R Sheets Insurance

Social Inflation

Author

Jerry Theodorou
Policy Director, Finance, Insurance and Trade

Key Points

Social inflation creates ever-higher median court judgments and settlements.

A plaintiff bar benefiting from large awards propagates and amplifies the phenomenon.

Left unchecked, ballooning awards send inappropriate price signals, feeding a self-perpetuating trend.

Courts, legislatures and the defense bar need to work actively, strategically and cooperatively to create awareness of the dangers of out-of-control social inflation and introduce court and public policy measures to stem its growth.

Background

Social inflation refers to the forces responsible for elevated civil litigation awards that are out of proportion to sustained economic damages. Median jury verdicts and out-of-court settlements are rising at rates far above economic inflation and there are more frequent “nuclear verdicts” (awards in excess of $10 million). This phenomenon amounts to a “tort tax,” with crippling financial costs to defendants. These financial costs trickle down, creating higher costs of goods and services for all Americans.

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