I recently had the pleasure of presenting at a seminar on cutting-edge insurance coverage issues in the Pacific Northwest. Among the topics I addressed was “social inflation,” a term that has been the subject of much discussion recently. What is social inflation? As I mentioned in an article I prepared for the occasion, varying definitions are offered, but I found it useful to define it, as the National Association of Insurance Commissioners recently did, as “a term that describes how insurers’ claims costs are increasing above general economic inflation.”
I found little publicly available hard data showing that social inflation, so defined, is a problem, or even that it exists. Some sources fall back on a handful of anecdotes about “nuclear” verdicts. Most simply assume that it does exist.
And with that, the search for culprits is on! The list includes seemingly every bogeyman of the insurance industry: progressive legislation and expanded policyholder rights, tort reform rollbacks, members of the plaintiffs’ bar who don’t fight fairly, runaway judges who won’t follow the law, juries of changing “composition” who don’t listen to the evidence, litigation funders who don’t care whether they’re funding valid causes, members of “the media” who somehow affect how people “feel about certain issues” or their “perception of how the value of money has changed,” and even (my favorite) “the welfare state.” Factors that might be laid more squarely at the feet of the insurance industry—submarket defense counsel rates or substandard claims handling, for instance—seem never to come in for any of the blame.
Notably, the term “nuclear verdict” has all the hallmarks of a market-tested advertising or political slogan. It offers no analytical value, yet something “nuclear” undeniably sounds scarier than something that is merely “large,” “very large,” or even “ginormous.”
All of this raised my suspicions about the notion of “social inflation” and its utility as a construct for guiding trial lawyers, including those of us who regularly represent policyholders in insurance coverage disputes, on either side of the “v.” If you’d like to learn more about the numerous factors related to this issue, read on!
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