Back in 2018, there weren’t too many insurance professionals talking about social inflation.

William Wilt, president of Assured Research, wrote an article for Carrier Management about the re-emergence of a late 1970s-1980s phenomenon, and W.R. Berkley Chief Executive W. Robert Berkley Jr. started to sound the alarm about what was on the horizon for liability insurers.

Related articles: Social Inflation Is Back, Fueled by Lawyer Advertising and Other Factors: Assured Research Analysis ; It’s Time to Face Reality, Berkley Says

Defense lawyers at the law firm Hall Booth Smith, P.C. were reading the same tea leaves as Wilt and Berkley back in 2018, before the count of CM articles on social inflation jumped to 10 in 2019 and leapt to 70 in 2024.

John Hall Jr., a founding partner, remembers sitting with another partner in the firm, Drew Graham, in December 2018, discussing an “aberration verdict” in a medical malpractice case. They knew some of the background of the case and people involved “that should have been cooperating” in dealing with the case, Hall recalled in a recent interview.

The two decided to send a note out to 50 friends that included insurance carriers participating at various levels of liability insurance towers, smaller medical professional liability carriers, medical providers, large hospital and doctor groups, smaller groups, and insurance brokers involved in placing med mal coverage. Seventy-five showed up, said Hall, who specializes in the defense of high-exposure cases, including medical malpractice, construction, commercial litigation, mass torts, transportation and products liability.

The response signaled to the lawyers that they were onto something, and they ultimately branded the new group American Legal Connections.

Hall, who spoke to Assured Research’s Wilt in August about a more general lack of cooperation between insurance tower participants (“Liability Insurance: Discord in Liability Towers Add to Reserve Pressure,” August 2024 Assured Briefing), recently spoke to Carrier Management about the same subject. He also described the work of the ALC and offered his views on the level of respect that defense lawyers and claims professionals deserve.

Related article: Unite and Conquer: How the Insurance Industry Can Deflate Social Inflation

Amplified Tower Discord

“It’s always been there,” Hall said, when asked about the issue of tower discord—essentially, the situation that arises when higher-layer participants in insurance towers push for lower-layer carriers to accept unreasonable settlement demands from plaintiffs attorneys in order to avoid verdict amounts that ascend to their layers.

To Hall’s mind, the discord has simply been amplified by the advent of aberration verdicts. Those, he said, are “having a psychological effect” on carriers. “We’re doing some studies to try to see what that impact has been on settlements where people predict a bad outcome and therefore pay more money.”

“You always had that effect of whether somebody up the tower would, without taking into account the real evaluation of the case to protect themselves, send some sort of a demand to settle, even if it’s an outrageous [sum]. But it’s been relatively minor.”

But the trend of outsized verdicts has meant more and more divided towers over the last three or four years. “Instead of having three or four carriers on the [whole] tower, you may have three carriers sharing the first level. Then you’ve got four on the next. And the next thing you know, you’ve got 10 or so different companies where you used to be dealing with three.”

“So, you’ve got a wide variety of people and a wide variety of exposure and risk tolerance,” he said, adding that the people involved “become more reflexive in making those ‘you got to settle this case’ [orders] because of the fear.”

Hall continued: “The plaintiffs lawyers have figured that out. They actually do seminars on this—about the tower and that you want to get to the people up the tower. [They] make these huge, outrageous demands, and that will start a domino effect, top down, with people starting to say, ‘Pay more money, pay more money, pay more money…'”

“[It’s] not anything that’s not happened before,” he said, reiterating that the lower risk tolerances and aberration verdicts have intensified tower friction.

Collaborative Think Tank

Weighing in on solutions, Hall said, “the most important thing is dialogue in a think tank environment,” which is what American Legal Connections is all about. While started with a group of legal and insurance professionals devoted to the health care sector, the aim is to expand—most likely into the trucking field next—he said, highlighting a sector that’s “getting killed also” by aberration verdicts and unreasonable settlements.

Rich Henderson, senior vice president of TransRe and a co-chair of ALC, reports that some group events have had 150 attendees, and several have sold out months in advance. While there’s a desire to grow the group, 300- and 400-person events aren’t in the cards, he said. “If the events get too big, then it diminishes the potential for audience interaction,” Henderson said, reporting that the current “level of audience communication and interaction is unlike what we see in any other event.”

What do ALC participants talk about?

“I’ve been talking about defending damages since 1999, and the industry just did not do that. American Legal Connections has really sponsored that,” said Hall, offering one strategy on the ALC agenda. “You’re seeing a general buy-in to the concept that we have to anchor and put in defense numbers on damages. But some of it’s still just verbal and not in action. We need to continue to push,” he said.

(The reluctance to offer damage numbers on the defense side is discussed in the related article, “Unite and Conquer: How the Insurance Industry Can Deflate Social Inflation“)

In addition, “we’ve got to get more comfortable with confronting jurors in voir dire the way the plaintiffs lawyers do,” he said, offering another ALC discussion point. “When I say confronting, I mean talk to them personally without worrying about whether we’re going to get them angry. And talk to them about the value of money and how ridiculous [it is] when a plaintiffs lawyer says, ‘Hey, would any of you be willing to give a hundred million dollars?'”

The defense side should be countering the plaintiff lawyers strategies, he said. “Do you realize that most people have their retirement account in mutual funds that pay 10-14 percent. If you take 10 percent of a hundred million dollars, that pays $10 million a year every year without ever decreasing the principal. And that’s a fair recovery?”

Pushing the defense and insurance side into unfamiliar territory, Hall said, “Go ahead and start doing that both from the early phases of the litigation all the way through the closing argument.”

In contrast to popular opinion, Hall doesn’t personally believe there are any jury pool demographics beyond the reach of defense arguments. “I just believe there’s a lot of demographics, at times, we don’t reach out to,” he said, noting the common desire for an “old conservative business owner” as a juror.

“That’s not going to be your juror. So, we need to quit being negative to those other jurors and reach out and find ways to communicate directly with them,” he advised, identifying another part of what ALC is doing.

Bottom line, he said, “Think tank collaborative cooperation, well-modeled by the plaintiffs bar, has to be accepted by the defense bar.”

Plaintiffs lawyers “share almost everything. They know claims handlers’ propensities, their history, their practice. They know a lawyer’s propensities and practice,” he said.

Defense side education can start to level the playing field, Hall believes.

Respect Must Be Paid

There’s another factor currently tilting the scales in favor of plaintiffs lawyers—contingency fees, which were brought up by several insurance executives during recent interviews with Carrier Management.

Related article: A New Claims Playbook: United and Street Smart on Litigation Demands

Although some of the executives were open to the idea of exploring incentive compensation for defense counsel, Hall bristled at the thought. Specifically, CM asked him about the idea of a “success fee” for defense lawyers who take a case to trial and win an amount lower than the minimum settlement amount demanded by plaintiffs lawyers, with the fee essentially being a percentage of the difference. (Robert F. Tyson Jr., a defense attorney at Tyson & Mendes LLC, proposed this in an article he wrote for CM in 2020, “Stop Nuclear Verdicts: Hire Plaintiff Lawyers“)

“I think that’s ridiculous. That’s a bunch of people wanting to be plaintiffs lawyers and looking for a way to do it,” he said. “If I wanted to be generationally wealthy, I’ve had opportunities to be a plaintiffs lawyer my entire career, and I’d go get contingency fees. But I don’t believe it’s right,” he said.

Still, Hall agrees with some reinsurance executives who spoke to CM recently, that businesses, including insurance companies, are paying defense lawyers less than they deserve—a problem that Hall believes is fueling a talent crisis.

“The same companies that pay their defense lawyers to handle med mal cases, pay four and five times that to lawyers that negotiate their contracts in terms of hourly rates,” he said.

“Also, we’ve got plaintiffs now with significant monies behind them, either through third-party funding or through their own wealth, who are handling 10 or 11 cases completely. That’s all they handle. And they put all of their resources, multiple lawyers, multiple issues into a case.”

On the defense side, an insurer may say, “‘We don’t want you to have more than one partner, one associate, one paralegal’ when we’re facing 30 and 40 depositions at a schedule from a plaintiff-friendly judge.”

The carrier might then say, “You can always go get permission” to go beyond that. “Well, that in of itself is taking time away from defending the cases,” Hall said.

Arguing for fairness, Hall described insurers’ use of third-party billing organizations and stringent billing guidelines. He offered the example of a defense firm that pays $10,000 to an expert but then turns that bill into the carrier in 60 days, missing a 30-day requirement. “They’ll then tell us that we’re not going to pay the bill because you didn’t turn it in [within] our guidelines. It is ridiculous. And it is not just the attorneys, it’s the claims people, too,” he said, referring to budget-conscious activities that impact carrier claims staffs.

“Corporate America in all aspects has got to understand that the management of risks through claims and defense of claims is just as important as and valuable as other aspects of their business—and they need to treat them with respect.”

Hall said that ALC members are talking about the “mutual respect that the corporate C-suite has to have for the valuable roles” that claims professionals and those defending claims play. “They’ve got to factor that into their corporate financial structure.”

Hall continued, “We are at a crisis right now. We can go hire a good, young lawyer and put them in the defense practice. Then a plaintiffs lawyer will come in and hire them at three times the salary we can afford…”

“Not only that, the companies themselves are starting to hire lawyers [internally], especially in claims management. They will refuse to pay us rates that allow us to increase salaries, but then they’ll come in and offer a higher salary than what we can pay to go in-house for the company.”

“If this adjustment doesn’t get made and the respect [doesn’t] come to the defense side that it should have, [then] in five or six years, it is just going to be a settlement mill where you hire people who are there just to push the case toward settlement and get rid of it.”

Hall said there are psychological factors driving young lawyers away from defense litigation work as well. “What we do is hard…You have to have a certain ability to not take the allegations that get made personally. We’ve got plaintiffs lawyers filing left and right trying to psychologically drive us out of the practice by trying to catch us on any issue and file sanctions and do those sorts of things. So, it’s a personally and emotionally difficult area,” he said. Young lawyers, understandably, think, “Why am I going to do this? I’m going to make 35 or 40 percent less than if I go act as an employment lawyer in a boutique employment firm. And I’m not going to have this kind of stress,” he said, citing another alternative for young professionals.

“If this adjustment doesn’t get made and the respect [doesn’t] come to the defense side that it should have, [then] in five or six years, it is just going to be a settlement mill where you hire people who are there just to push the case toward settlement and get rid of it,” he said.

Tort Reform Needed

Like insurance and reinsurance industry executives who spoke to Carrier Management for our featured series on industry fixes for social inflation, Hall believes that external fixes—tort reforms—are needed, too.

Jurors used to look at cases and decide them based on the facts and the law, as the judge told them, Hall recalled. In contrast, jurors today “see themselves as social crusaders through the jury pool versus rendering justice.”

Talking to jurors after a trial, Hall said typical reasoning might be something like, “Ten years ago I went into the ER. They didn’t treat me well. I don’t care what they did in this case. People need to get treated well.”

Concluded Hall, “That’s when we have to have tort reform to cap and counsel—to stop that.”

But a bigger item on Hall’s personal tort-reform agenda would attack plaintiffs lawyers contingency fees head on. “Plaintiffs lawyers need to have a graduated fee cap so that they get fair compensation but they don’t get generational wealth and keep pursuing verdicts in the $20 and $30” million range, outside the true value of the case.

“They’re already wealthy…But now they want to be able to get even more wealthy, and many times to the disadvantage of their client who’s strung [along] and taking the risk they won’t get anything” in a trial.

Drilling down on his idea, Hall proposes that plaintiffs lawyers receive 40 percent of the first $10 million of recovery, with the percentage dropping down to 30 or 33 percent for the next $10 million. “You can even graduate at more, but I think over 20 million, the plaintiffs attorney’s fee ought to be reduced to 5 percent.”

“Then they’re more likely to truly evaluate the case instead of risk going after $70 or $80 million because they get 40 or 50 percent of that.”

New Themes

Describing more of the work of the ALC, Hall said that the group aims to get more psychologists involved in helping to develop themes for cases that will win the hearts and minds of juries.

To his mind, it’s no longer sufficient for defense lawyers to sit back and say, “We don’t have the burden of proof.” The plaintiff does, and we’ll pick that apart.

“That worked up until about 2000,” he said, suggesting that people are now educated by the Internet and social media, which has given them a voice and ability to look things up that they didn’t research in the past. Now, the defense has to present “a good story” about the case, he said, explaining that means personalizing defendants like doctors, describing their care.

Also, defense lawyers have to show the theme of greedy plaintiffs lawyers who are out of control, seeking personal generational wealth. “We need to tell the jury these people are making bogus, and we need to go after it because our doctor is being punished—and it is personal to our doctor,” he said.