This is what happens—monetarily—if you’re injured in a vehicle accident. When the other driver is at fault, that person’s insurance company usually offers you a settlement. You’ll want to negotiate if you consider it too low. If you still don’t agree with the insurer’s “final offer,” you can hire a lawyer, file suit and gear up for what could be a lengthy and expensive legal battle. It’s you against a multibillion-dollar company that has extensive experience in defending lawsuits.

But the playing field is changing. You and your attorney may no longer have to confront that insurance company alone. You could have a silent partner, a “litigation funder.”

This litigation funder may bankroll your legal case and might also provide support for your personal financial or medical needs while you’re going through it. In return you sign a “loan” that must be repaid—with interest—after you receive an insurance settlement.

Litigation funding—for lawsuits against all types of companies—is an estimated $39 billion worldwide industry, according to Bloomberg. It is centered in the U.S. and backed by Wall Street hedge funds. Some college endowments stake shares in litigation funds, attracted by the high margins of return, says Bloomberg. Internal rates of return from litigation funds have been 25% and up in recent years, according to a report by Swiss Re.

“There used to be just a couple of them,” says Jack Cohen, a Princeton, New Jersey, attorney who works for insurance companies. “Now we see them a lot.”

Shares of some litigation funders are even traded on the stock market, such as Burford Capital.

Insurance companies hate these funds. They believe their objective is to work behind the scenes to fleece insurance companies and charge usurious rates for their services.

“Litigation funding inflates settlements and cheapens our civil court system by allowing secret parties to have a stake in litigation,” says Bailey Aragorn of the American Tort Reform Association, a pro-insurance advocate.

Battling the Behemoth

Consumer advocates hail these litigation funders as a welcome ally in the battle against the trillion-dollar insurance industry.

“Those forced to file a lawsuit against an insurer on their own face a behemoth in resources and experience,” says Birny Birnbaum, head of the Center for Economic & Social Justice (CESJ).

At a time when people are injured—perhaps seriously—and possibly also unemployed, having a financial advocate “removes the insurer’s opportunity to bleed the injured party with a routine underpayment” of insurance settlements, says Robert Hunter, director of insurance for the Consumer Federation of America.

Others may need help from litigation funders to deal with the expenses of pre-trial motions, depositions and other costs.

And no law firm can offer personal financial assistance to a client facing hard times until the settlement comes in, such as the need for expensive medication.

But finding litigation funders may not be easy, or even possible, for the typical consumer. Your lawyer could bring the case to them, but some law firms don’t want to do so. Major law firms often have their own “war chest” to handle these expenses alone.

‘Judicial Hellholes’

When a litigation funder is offered a case, there’s no guarantee it will take it. Like a bank, it wants its funds repaid—with substantial interest. So the litigation fund will undertake a complicated analysis: How much is the plaintiff likely to receive from the insurer? How long will the case take? And is there a possible downside, such as losing or only getting a small insurance settlement?

In addition to economics there are human considerations. In what court will the case be tried? How hard is the insurance company likely to fight the lawsuit? Who are the attorneys on both sides and what are their reputations for courtroom hardball? Computer programs analyze all these factors, it’s not just guesswork.

Many litigation funds won’t even consider an individual’s injury case. Around the world, 75% of litigation investment goes to commercial litigation and large lawsuits such as class actions, according to Swiss Re. Class actions, often filed against large industries like pharmaceutical companies, can prove to be the most lucrative.

“That’s what the insurers are really griping about, class action suits following major corporate wrongdoing,” says Joanne Doroshow of the Center for Justice & Democracy.

No Robin Hoods

Insurance companies point out that litigation funders aren’t Robin Hoods. Like the attorney, they are paid for their services from the insurance settlement. The litigation fund industry expanded globally at a rapid rate of 16% in 2021, says Swiss Re.

While bank loans and credit card charges are regulated in most states, litigation loans are treated differently. The argument is that they are “non-recourse,” meaning that the borrower isn’t personally liable and the funders could lose their whole investment if these lawyers don’t win the case.

The interest rates charged on these unregulated loans is seldom revealed. But according to the New York Post, one New York City-based firm provided thousands of clients with funds at an interest rate of up to 124% a year. The litigation funder claimed in court papers that the money wasn’t a loan but a “contingent interest in the potential post-judgment proceeds” of the case, the newspaper said.

The Swiss Re study claims that litigation funds take a significant chunk of every settlement in which they are involved, ultimately leaving the plaintiff—the actual injured party—with only 43% of the settlement. The study also indicates that the case takes longer because of the fund’s presence, and could settle a year after non-litigation funded cases.

“They have a very big effect on how willing an attorney may be to settle a case,” says Cohen.

Litigation Funders Code

Jack Kelly, the managing director of the American Legal Finance Association (ALFA), which represents U.S. litigation funding companies that handle personal injury cases, says that his group of 45 litigation funders has a code that prevents its members from getting involved in the actual legal aspects and decision making of any case. Their funds can “only be used for personal life needs such as groceries, rent, car payments and student loans.”

Kelly acknowledges that there are other companies offering legal funding that are less than reputable. His organization supports legislation that prohibits “giving kickbacks to lawyers and medical professionals,” or having any involvement in the legal case itself. ALFA has supported proposed laws in several states that limit fees charged by funders. He says consumer litigation funds should be licensed with a state before they can operate there.

A Silent Partner

Insurance companies say that litigation funds may be responsible for a host of “nuclear” multi-million-dollar verdicts that far outweigh the actual damages sustained by the injured party. Among verdicts of more than $1 million, the average size of claims in the trucking industry, which has been particularly hard hit, have gone up by almost 1,000% between 2010 and 2018, Swiss Re says.

What frustrates insurers—apart from money they have to pay out—is they don’t know who they are up against. They are now fighting a legal battle to force litigation funders to come out from behind the curtain.

“The American Property Casualty Insurance Association is working … to require those involved in litigation to disclose the presence and financial interest of outside parties,” says Stef Zielezienski, the association’s chief legal officer.

There are several reasons for this. One is that a silent partner benefits the plaintiff and, by extension, the litigation funder, because jury members only see an injured person, perhaps on crutches or in a wheelchair, fighting a billion-dollar insurer. So, the plaintiff appears more sympathetic. They never see the multi-million-dollar fund that may be collecting a large portion of the settlement.

A trucking industry journal claims there are “secret litigation networks” of lawyers, doctors and funders creating a database of cases, working together and trolling for clients. Lawyers are educated in how to win “nuclear verdicts” of more than $10 million by advertising the big awards they’ve won, and using “the reptile theory,” psychodrama tactics that focus anger on the insurer and create sympathy for the plaintiff.

Hurting Bottom Lines

Major insurers like Chubb Chief Executive Evan Greenberg and others complain about how the “social inflation” of big jury verdicts is hurting their bottom line.

These legal tactics and the funders have put a big dent in the trucking industry. “Commercial auto insurance hasn’t had underwriting profit since 2010,” says spokesperson Mark Friedlander of the Insurance Information Institute, which tracks industry costs. “Experts are predicting average rate increases of up to 10% this year” and one reason is “nuclear jury awards.”

Plaintiffs’ attorneys tend to go after defendants with deep pockets and bigger insurance policies, like the trucking industry. Does this hurt consumers? Probably. Since it costs more to ship and deliver products by truck, which is how three-quarters of all products arrive on our doorstep, lawsuits and insurance premium hikes may add to the rising prices and supply chain shortages that are emptying store shelves.

But you probably don’t have to look at store shelves to see evidence of the impact of litigation funds. Look at your own insurance bills. When insurance companies pay higher claim amounts—and big court verdicts—they’ll pass on costs in their insurance rates.

Litigation Funds ‘Howl’

Insurance companies, and even some consumer advocates, agree that while litigation funders may help to balance the scales of justice, they’re in need of regulation.

One step that some states are already taking is to force them to come out of the shadows and acknowledge when they’re backing a case.

In 2021, the U.S. District Court of New Jersey ordered funders to reveal their identity and “whether the funder’s approval was necessary for … decisions” in the case. Reuters reported that “litigation funds howl” at the decision. But a federal court in California took a similar step and both Wisconsin and West Virginia have passed laws to do much the same.

Outrageous yearly interest rates that double the amount of the loan have also drawn criticism from academic studies that compare litigation funders to “payday lenders.” Even consumer advocate Birnbaum agrees. “The CESJ’s view is that just as any type of lending needs consumer protections, so does litigation funding.”

The Plaintiff’s Side

So if you’re injured, and your lawyer offers to find a litigation funder, what should you do? If you’re sitting in the plaintiff’s chair staring at the judge and opposing attorney, it’s hard to turn down an offer of help, particularly if you have medical bills you can’t pay or a job you can’t keep.

But no matter how good it looks to the lawyer, you still need to be your own advocate.

• Demand to know the litigation fund’s reputation. If your lawyer referred you to the fund, ask your lawyer. If necessary, research it yourself.
• Obtain in writing from your attorney whether the funder plays any role in the case apart from providing money. “Contracts should be written in plain easy-to-read language and consumers must be able to understand what they are signing,” says ALFA’s Kelly.
• Find out what the funder will charge in interest.
• You can try to negotiate for a lower fee if you feel the litigation funder’s fee is too high. These funds have faced court cases when plaintiffs believed they were excessive, according to Swiss Re.

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.”

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.”

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.

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:

1. Fatigue
2. Distracted driving
3. Driving under the influence of drugs and/or alcohol
4. Lack of equipment maintenance
5. 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.

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.

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.