Seeking Shelter in the Storm of Social Inflation: Emerging Strategies to Proactively Address and Effectively Resolve Risk

Just as new technologies, legislative efforts, and thought leadership have risen to meet the challenges of a global pandemic, polarization, and the need to reform, so too can creative and collaborative relationships between attorneys and those they represent help to solve the dilemma of social inflation.

William A. Bulfer & Jeff Chen

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Social inflation remains at the forefront of consternation within the insurance industry and, unfortunately, has shown no sign of slowing any time soon. Though much has been done to explore the origins of social inflation, practical and strategic responses to counter its consequences are still in their infancy. The game has changed. A global pandemic, cries for social justice, polarizing news and politics, and a new way of communicating and gathering information have changed the way judges and juries perceive responsibility and the value of money. Waiting for this wave to subside is a passive, long-lasting, and potentially expensive response to the dilemma. Still, there is hope. Through critical and collaborative self-analysis, a practical understanding of what is gained (or lost) through litigation, and a willingness to think “outside of the box,” insurers, insureds, and the counsel hired to protect them can find a new path to resolving risk before it becomes unmanageable.

In the context of insurance, social inflation is one of the latest buzzwords and is used by insurers to describe the rising costs of insurance claims resulting from things like increased litigation, broader definitions of liability, more plaintiff-friendly legal decisions, and larger jury awards. Moorcraft, Bethan, What is social inflation, and why is it hurting insurance?, Insurance Business America, Jan. 3 2020. Americans, and therefore American jurors, are angrier, more entitled, less trusting of authority, more litigious and, ultimately, more susceptible to the combined charms of social media bubbles and an increasingly well-funded plaintiffs’ bar. Seaman, Scott, Could Factors Driving Social Inflation in U.S. Also Drive up Costs for U.K. Carriers?, Hinshaw, May 17, 2021.

Several factors have been identified as driving social inflation. Key among them is the media, and sources of information from which judges and prospective jurors derive their understanding. Gone are the days when a local judge or juror will be colored by local news, friends or neighbors. Information from everywhere is now available to everyone at any time. As access to information has grown, so has the prospect that the information provided is inaccurate, or worse, designed to carry particular influence.

Local news has given way to national news. National news has given way to 24-hour news. Twenty-four-hour news has given way to segmented opinion shows. And now, social media has made it possible for the news to be disseminated instantly, by anyone. Algorithms ensure that the “news” one receives is delivered in a resounding echo chamber. It is from that echo chamber that judges and jurors are called upon to effectively administer “blind” justice. The challenge this access to information poses was, perhaps, best set forth in a 2012 presentation by the National Center for State Courts, Harvard Kennedy School’s Program in Criminal Justice Policy and Management, State Justice Institute and the Bureau of Justice Assistance, which asked: “If judges are no longer the gatekeepers for the flow of information into a courtroom, and if jurors no longer accept the legitimacy of restrictions on what is relevant to fact-finding, can the American adversarial system continue to deliver fairness?” Hannaford-Agor, Paula; Rottman, David B.; Waters, Nicole L., Juror and Jury Use of New Media: A Baseline Exploration, Perspectives on State Court Leadership (PDF).

We live in a politically charged nation, and our society’s ability to focus on issues of particularized concern has reached an all-time high. By way of example, the Black Lives Matter movement and push for police reform saw race and BLM-related videos posted on Twitter and watched over 1.4 billion times. Blake, Sam, George Floyd Protest Videos Were Watched Over 1.4 Billion Times in the First 12 Days of Unrest, dot.LA, June 12, 2020. The desire for equal rights, coupled with a newly found ease of access to information is an inflection point that has led to a shift in perspectives. No longer are judges or juries content to simply “trust” authority. Instead, the very institution of authority is being questioned. This skepticism has evolved beyond law enforcement and into a more generalized concern over law enforcement, government, and those who are generally in a position of authority.

While the push for social justice reform is significant, it is not the only force giving rise to unpredictable juries and explosive outcomes. Social reform movements have been met with fears of wokeism. These oppositional views have resulted in similar responses in our nations courts. Fear that America is being viewed as a “deplorable, irredeemable nation, marked by and rooted in racism, sexism, imperialism and the like” and that these “core views have been bubbling up from elite classrooms to the commanding heights of society for decades” have resulted in skepticism, anger and opposition to authority that mirrors those born of social reform movements. Weingarten, Ben, America Is fast Becoming a Woke Theocracy, Newsweek, July 21, 2020.

COVID-19 has also impacted jurors and jury decisions. The increase of stress, uncertainty and fear of illness or death can dramatically affect how individuals process information and make decisions. Isolation and a reduction in the circle of contact served to amplify the echo chambers previously discussed. This resulted in an increased desire to defend one’s pre-existing ideologies, attitudes, and beliefs and to seek likeminded peers as we live with the constant reminder that that we too will die one day. The closing of circles has also provided a window for COVID-19 to increase prejudices resulting in discrimination against out-groups. Individuals feel so strongly about defending their ideologies, a stronger identification with one’s in-group begins to form along with an increased distrust of members outside that group.

The drive for social reform, concerns over an emerging woke culture, and the psychological impacts of a global pandemic cannot be explored, explained, or fully understood in a few paragraphs. It is not the intent of these authors to do so. What is relevant, and what must be understood in order to begin combatting social inflation, is that there are multiple paths to unpredictability. Understanding each is key to finding a common language that will allow insurers and the attorneys with whom they partner to effectively communicate with plaintiffs, judges, and juries alike.

Jury Verdict Trends

The cost and consequence of social inflation is evident. In May of 2021, a jury awarded two men, wrongfully convicted and imprisoned for more than thirty years, an award of $75 million. Carrega, Christina; Chavez, Nicole, Two brothers were wrongfully convicted of rape and murder. Nearly 40 years later, they are getting $75 million in compensation, CNN US, May 18, 2021. Five months later, a jury awarded $10 million to a former health executive, claiming reverse discrimination. Iyer Esq., Seema; Gill, Joey, Jury awards $10 million to two white former NC health executive for ‘reverse discrimination’ in firing,, October 27, 2021.

Results such as these, born of societal shifts, have resulted in significant monetary awards. These high verdict cases aren’t limited to polarizing social matters either. For example, in a study done by the American Transportation Research Institute (ATRI) between 2006 and 2019 examining 600 trucking cases, there were 26 cases where the settlement or verdict exceeded $1 million. In contrast, ATRI found from 2014 to 2019, there were nearly 300 cases over $1 million. Murray, Dan, New Research Documents the Scale of Nuclear Verdicts in the Trucking Industry, ATRI, June 23, 2020.

“Exceeded” is somewhat of an understatement when one considers, for example, the Werner Enterprises matter. Werner Enters. v. Blake, No. 14-18-00967-CV (Tex. App. Sep. 23, 2021). Werner resulted in an award of $89.7 million in connection with a December 2014 fatal crash where the family was driving a pickup truck that crossed a median and collided with a Werner tractor trailer. Id. While the verdict amount was enough to raise the specter of social inflation, the facts compared to the verdict provide valuable insight. The plaintiffs’ vehicle in Werner crossed the center line yet Werner was held liable.

It is now commonly known that part of the catalyst for nuclear verdicts is the "Reptile Theory," a litigation approach popularized by David Ball and Don Kennan in their book, Reptile, the 2009 Manual of the Plaintiff's Revolution. In short, Reptile Theory describes the technique by which plaintiffs’ attorneys urge fact-finders, through effective story-telling, to fear the defendants' alleged actions/inactions as serious dangers to their well-being as well as those of their families.

As a consequence, jurors are encouraged to award verdicts based on their emotions rather than evaluating the facts of the case before them.

In addition to the immediate impact of a nuclear verdict to an insurer, there is another danger to insurers that has grown due to social inflation: namely, bad faith. Nearly every state allows for some measure of recovery based on an insurer’s bad faith refusal to settle a claim within policy limits. Used as a fulcrum, the prospect of bad faith in a case that might meet or exceed policy limits creates one of the greatest decision-making challenges that insurers face at present. Social inflation further complicates this challenge by raising the size of a potential excess verdict and emboldening plaintiffs’ counsel in their likelihood of success.

Strategies to Mitigate Risk

As the potential dangers presented to an insurer continue to grow during the normal course of litigation, one strategy for insurers to employ is early resolution of potentially problematic cases. The key to utilizing such a tactic effectively requires early recognition of cases that carry the potential of a nuclear verdict. Once such cases are uncovered, the insurer then needs to identify or, in certain instances, manufacture opportunities for settlement discussions. To implement this plan, insurers should look to their claim allies and seek to push said allies, as well as themselves, to be both creative and proactive.

Insurers must look inward to optimize the search for claims with a dormant potential for nuclear verdicts. To start, insurers should consider whether their processes are adept at confronting the new litigation challenges brought on by social inflation as outlined above. In their search for claims with nuclear verdict potential, insurers should empower their primary ally, defense counsel, to aid in the effort. One approach is to improve the litigation plan/suit evaluation reports that are prepared at the inception of the file assignment and updated regularly thereafter. Typically, these reports offer a guidepost for defense counsel during the life of the litigation to ensure the salient features of the case are being considered and addressed by counsel. As such, insurers should consider whether these reports should be updated to recognize the potential risk posed by societal factors or deployment of the Reptile Theory.

Requiring a section in the insurer’s litigation plan wherein defense counsel is asked to describe plaintiff's story and the presence of some of these identifiers that could stir negative emotions against the defendant/insured can aid the identification of high-risk claims. By requesting this information, insurers help to ensure there is sufficient focus by defense counsel on combating plaintiff's story from the initial assignment of the file. In addition, this section, by its presence, focuses insurers and defense counsel on this critical issue, thus facilitating regular discussions, internally and externally about the risk.

Generally, cases ripe for utilization of the Reptile Theory have a number of identifiers, including, but not limited to: catastrophic injuries, reputable plaintiff's counsel, problematic jurisdictions, insufficient policy limits (due either to insufficient policy(ies) or significant coverage issues which may limit/preclude coverage), combative insureds, and liability concerns. However, while combating Reptile Theory proactively is one way to address the prospect of a nuclear verdict, the analysis cannot be performed in a vacuum. Instead, counsel should be encouraged to investigate, understand and account for other societal drivers discussed above (as well as others this article may not consider) in working to develop a counter-narrative that will successfully countermand the risks of social inflation.

Once a claim with a significant verdict potential is identified, the insurer is then able to consider the appropriate early resolution strategy. As potentially problematic cases are uncovered, the insurer should identify or actively seek to create opportunities for settlement discussions. To implement this plan, insurers should push their claim allies, as well as themselves, to be both creative and proactive.

Early alternative dispute resolution provides a mechanism for frank discussions and the injection of coverage counsel to address practical risk. In addition, ADR also affords some measure of protection via various ADR rules and Rules of Evidence and the confidentiality afforded by same. North Carolina, Florida, Texas, and other states have codified these protections, such as affording confidentiality, finality, and participation regulations to participants of ADR. N.C. Gen. Stat. § 7A-38.3A; West’s F.S.A. § 44.405; V.T.C.A., Civil practice & Remedies Code § 154.073. While the protections of mediation are robust, they are not foolproof when it comes to bad faith. Federal Rules of Evidence Rule 408, 28 U.S.C.A. The precautions discussed above and protection of the insured, must therefore remain at the forefront. When going into mediation, the parties should consider whether one or two mediators is preferred. This question can usually be answered by whether the case carries sufficient complexity to require a dedicated, experienced coverage mediator.

Role of Counsel

As claim allies, liability defense counsel and coverage counsel are both key players in the successful resolution of a claim; however, their roles are different. Defense counsel is called on to think critically about a matter from every angle. Working to resolve the litigation early can be beneficial to all parties. However, in certain instances, defense counsel, concerned with business considerations, may be hampered in their willingness and ability to take novel approaches to litigation. Defense counsel should be free to focus on claim resolution and consider creative solutions (such as pre-suit mediation or making preemptive offers to Plaintiff to pay for medicals/incidentals). Insurers, in turn, should celebrate the implementation of such creative solutions and seek to maximize their use. Thus, the existing business paradigm between insurer and counsel should be scrutinized to ensure such a dynamic focused on efficient and expeditious (where possible) resolution of claims is encouraged.

Coverage counsel’s primary role is to assist the insurer in evaluating and understanding available coverage and, if necessary, to resolve these issues through litigation. In the context of social inflation, however, this role can be expanded with counteracting utility. As coverage counsel's ethical obligation is to the insurer, counsel is thus free to provide creative and collaborative opportunities for early and effective claim resolution.

It is often true that a pragmatic approach to settlement discussions can result in full claim resolution. Where this is not possible, however, strategic engagement of coverage counsel can still effectuate change and mitigate against the types of catastrophic losses discussed above. In cases involving uncovered damages (real or potential), coverage counsel can be particularly useful in addressing the practical impact of a significant verdict without the benefit of insurance. The benefit of social inflation to a plaintiff is, after all, an increase in financial recovery. Where coverage is genuinely at issue, and the risk of a hollow verdict real, finding common ground as to the practical realities of a case is a useful tool in reaching a resolution.

When engaging coverage counsel to help refine the conversation, it is imperative that an insurer continue to consider its obligations of good faith and fair dealing. Engagement with plaintiff’s counsel and the insured must be done overtly with lines of representation made clear, preferably with documentation. To be certain, coverage counsel’s role is to advocate for the insurer and his or her freedom to advocate on the insurer’s behalf is significant. Discussions aimed at addressing coverage and the viability of insurance should also work to protect the insured.

Coverage counsel, by virtue of its involvement, is educating the parties to the litigation of the potential limits of coverage. Counsel can achieve this by providing coverage evaluations to the insurer and coverage position letters to the insured, co-defendants, and/or plaintiff's counsel. By identifying these limitations on coverage, coverage counsel can begin to craft settlement discussions during preliminary stages of the litigation that can manage expectations and lay the foundation for potential early resolution.

This engagement carries with it the additional benefit of positively impacting resolution efforts. For example, in cases with the potential for uncovered damages, coverage counsel could invite potential contribution by the insured towards settlement for uncovered damages (such as punitive damages). In the alternative, the insured's active engagement may encourage plaintiff’s counsel to make "realistic" demands given the limits on potential insurance recovery (due to uncovered damages).

Where creative and collaborative approaches, such as those outlined above, do not yield a reasonable outcome, coverage counsel may consider a more drastic step to press the parties towards resolution. This drastic step comes by way of consideration of whether, when, and how to file a declaratory judgment action. While standing concerns and the need for a justiciable controversy have historically meant that declaratory judgment actions follow verdicts, the likelihood of runaway verdicts and the inflated extra-contractual risk that comes with them have made waiting until after a verdict to file or respond to such an action a less than desirable approach. As a result, consideration should be given to filing sooner and more strategically.

Where there is a question regarding the duty to defend and whether that defense ultimately gives rise to indemnity coverage, an early-filed declaratory judgment action will give the insurer a voice in addressing the ultimate question of whether the claim is covered. For those plaintiffs’ attorneys who are unwilling or unable to understand or consider the impact of coverage, early filing helps to frame the issue. In those states where the failure to settle represents the biggest bad faith risk, early filings lend merit to reasonable coverage defenses and allow the insurer’s voice to be heard without the undue influence of a claim for bad faith refusal to settle.

Even if the overall claim is not resolved through these early resolution efforts, there are still significant portions of the claim that can be impacted through the active participation of coverage counsel. By injecting coverage counsel into the discussion, an insurer can begin to have frank discussions about plaintiff’s practical opportunities to recover. Clear messaging can begin to be conveyed that affords a plaintiff either the gratification of written “success” through the establishment of certain admitted facts or freedom from the emotional strain of reliving events through a trial. Paired with an agreement that caps exposure against the insured or eliminates the insured’s exposure beyond insurance, the stakeholders, with assistance from coverage counsel can begin to develop a litigation agreement, aimed at resolving the overarching question: where is the money coming from? With such an agreement in hand, an insurer will have protected its insured, afforded itself the opportunity to litigate its coverage position and eliminated uncertainty of a runaway verdict. It can then proceed to litigate coverage without the unnecessary injection of bad faith. The insured will benefit from protection beyond bounds of insurance and the plaintiff (and more importantly his or her attorney) will have an efficient means to address what, if any, recovery can be had.


Just as new technologies, legislative efforts, and thought leadership have risen to meet the challenges of a global pandemic, polarization, and the need to reform, so too can creative and collaborative relationships between attorneys and those they represent help to solve the dilemma of social inflation. Acutely, the prospect of nuclear verdicts is a benefit to plaintiffs’ counsel, looking to profit in any single case. A complete societal shift in the balance of litigated claims risks a restructuring or restriction on the insurance front or tort reform. However, a pyrrhic victory without coverage to compensate for a loss is not in the interest of a plaintiff seeking recovery or the attorney retained to represent them. Understanding the stakeholders and thinking critically about their needs can, thus, provide insight into how to meet the challenges of social inflation head on. By reassessing “the way things are done,” insurers and the attorneys with whom they partner can begin to push back against this wave, rather than choosing to ride it.

William A. BulferWilliam A. Bulfer is a partner in Teague Campbell's Asheville, North Carolina office, where he co-chairs the Insurance Coverage Services group. He is an active member of DRI’s Insurance Law Committee where he has contributed through numerous publications, presentations and subcommittees. Bill is also a member of the International Association of Defense Counsel and is a former Council Member of the Insurance Law Section of the North Carolina Bar Association. The authors recognize Ellen M. Koscielniak for her contributions to this article. Ellen is an associate in Teague Campbell’s Raleigh office and a member of the firm’s Insurance Coverage Services practice group.

Jeff ChenJeff Chen joined Swiss Re in 2021 as Vice President- Claims Manager Regional I (Reinsurance). Most recently, he was a Claims Manager for Excess Casualty at AXIS. In addition, he previously worked as a Claims Adjuster at AIG and ACE/Chubb. Prior to joining the insurance industry, he was a litigator and trial attorney in New York.

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