The US Casualty insurance market is witnessing a sharp rise in nuclear verdicts, fueled by a changing legal landscape and the increased prominence of litigation funding.
These large claims are reshaping underwriting and prompting insurers to reconsider the limits and structures of their coverage offerings. This trend, in turn, is challenging carriers' claims management strategies and impacting market dynamics.
Mike Mulvey, executive vice president at RPS, highlights the extent of this shift, noting that "as carriers are putting up smaller limits in excess towers, there seems to be less willingness to fight larger claims."
Previously, carriers with larger limits were more likely to challenge high-stakes claims, but with reduced limits, this approach is changing.
"When a carrier had $25m in limits, they were more aggressive in defending a claim," Mulvey explains. "But now, with only $5m in limits, from a cost-benefit analysis carriers might be more willing to settle rather than go through the cost of fighting it."
RPS Area Vice President Adam Wood says nuclear verdicts and challenging jurisdictions are making it particularly difficult for auto excess underwriters, many of which are pushing through double-digit rate increases as a result.
"States like Texas, Georgia, Florida, California and New York are particularly problematic," Wood says. "If you're writing a $5m umbrella policy for a $50,000 risk and take a couple of hits, it raises the question: how long will it take to recoup those losses?
"In some cases, you might never recoup them — excess underwriting is simply more challenging than primary."
Complicating matters further is the role of third-party litigation funders.
RPS Executive Vice President Russ Stein says that litigation funders are taking advantage of a lack of transparency in the market and increasing the pressure on carriers to settle claims quickly.
"Carriers are getting demands on a Friday afternoon and then have to be ready by Monday morning, leaving little time to prepare," he says. "The lack of transparency on the plaintiff's side, especially around third-party funding, makes things even more difficult.
"Carriers are lobbying for more transparency and more time, but so far those efforts are facing resistance. This environment is driving continued adjustments in reserving amounts, impacting historical accident years and ultimately contributing to rising pricing in the market."
Wood points to the rise of so-called hammer clauses as another way litigation funders are getting carriers to pay limits rather than defending the claim in court.
"When attorneys demand policy limits and threaten a 'hammer clause' if they're not met by a certain deadline, insurers can face punitive damages with no cap," he says. "For instance, if you've written a $3m policy in Texas and are hit with a hammer clause, you could be looking at $50m in punitive damages.
"In such cases, insurers often opt to pay limits quickly to avoid the risks of trial. These states are effectively forcing insurers to pay out limits instead of taking claims to court, which understandably makes them very nervous."
Learn more about what's next for the Casualty insurance market in the RPS 2025 Casualty Market Outlook.
