Insurance law firm Clyde & Co put together some predictions for 2023. The bad news for claims: nuclear verdicts aren’t going anywhere. Here is that prediction as well as some others.

Nuclear Verdicts Show No Sign of Slowing Down

The rise in social inflation is not a new phenomenon, but it’s increasingly become a factor in a significant number of jury cases. Nuclear verdicts — exceptionally high jury verdicts (>$10m) that exceed what most would consider reasonable — show no sign of slowing down in 2023, and large public companies are especially vulnerable.

Nuclear verdicts will be driven by many factors in the coming year, including growing corporate mistrust, growth in third-party litigation funding, social pessimism, savvy plaintiff’s lawyers, reptile theory, lottery mentality, actual liability, bad faith and policy limits demand pressures, and fake advertising in the form of plaintiff’s lawyers misrepresenting verdicts/settlements.

With so much on the line, carriers will start to get more proactive about working with insureds to identify proper outside counsel. It has become increasingly important for carriers and insureds to hire the right lawyer to start with; the cheapest person on the panel may not be the right person for the case, and companies are beginning to realize that they must incur appropriate expense at the forefront to retain qualified counsel that can prevent a nuclear verdict.

Combatting social inflation takes several factors, including: 1) a strong claims team, proper defense counsel, cooperative insureds and collaborative dialogue amongst them; 2) early development of a detailed case strategy; 3) a realistic and practical defense budget; 4) an aggressive defense; 5) proper jurisdiction/venue analysis; 6) aggressive discovery tactics; 7) strong pre-trial motions; 8) creative settlement strategies/offers of judgment; 9) intense trial and witness prep (mock trials, focus groups, jury and venue research, jury consultants, witness coaches, etc.); and 10) strong trial experience.

From the outset, insurers must be realistic in terms of budgets for outside counsel and must be candid and transparent about what is truly needed for a successful outcome. When it comes to counsel, carriers and insureds alike will increasingly need to ensure that proper defense counsel are appointed and balance defense costs against the chance and frequency of nuclear verdicts.

— Fred Fein, partner, Miami

Courts Show Less Willingness to Consider Extravagant Policyholder Coverage Arguments Post-COVID

It is safe to say that, for the COVID coverage litigation, at least 10 years’ worth of insurance claims litigation was conducted in the last two and a half years. Lawsuits regarding COVID coverage claims were so numerous, so intense and moved so quickly that a large volume of caselaw on multiple issues and in multiple jurisdictions developed very rapidly. Judges dealt with “stretch” arguments and extravagant claims, such as plaintiffs’ claiming there was actual physical damage to a structure caused by the presence of the COVID virus.

These arguments for broader COVID coverage were overwhelmingly rejected. As a consequence, we are now seeing courts treat policyholder arguments in a wide variety of coverage disputes with more skepticism. There will be other ripple effects as well; for example, we are also seeing courts according less deference to a policyholder’s choice of forum, refusing to allow litigation to take place in a location unrelated to where either party is based and forcing policyholders to litigate in a natural or appropriate forum.

COVID forced the world to do business in new ways, and litigation was no exception. While the frantic pace at which legal business was conducted during COVID has now subsided, we believe that some of the court’s changing ways are here to stay.

— Patrick Hofer, partner, Washington, D.C.

Awareness, Concern and Action Regarding PFAS Will Increase

Since the 2000s, various federal, state and international authorities began to establish regulations addressing PFAS. In April 2022, the EPA announced three clean water actions, including the first Clean Water Act aquatic life criteria for PFAS, focusing on PFOA and PFOS. In May 2022, the EPA added five PFAS to a list of risk-based values for site cleanups. In June 2022, the EPA released four drinking water health advisories for PFAS and issued its first test order under the EPA’s National PFAS Testing Strategy, requiring PFAS manufacturers to provide the agency with toxicity data and information on categories of PFAS chemicals to inform future regulatory efforts. In August 2022, the EPA released its landmark proposed rule designating two PFAS (PFOA and PFOS) as “hazardous substances” under CERCLA.

In 2023, there will be increased EPA action on PFAS. The EPA is well on its way to adopting guidelines regarding PFAS and anticipates that it will implement drinking water MCLs by fall 2023. Further, the adoption of the proposed rule designating PFOA and PFOS as “hazardous substances” under CERCLA will create other indirect requirements, including the ability of the EPA to order cleanups and recover costs. The Infrastructure Investment and Jobs Act (effective Nov. 15, 2021), includes $10 billion to addressing PFAS and other emerging contaminants.

There has also been an increase in state actions. States have established various standards including MCLs or proposed MCLs and classifying PFAS as hazardous wastes/substances. 2023 will see increased state action to establish groundwater quality control, remediation and the regulation of Class B Firefighting Foam. Increased awareness of the toxicity of PFAS will also lead to an increase in litigation targeting chemical manufacturers and suppliers.

— Alex Potente, partner, Los Angeles

More Industries Will Come Under Spotlight as Climate Litigation Arena Grows

The oil majors were the first to be hit by climate litigation, but an increasing number of emission intensive industries will face similar challenges in 2023, depending on the outcome of jurisdictional battles in the U.S. courts

There has been an ongoing debate for the last few years in the United States about whether climate litigation cases should be heard in federal or state courts. However, after the Supreme Court first looked at this issue in May 2021 and ducked it, a final decision is now likely to be due in 2023. The decision, which could go either way, is likely to follow the views of the solicitor general, who has been asked to comment on the issue.

The oil majors are fighting to keep the cases in the federal court as they are thought to be more sympathetic to their case.

However, the preference of the plaintiff bar is for cases to be heard in state courts where they feel decisions are more likely to go in their favor. Claimants in these lawsuits are looking for funds to ameliorate damage that has already been caused by climate change related natural catastrophes or put in place preventative measures in respect of future damage.

If the Supreme Court orders that the cases remain in the state courts, then this is likely to feed the plaintiff bar and lead to further litigation against other industries. Those already facing increasing attention include automotive companies, particularly in the U.S. and Germany, cement manufacturers and increasingly architects, engineers and others in the construction industry. The building and construction industry accounts for 40 percent of global carbon emissions and litigants are looking to the industry to improve its processes and make buildings more sustainable. Other targets appear to include the plastics industry and the food industry.

Whatever the outcome, there will be growing pressure on businesses to take action on climate change issues.

— Emma Ager, partner, London