For example, in a case involving Werner Enterprises, which resulted in a $90 million verdict against the fleet, the crash was clearly the fault of another driver. A pickup truck lost control on the opposite side of a highway in Texas, crossed the median into the path of the Werner truck. The crash resulted in the death of a 7-year-old and serious injuries to a 12-year-old.

Carr said the plaintiff attorneys’ strategy in that case was a prime example of the “reptile theory.”

“What they did in Houston was they brought in all this evidence about how [Werner] trained their drivers,” he said. “They bring in all this stuff, but the driver in that accident was doing nothing wrong. The jury focuses on the conduct.”

Werner has appealed the verdict, and Carr predicts it will head to the Texas Supreme Court in the coming years.

“[Werner] did everything right – everything they should have done,” he said. “You can’t pay millions to settle a case that you have absolutely no liability whatsoever for. All they could do was take the verdict – they were shocked by it – then take it up on appeal. My prediction is that within two years, there will be a case known as the ‘Werner Case’ and the Texas Supreme Court will say nothing that the trucking company did was the proximate cause of that accident.”

Calls for reform

The key to mitigating the cascading effects that such huge verdicts have on the industry lies in tort reform at the Congressional level, which Sandberg said is a tall order given the current dysfunction in Washington. “Everybody would like to see tort reform, but we can’t get Congress to agree on anything,” she said.

American Trucking Associations’ President Chris Spear in October said ATA has made tort reform on truck crash litigation a “tier one priority.”

“These nuclear verdicts are strangling our industry,” he said. “We will back our state association executives that pursue ballot initiatives – going state-to-state to fight… until we have won,” he said.

At the state level, some work has been done, said Langford, but that doesn’t address a national industry like trucking. “We have 50 states of patchwork laws,” he says. “Often it’s reform around the edges. They aren’t addressing what needs to be addressed to bring damages down.”

Carr said the need for reforms on such litigation is dire. It “will either happen soon or it will get to the point where insurance for the motor carrier industry becomes so expensive that either they can’t get it or that many smaller companies go out of business,” he said. “Somebody has to pay for that. Freight costs will go up, or [goods] won’t be delivered.”

Tort reform Part 1: Defining the problem of state’s high insurance rates

SHREVEPORT, La. — If you’ve heard it once you’ve heard it a thousand times — “My car insurance rates are killing me.”

That’s a prevailing sentiment throughout Louisiana and appears to be the No. 1 topic on the minds of lawmakers heading into this legislative session that started Monday.

This is the first in a three-part series on tort reform, which is thought to be the key in getting auto insurance rates lowered. Part one defines the program and features drivers struggling to pay high premiums.

The Louisiana Association of Business and Industry is one of the strongest proponents of tort reform in the state

“This auto insurance, vehicle insurance crisis— is literally burning out of control, right now,” said Stephen Waguespack, LABI president.

In a nutshell, that sums up the problem surrounding tort reform in Louisiana — unlivable auto insurance rates.

Numbers show Louisiana’s car insurance is 58 percent higher than the national average, with an average premium of about $2,300 per vehicle which is the second highest in the nation.

“When we pay the second highest auto insurance rates in the country, it’s not by accident. It’s not because we’re the only state that has texting and driving … or bad roads. It’s because we have a flawed legal climate that’s been broken for decades,” Waguespack said.

“I think we’ve done that through legislation and creating a system that’s been labeled a judicial hellhole in this country,” said sate Rep. Thomas Pressly (R-Shreveport).

When it’s all said and done LABI concludes tort lawsuits cost every household in Louisiana more than $4,000 a year. And the upcoming legislative session is the time to set things right with the state’s legal climate…

“It absolutely beyond any doubt will lower the cost of auto insurance in Louisiana,” said state insurance Commissioner Jim Donelon.

So what needs fixing if you’re involved in a wreck?

“This is how the game works,” Waguespack said. “First of all they’re going to bring you in front of the judge they want because we have loose venue shopping rules here. We’ve got to get rid of that.”

Louisiana has a high jury trial threshold.

“The highest jury trial threshold other than Louisiana, which is $50,000, is Maryland, which is $15,000,” said Pressly.

Waguespack explains what that means is “the law has set the rules against you. They make it hard for you to bring in a jury in court.”

“There’s no question about it— the most important is the jury threshold,” Donelon said.

But there are several more things — most agree — need to be addressed.

“You can’t talk about whether insurance paid the bills. You can’t talk about whether a seat belt was used. That’s all put in place by the trial lawyers over the years to make it harder for you to have the case you want, the evidence you want, in front of the jury you want,” Waguespack said.

“We have a one-year prescriptive period. Most states have a higher prescriptive period, meaning they have longer to decide to sue,” Pressly said. “In Louisiana we have a collateral source rule.”

Which in a lawsuit means plaintiffs can virtually double dip.

“Now, the jury doesn’t even get to see or the judge what is actually paid. All they see is what is billed so it inflates costs, which can cause premiums to go up,” said state Sen. Kirk Talbot (R-Metairie).

Last year, as a state representative, Talbot sponsored House Bill 372 calling for tort reform. It got shot down in a Senate Judiciary Committee, which featured former legislators Ryan Gatti and John Milkovich.

“Those of you in the Shreveport area saw it cost two of your state senators their seats as a result of their opposition to tort reform,” Donelon said.

Talbot’s in the Senate for this new session and still going after tort reform in House Bill 9. There’s one more main area he’s targeting.

“Direct action. We’re one of only three states where you name the insurance company in the lawsuit. We want to take that back,” Talbot said.

Cleveland Auzene is the owner of Auzene Transportation, established in 2016 in Shreveport. Auzene provided critical medical transportation for isolated, elderly patients. He had to stop operations because his auto insurance rates were too high.

“The people of state want this issue fixed — and we’ve got to fix it this year,” Waguespack said.

Louisiana’s loggers and truckers have been hit hard and certainly agree.

“Over the past two to three years we have seen our insurance premiums double, triple,” said Timberland Services owner Chad Still. “Three years ago an average premium for a logging truck was $5-6,000. Now its anywhere from $9-10,000. For new businesses it’s $20-25,000.”

Still and his business partner, Jody Woodard, see the problem from a unique perspective. In addition to logging and trucking, they own Pace Insurance Managers, and say at best there are four companies that will write logging trucks in Louisiana and the rates are unaffordable.

“We have talked to people across the nation, across the South, that write in Texas and Arkansas and Mississippi and begged them to come in and do a pilot program. When you say Louisiana they basically laugh in your face (and) say, ‘We’re not coming to Louisiana,’” said Woodard, Pace Insurance Managers president.

Donelon said his task as commissioner is to make insurance affordable and available.

And that is certainly not an easy task.

Now that the problem has been defined, in part two of the series KTBS will look at some people who’ve become popular and easy scapegoats for tort reform: Louisiana’s billboard attorneys.

Trucking insurance: Navigating the collision course

By Bethan Moorcraft

Trucking generates more than $700 billion in annual revenue in the United States and is responsible for transporting nearly 70% of the nation’s freight annually. For many years, trucking was the lifeblood of US trade, but the glory days have come to an end. The industry is now facing a potentially life-threatening clot in the form of insurance costs that have risen so high, they’ve rammed some trucking firms off the road.

Insurance rates in the trucking sector have been increasing for several years. It is a gear-shift reaction by insurance carriers in response to years of unprofitable results, not just in trucking but in the wider commercial auto insurance market. There are several factors driving these challenging market conditions. In a nutshell, the severity of commercial auto claims has reached unprecedented levels due to increased medical costs, increased repair costs for vehicles (a problem exacerbated by in-vehicle technology), and an astronomical increase in litigation.

This boom in litigation, arguably the primary accelerator in claims costs, is often branded with the term ‘social inflation’ – a buzzword used by insurers to describe the rising costs of insurance claims resulting from things like nuclear court verdicts, broader definitions of liability, more plaintiff-friendly legal decisions, and larger compensatory jury awards.

“Claimants and attorneys have really become empowered to take more cases to trial due to the routine publication of nuclear verdicts. In recent years, we have seen courts and juries willing to hand down judgments that have far exceeded anything we have seen in the past,” said John Woods, Vice President, National Practice Group Leader, Transportation, Burns & Wilcox. “It has reached the point where these nuclear verdicts are not even necessarily based on the facts of the loss, but more so focused on damages or injuries, or even just a desire to punish a company for what the jury believes is bad behavior.”

When a large truck is involved in a collision, the likelihood of an involved party sustaining a bodily injury is high. Even if the collision was in fact a total accident, with no negligence on behalf of the truck driver, that trucking firm could still be taken to court and sued for everything it’s worth. That’s the harsh reality that trucking operators and their insurance partners are facing today.

“Mitigating this risk requires a multi-tiered approach,” Woods told Insurance Business. “Insurance carriers and brokers must continue to educate transportation operators so that they understand the best way to minimize these types of claims is to continue to place an emphasis on safety. That might involve improving their SMS scores, focusing on recruiting top quality drivers, and investing in new technology like in-cab cameras and collision avoidance systems. While these things come with a cost, the downstream benefits can be significant.”

On December 17, 2019, the Commercial Vehicle Safety Alliance started fully enforcing its electronic-logging-device (ELD) mandate for truckers nationwide. The mandate was introduced to improve safety by ensuring truckers don’t drive for more than 11 hours a day and they take regular breaks. Despite some pushback from truck drivers, who claim the ELD mandate has cut their potential earnings, this type of telematic technology can have a positive effect on the industry, according to Woods.

“Beyond monitoring hours of service, ELDs allow for the operators of trucking companies to track vehicles, monitor speeds, and identify the best routes for their trucks to travel so they can improve efficiency,” he explained. “The whole idea is to increase visibility into what is going on and to reduce costs in an industry where the margins today are already incredibly thin. From that perspective, telematics and ELDs can have a substantial impact on the financial side.”

Woods is also convinced by the benefits of in-cab cameras in mitigating the severity of potential liability claims. Whether forward-facing or rear-facing, in-cab cameras can capture events before, during, and after they occur, and thus can help to identify the true story of a claim. They eliminate the ‘He said, she said,’ aspect of claims, and can help insurance companies quickly get to the root cause of an accident and decide how they want to adjust the claim.

“The cameras that are rear-facing can show exactly what a driver was doing before, during, and after an incident,” Woods added. “The footage may show the driver was doing everything perfectly, but if they were at fault, trucking operators can use that footage to counsel and train the driver. Oftentimes, in the past, if a driver got in a serious incident, they were fired. But there’s such a severe driver shortage today that transportation operators want to do everything they can to continually train their drivers in order to retain them. So that’s one of the added benefits of a rear-facing camera.

“In the past few years, we have seen a lot more willingness among trucking operators to have discussions about in-vehicle technology. They are all looking for ways to control costs, including their insurance premiums, and technology can help them to do that. That said, there is a cost to this technology, and that cost can sometimes be significant, particularly for larger fleets that are operating hundreds of vehicles. But as time goes on, I think most trucking operators will understand that while the cost of mitigation might be great, the future benefit is worth it.”

With a substantial existing footprint in the transportation binding and MGA space, Burns & Wilcox is now committing significant resources to building out a more robust nationwide commercial transportation vertical, by adding additional expertise and additional insurance markets – all with a focus on providing additional solutions for larger and more complex trucking risks.

Are nuclear verdicts out of control?

By Seth Holm

Nuclear verdicts have been a consistently increasing theme in trucking over the past several years and the heat and pressure on carriers from rising insurance premiums appears to have no end in sight. This is despite the fact that the number of deaths and injuries from accidents involving large trucks have been declining (down double digits year-over-year as of the latest count).

A nuclear verdict is defined as a jury award in which the penalty exceeds $10 million (though there are several alternate definitions that are more intricate as I describe later). Rising insurance premiums and nuclear verdicts are often cited in carrier bankruptcies as the primary causes for shutting down. In addition, the growing trend of juries awarding nuclear verdicts have forced some insurance providers to exit the trucking industry altogether.

Nuclear verdicts are changing the face and complexion of the trucking industry. Economists often argue that there is little to no inflation in the economy, with consumer price index (CPI) readings consistently registering below 2%. The inflation deniers must have never looked at trucking insurance; it is not unusual for premiums for a smaller fleet to rise 50 to 100% or more in any given year (while overall premiums are growing roughly double digits by my math). The inflation of trucking insurance rates makes healthcare inflation (which makes endless media headlines for being out of control) look downright paltry in comparison.

For an industry with profit margins that average just 5%, insurance as a cost line item (now averaging 3 to 4% of revenue) doubling every few years is an enormous problem and represents a systemic risk. With the end of 2019, estimates are that trucking bankruptcies nearly quadrupled compared to 2018. Even worse, this trend is growing ad infinitum, with nuclear verdicts continuing to grow in both prominence of occurence and absolute dollar amounts. If trucking insurance rates continue to inflate at recent levels, a significant portion of the industry may no longer be “going concerns” and be at risk of going out of business. The potential negative impact of nuclear verdict risk is that dramatic.

One challenge of analyzing and predicting nuclear verdicts is their intangible nature. They are often so disconnected from reality in terms of the award amounts compared to actual economic damages that there are no computers or algorithms that can be effectively employed for forecasting or managing risk.

At the most basic level, the plaintiff’s primary strategy is to trigger the reptilian, emotional side of jurors’ brains while the defense’s strategy is to counter by appealing to facts and rationality. Whichever side is most effective in influencing the jurors wins. And if the plaintiff attorneys win in the sense that they have really “triggered” the jurors, there is theoretically no upper limit on the potential verdict – leading to runaway inflation in insurance premiums. The open sharing of best practices among plaintiff lawyers is magnifying this phenomenon, creating fast followers and thus nuclear verdicts that are rapidly growing in number.

This is certainly not to say that carriers are usually innocent or not often well-defended by highly prestigious and expensive defense attorneys (they often are). But the rising incidence of nuclear verdicts is indisputable. When civilians die or are permanently injured in an accident involving a large truck and there are dependents that need to be cared for, a large remuneration is absolutely necessary and justified.

But what is the proper amount to measure the loss of human life? Is it seven figures? Eight? Nine? This is a very difficult question to answer and represents why nuclear verdicts are such an important and relevant topic. The numbers are trending ever higher and at some point the trucking industry will reach a tipping point where something has to give: insurance becomes unaffordable and carriers go out of business, insurers exit the market or insurance premium inflation eventually levels out because the underlying nuclear verdicts do too. Perhaps defense attorneys will devise their own clever strategies to quell the tide. Time will tell.

What is a nuclear verdict?

As noted above, a “nuclear verdict” is commonly defined as a jury award of $10 million or greater. However, this definition is simplistic and bears further clarification. Upon further reflection, I believe there are two classifications of a nuclear verdict – one numerical (a $10 million or greater jury award) and one based on the outcome relative to expectations (e.g. if “x” is the expectation a priori but the jury award is 5-10x ex-post).

A key distinguishing factor of a nuclear verdict is that it is disproportionate in terms of having little to no relation to a plaintiff’s actual economic damages, meaning the majority of the award is due to punitive and compensatory damages. Therefore, one good way to summarize a nuclear verdict is an award that is significantly higher than would be expected given the injuries in the case, compared to any particular threshold.

Why do some cases go to court in the first place?

First, to prevent any confusion, my research shows that only about 5% of cases go to trial. In other words, the vast majority of cases do not. When it comes to blockbuster nuclear verdicts relative to commercial vehicle accident-related deaths in the U.S. (approximately 5,000), it is a miniscule number (maybe five to 10) of massive nuclear verdict cases per year. However, a handful of nuclear verdicts is enough to drive double digit annual insurance inflation for the entire trucking industry.

Viewed from the defense side, cases often go to court because some defense lawyers want to make a name for themselves. Reputations in law are based around trial experience and lawyers can be opportunistic. While it is risky to try, the reward for winning can be a career-maker in some cases. In general, however, the rising trend of nuclear verdicts is causing more defendants in severe injury and death cases to choose to settle because otherwise they risk being liable for a nuclear verdict.

From the plaintiff side, their obligation is to the client. In cases with large medical bills, until the trucking company and its insurance firm(s) offer enough to adequately cover the cost of the bills, there is no risk in going to trial. From the plaintiff’s perspective, the needs of the client are of utmost importance. If the needs of the client are not met, going to court is the only option.

On the insurance side, many times the insurance company will want to go to trial even when the trucking company does not want to. Critics argue that rising nuclear verdicts and cases going to court are due to insurance companies being unreasonable and increasingly refusing to accept fair pre-trial settlement offers, instead opting to gamble on their chances of winning in court. Thus, critics contend that insurance companies could avoid nuclear verdicts and pay out far less by simply agreeing to settle. Legal experts say that insurance companies and the defendant’s executives usually control the settlement process and not the defense attorneys.

Why do nuclear verdicts occur and why are award amounts increasing?

Nuclear verdicts typically occur because the jury determines that the defendant is willfully or purposely denying any responsibility or involvement in the accident.

The proliferation of nuclear verdicts in trucking has really gained steam over the last decade or so. The Wall Street Journal recently published an article analyzing data from VerdictSearch that reports a more than a 300% increase in the frequency of $20 million-plus verdicts in 2019 from the annual average from 2001 to 2009. The trucking industry is no different – Alan Pershing, CEO of CaseMetrix, a database of court verdicts and settlements primarily in the southeast, says, “…there are five times as many verdicts that are $20 million-plus in the last five years compared to the prior five years (2010-2014).”

A big reason nuclear verdict settlement values are increasing is due to the rampant underlying medical bill inflation that must be covered. Other reasons include an effective shifting of strategies by plaintiff attorneys (Reptile Theory) as well as the highly publicized nature of major large trucking accidents. Plaintiff’s lawyers are increasingly moving away from blaming individual drivers to blaming a lack of systemic corporate oversight and adequate safety procedures and regulations.

Another huge driver is an increasing punitive damage component in these nuclear verdicts, whereas in the past there was more correlation to a formulaic approach based on economic costs incurred by the plaintiff. There is also the now widely accepted societal expectation implicit in nuclear verdicts that verdicts should sustain plaintiffs and their dependents for the remainder of their lives, in addition to providing monetary compensation for suffering.

Plaintiff strategy

Regarding plaintiff strategy, the overriding conclusion that I found in my research is that plaintiff lawyers are much better connected and collaborate to a much higher degree than their defense counterparts. This is strategic in nature and driven by the common good on their behalf. On the plaintiff side, what is best for the individual attorney is best for the group.

Furthermore, before trial, plaintiffs will often go to defendants to determine their policy limits and then target that number for awards to avoid going to trial. When this is not effective and the defendant (or its insurer) refuses to settle, plaintiff attorneys typically employ one of four primary strategies in the courtroom to obtain nuclear verdicts, as explained below.

Reptile Theory: the primary plaintiff strategy

What is Reptile Theory? It is the principal strategy of plaintiffs and when employed, plaintiffs attempt to activate the jurors’ reptilian brains and send them into survival mode – where they look to protect their genes and process information presented to them using emotions.

A byproduct of Reptile Theory is that the jurors feel personally threatened and fear for the safety of the community. The courtroom becomes viewed as a safe place (which they seek when they sense they are in danger) and awarding damages is believed to increase safety and decrease danger.

Gamesmanship

Gamesmanship is defined as games played by the defense; the jury comes to perceive that the defendant is not fully accepting responsibility for what occurred. This scenario is often painted as a large greedy corporation emphasizing profits over the public’s safety.

Anchoring

“Anchoring” is another strategy employed by plaintiff attorneys in which they start by tossing out a gargantuan, unreasonable number and then get the jurors to focus (or “anchor”) on that number as a baseline expectation. By anchoring around such large numbers, juries will often then tweak the large value up or down depending on how angry they are. At least this is the hope of the plaintiff’s attorney.

The “Dirty Five”

The “Dirty Five” generally refer to the following:

Fatigue
Distracted driving
Driving under the influence of drugs and/or alcohol
Lack of equipment maintenance
Inexperienced/improperly trained driver

If a plaintiff attorney can effectively prove or demonstrate any of the above took place, the potential for a nuclear verdict grows significantly.

Defense/carrier strategy

Defense strategy is primarily organized around pre-trial preparation and selection of the jury and witnesses, the “Primate Brain” strategy and offering counter numbers.

The Primate Brain strategy is a way to defend against Reptile Theory and refers to appealing to jurors’ intelligence and reason, rather than their emotional side. By doing so, this strategy attempts to flip Reptile Theory on its head and make it backfire. If the plaintiffs’ strategy is to emphasize the frequency and danger of the risk, the defense attempts to prove the opposite. Also, in response to plaintiffs attempting to demonstrate corporate greed and fat cats with deep pockets, defense attorneys can effectively combat the Reptile Theory by attempting to demonstrate that the defendant is a caring corporate citizen.

Another particularly important strategy for the defense is “motions in limine,” which is when the defense files a motion to exclude certain reptilian evidence from being admissible during the trial at all. This approach cuts off the Reptile Theory before it can even be attempted and is sometimes effective if the judge grants the motion.

A final strategy that is apparently effective and growing in momentum is offering counter numbers when plaintiffs throw out an unreasonably high anchor number. This strategy is often seen by defense attorneys as unorthodox or counterintuitive because it may seem that by offering counter numbers that a defense attorney is conceding or giving in. In cases in which plaintiffs employ a high anchor number, defense attorneys almost never counter with a number in response. But, maybe they increasingly should, or that is what the evidence demonstrates at least.

Conclusion

Whether the trucking industry hates it or wants to debate the inherent fairness, nuclear verdicts are a reality and increasingly a way of life. This fact will not be changing and soon the liability and risk will spread to brokers and shippers in my view.

I believe the most effective strategy for avoiding a nuclear verdict is an avoidance strategy whereby carriers acknowledge responsibility and settle – not legal skill or tactics in court. It is also paramount that carriers, brokers and shippers have the proper procedures and training in place that will help protect them to the greatest degree possible.

Large payouts in trucking death- and injury-related accidents are statistically unpreventable in my view and a cost of doing business in trucking. However, exposing oneself to the asymmetric, unlimited risk from a nuclear verdict is only possible if the defendant or its insurers insist on going to court.

In the full whitepaper, the Freight Intel Group examines nuclear verdicts from all relevant angles on a much deeper level, including our carrier survey with their perceptions on why nuclear verdicts occur, what can be done to prevent them and how much insurance inflation they are experiencing.

This white paper, “Are Nuclear Verdicts Out of Control?,” and all Freight Intel research can be found in SONAR by clicking on the lightbulb icon in the top menu.

For more information on the FreightWaves Freight Intel Group, please contact Kevin Hill at khill@freightwaves.com, Seth Holm at sholm@freightwaves.com or Andrew Cox at acox@freightwaves.com.

Surging Truck Insurance Rates Hit Freight Operators

By Jennifer Smith

Soaring insurance costs are taking a toll on the trucking business, adding a financial drag for carriers already contending with weakening freight demand.

Underwriters have been ratcheting up the cost of liability coverage to recoup losses as“nuclear” accident payouts of $10 million or more increase, insurance brokers say. Trucking companies were hit with double-digit-percentage coverage increases last year, and rate hikes are expected to continue in 2020.

The costs are weighing on trucking companies of all sizes, with some smaller operators that shut down recently citing insurance as a factor in their demise.

“It’s a brutally tough insurance market right now,” James Reed, chief executive of USA Truck Inc., a large Van Buren, Ark.-based trucking company, said in a November earnings call. “There’s some real cost headwinds that, absent a price recovery,” could weigh on results in the first half of 2020, he said.

Federal law requires trucking companies to cover drivers for a minimum of $750,000 per accident, and most shipper contracts require at least $1 million of coverage. Although carriers with five or fewer trucks might stop there, larger operators often purchase more layers of liability coverage to protect themselves from larger claim awards.

The cost of truck insurance premiums rose 12%, on average, to 8.4 cents a mile, in 2018 from the previous year, according to the most recent figures available from the American Transportation Research Institute, an industry group. That was the second-highest increase among carrier expenses in 2018 after fuel, which, along with driver compensation, accounted for the two biggest line-item costs that year.

“A lot of motor carriers are facing 20% to 30% increases,” said Michael Nischan, vice president of transportation and logistics risk control at EPIC Insurance Brokers & Consultants, whose legal name is Edgewood Partners Insurance Center. “These are motor carriers that are doing their best. If you cannot demonstrate that you’re obsessed with safety, you may not get renewed.”

Rates are rising especially quickly in excess liability coverage as shippers demand higher limits for their motor carriers, said Chris Demetroulis, managing director for the transportation practice at insurance brokerage Arthur J. Gallagher & Co. Some of the firm’s trucking customers are paying twice as much for policies that offer half the coverage limit they previously held, he said, as underwriters look to limit their exposure to big payouts.

“The median verdicts have gone from $23 million to $44 million over the last 18 months,” Mr. Demetroulis said.

In one example, a Georgia case involving a head-on collision with a tractor-trailer in 2016 that killed five members of a family resulted in a $280 million jury award last year against the trucking company.

Mark Brockinton, chief executive officer of the transportation and logistics practice for risk advisory and insurance brokerage firm Aon PLC, said motor carriers are trying to mitigate their risk in various ways. Among them, said Mr. Brockinton: “utilizing equipment with collision avoidance systems, using speed limiters on their tractors (excessive speed is one of the leading causes of truck crashes), adopting hair testing to identify lifestyle drug users, and even avoiding traffic lanes where a pattern of large verdicts have occurred.”

Insurance costs are one factor contributing to the difficult operating conditions for truckers. Transportation demand swung lower last year from a booming market in 2018, and many carriers are focused on cutting costs.

Mary Ann Hudson, managing director for Bibby Financial Services Inc.’s transportation finance subsidiary, which processes freight bills for companies, said the cost of insurance was the biggest issue the company’s trucking clients faced in 2019. “If they have one blip on their insurance it’s increasing their rates astronomically,” she said. “Maybe it’s not even a full-fledged accident but a claim, and it’s causing their insurance companies to panic.”

One customer told the company that he couldn’t afford a 24% rate increase, Ms. Hudson said. Instead, he chose to lease both his trucks to another company so he could use that carrier’s insurance and operating authority.

Fleetwood Transportation Services Inc., a Texas carrier with about 100 company trucks, according to federal transportation records, shut down on New Year’s Eve after it was unable to renew its insurance at rates the company could afford, according to media reports.

“Insurance was the only factor” in the shutdown, Fleetwood Chief Financial Officer Ronnie King said in an interview, declining to comment further.

Commentary: The trucking insurance crisis, part 2

The views expressed here are solely those of the authors and do not necessarily represent the views of FreightWaves or its affiliates. This is part two of a two-part series of articles focused on the current trucking insurance crisis. The first article, It’s time for less talk and more solutions to trucking insurance crisis, was published Jan. 17 and can be read here.

In one notable personal injury case, a medical provider billed more than $14,000 for a procedure that’s typically reimbursed by insurance at less than $400. Grossly inflated claims are costing the industry dearly and in some cases are driving trucking companies out of the marketplace because they can no longer afford insurance.

Part one of this series (“It’s time for less talk and more solutions to trucking insurance crisis”) described the financial vise that’s gripping the industry and outlined upstream measures operators can take to avoid these costs by reducing risk. In part two, the focus is on the critical need for changes in a “worst practices” system in which doctors and lawyers scheme to inflate costs.

How does this happen?
Commercial liability insurance rates continue to spiral, with costs passed through to businesses and consumers. A primary culprit is a corrupt personal injury legal system where attorneys drive medical care. In this unethical alliance, certain attorneys and medical providers maximize settlements using arbitrary, grossly exaggerated medical costs.

It starts when plaintiffs’ attorneys refer clients to defined medical networks in which damages are wildly inflated. While they may never take place, unnecessary surgeries are recommended to inflate the damages claims and then included in settlement demands. These procedures are then claimed to collectively cost hundreds of thousands of dollars more than the actual cost.

In this system, a claimant is instructed not to use health insurance or workers’ compensation insurance, which preclude attorneys and providers from claiming that the full inflated charge is owed. Instead, the covered individual is directed to a defined medical provider network that specializes in personal injury claims, i.e., one that will sidestep insurance. One medical provider was found to have testified more than 200 times at the request of the same law firm in less than four years.

A provider may accept insurance at contracted rates from other patients. But in a personal injury case, medical providers often sidestep those rates. The provider can then “charge” exorbitant amounts that oftentimes are more than 20 times the amount the provider actually gets paid for the services.

The bloated costs are used to leverage a settlement. While multimillion-dollar verdicts make headlines, abuse more frequently occurs in routine settlements under $1 million. These unwarranted settlements burden the system as much as, if not more than, the occasional extreme verdict.

Case in point
The trucking industry is being taken for a ride, and society is paying the price. Here is just one example:

In October 2015, a man named Joe Cantu was involved in a car accident in Austin, Texas. His lawyer referred him to the medical group Pain Care Physicians (PCP). PCP accepted Cantu’s United Health Care insurance. But he chose not to use it, allowing the provider to submit over $80,000 in excessive medical bills and claiming those were actual amounts owed. PCP charged $14,290 for a procedure for which expert testimony showed medical providers typically get paid less than $400. PCP also charged $3,893 for a back brace that’s available for $150 on the manufacturer’s website.

The defense asked for a copy of the United Health Care contract to reveal maximum rates that could be charged. But PCP fought to protect the secrecy of its contracted rates, and the matter went to the Texas Supreme Court.

While the court was considering a possible landmark decision, Cantu withdrew the claim for medical bills. With a pending ruling that could have jeopardized the scheme to inflate costs, the claim was dropped, and the Texas Supreme Court was forced to dismiss the appeal. As a result, the court did not get the opportunity to weigh in on this issue.

The Cantu case is an example of abuse that occurs every day and needlessly inflates claims and insurance costs for the trucking industry.

It’s time for a change
Given this sad state of affairs, how do we restore ethics, integrity and fairness to the judicial system? The answer is to advocate for legal and insurance industry changes. Truckers must tell their stories and enlist other fair-minded people in the effort.

It’s time to pull the Band-Aid off the festering lawyer/doctor sore and expose it to the light of day. Attorney-provider relationships should be fully disclosed at trial. Juries must know whether the provider is part of a network that is incentivized to overcharge and overtreat.
Jury awards should be based on objective standards, with contracted reimbursement rates heavily weighted in determining the reasonableness and amount of damages. State legislation should limit recovery of medical or healthcare expenses to the amount actually paid or incurred by the claimant.
Claimants must be required to mitigate damages, as in any other legal matter. If a claimant has health insurance that would cover an injury, there is no reason he or she should be allowed to submit charges into evidence that are 10 times the amount allowed under the claimant’s insurance.
The practice of litigation financing — the loaning of money to litigants or law firms by third-party lenders — should be regulated.
Insurance companies must be willing to fight. Too often, the choice to settle a case is a business decision that has little to do with health outcomes or a company’s ongoing viability. The certainty of a settlement is considered preferable to the risk of losing at trial. This paves the way for even more lawsuit abuse.

Let’s take control
This article reflects our personal experience, which we know is replicated every day across the country. Plaintiffs’ attorneys have come to view trucking companies and their insurers as slot machines. They pollute the airwaves with an endless onslaught of inflammatory ads. Tragically, the industry is allowing the plaintiffs’ bar to sensationalize and distort a good story.

Ultimately, the cost of lawsuit abuse will be passed through to shippers and consumers. It’s time for the trucking industry to take the lead in righting these wrongs.

Brian Fielkow is CEO of Houston-based Jetco Delivery and executive vice president of Montreal-based The GTI Group. He is co-author of “Leading People Safely; How to Win on the Business Battlefield.” Fielkow received the National Safety Council’s Distinguished Service to Safety Award, the council’s highest-level individual recognition.

Robert Fuentes is a Texas attorney and founder of The Fuentes Firm P.C. He serves on the board of directors of the Texas Transportation Association and remains engaged in the Texas legislative process, advocating for reforms to protect against abusive litigation.

Local trucking company says industry being hurt by lawsuits

By Mills Hayes

EL PASO, Texas (KFOX14) — In the wake of unrest in the Middle East, local trucking companies are keeping an eye on the price of fuel.

But some companies say it’s actually the price of insurance that’s become a make-or-break issue.

“These lawyers are just having a field day going after big trucking companies. The bigger the company the more they go after,” Royal Jones, CEO of Mesilla Valley Transportation, said.

Jones said things were looking good for trucking companies back in 2018.

“Last year things kind of leveled out and there was more carriers and not enough freight, but the economy was still good. Just supply and demand. Too many trucks’ rates go down,” Jones said.

As rates went down, the price of insurance went up.

“Then here comes all this added insurance cost. Ours went up 29% in 2019 and another 28% for 2020,” Jones said.

Jones said it’s because personal injury lawyers have zeroed in on the trucking industry.

“Even though you ran the stop sign and you were drunk they find a way to twist it back and blame the trucker,” Jones said.

“It’s a time in which the number of insurance companies that want to insure trucking companies has diminished,” Paul Lavelle, president of Desert West Insurance Agency and Truck Insurance of El Paso, said.

Lavelle says lawsuits against trucking companies often result in settlements and big payouts.

“You’re looking at $10 million or $20 million lawsuits,” Lavelle said.

That means insurance policies are going up.

“Truck insurance can easily run anywhere from $10-$15,000 a year per tractor-trailer,” Lavelle said.

Jones says a strike for tort reform is unlikely, but the impact would be huge since trucks carry everything from the food you buy in stores to the gas you use in your car.

“It’s gotten so out of control there needs to be some maximum set on how much you can get for doing something,” Jones said.

Lavelle says that even though fewer agencies want to insure trucking companies there still are some competitive rates out there. The biggest thing, Jones says, is to shop around and compare rates.