When lawyers go nuclear, we get social inflation
In 2007, a young man was attacked at a bus stop near Six Flags Over Georgia—leaving him permanently and severely injured. Even though the assault happened outside of the amusement park’s property, a jury found Six Flags liable and awarded the plaintiff $35 million, of which the assailants were only asked to pay 8 percent.
In a 2015 incident, a military veteran was shot and paralyzed in a car-jacking at an Atlanta Kroger. After he sued, the jury awarded him nearly $70 million, and Kroger is expected to pay the lion’s share, since the courts found the company to be 86 percent at-fault. This is just a sampling of nuclear verdicts in Georgia. While the survivors deserve justice and compensation, these cases appear to be a microcosm of broader change across the country—leading to inflation, which has become a hot topic lately.
Americans are witnessing the most elevated rate of inflation in nearly 40 years—making goods and services increasingly expensive. While I’ve reported on inflation, lawsuit-induced inflation—or social inflation—is different. It is not driven by normal economic factors, but it still leads to increased costs thanks to a surge of large payouts from companies around the country.
Consider this: New York City Transit Authority reported that its annual personal injury payouts rose from $43 million in 2007 to a whopping $150 million in 2019; trucking accident cases worth over $1 million increased tenfold from 2010-2018 with the average payout now being around $22.3 million; and one insurer announced that they’ve witnessed the number of $10 million or more medical malpractice verdicts tripling in three short years.
This trend is untenable. While some people may shrug because the costs are billed to large companies and government entities, mega-lawsuit verdicts adversely impact consumers. They “lead to higher insurance premiums, financial strain on insurers, depletion of municipal resources and disincentives for businesses to take risks,” writes my colleague Jerry Theodorou. “This hidden ‘tort tax’ benefits no one except plaintiff attorneys and their clients.” In short, verdicts are often levied on companies and governments, but in order to remain solvent these organizations pass the costs on to innocent bystanders like you and me.
Unfortunately, there’s no easy way to fix this problem, but states, including Georgia, could take some preliminary steps. Theodorou notes that one of social inflation’s drivers is known as anchoring, which is “the plaintiff attorney practice of asking for a court award amount above and beyond what has historically been considered reasonable.” Anchoring plants a seed in the jurors’ minds can induce them to believe that inflated verdicts are reasonable when they aren’t. In fact, “improper anchoring creates a greater than 80% inflation beyond appellate-court-determined highs for ‘reasonable compensation,’” the New York Law Journal reported.
If policymakers curtailed the use of anchoring, it would certainly limit disproportionately large verdicts, but that’s only one step toward creating a more just system. Lawmakers likely also need to revisit liability law. As it stands, plaintiffs and the defense constantly battle over claims of liability. This may never change, but there seems to be something amiss.
Should Kroger bear the overwhelming majority of responsibility for a crime it didn’t commit, which occurred outside of their store? Should Six Flags be held accountable for 92 percent of damages that it didn’t cause for something that happened beyond their property? Many would say no, and it may be past time to more tightly define civil liability laws.
One of the problems is that each time juries deliver a nuclear-verdict, it encourages more personal injury attorneys to pursue similar cases as they seek the next big payout—leading to even more instances of costly litigation. This isn’t intended to be a slight against personal injury attorneys. I come from a family of lawyers, and people desperately need their assistance and to be adequately—but not excessively—recompensed when they’ve been wronged.
Likewise, defendants must be held responsible for their actions, but as current trends show, there’s no end in sight as verdicts threaten to spiral out of control—imposing massive costs on companies. This threatens the livelihood of businesses, but also ensures that their goods and services will subsequently cost more—hurting the consumer. In the end, lawmakers need to seek out more equitable solutions to stem the rising tide of excessive nuclear verdicts.
Image credit: BillionPhotos.com
