The Exponential Rise of Nuclear Verdicts

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Text, Wednesdays with Woodward (registered trademark) Webinar Series. Travelers Institute (registered trademark). Logo, Travelers. Text, Joan Woodward.

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JOAN WOODWARD: Hi. Good afternoon, everyone. I'm Joan Woodward, President of the Travelers Institute. Welcome to another episode of Wednesdays with Woodward. This is our 62nd episode. And we're going to start you off, this summer, with a really interesting look at what's going on in our court system today.

So we really appreciate you being with us. We know a lot of our replays are being watched over and over again. And so if you have friends who haven't joined, they can also watch our replay series on travelersinstitute.org.

So before we get started, I'd like to share our disclaimer about today's program.

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Text, About Travelers Institute Webinars. The Wednesdays with Woodward educational webinar series is presented by the Travelers Institute, the public policy division of Travelers. -- This program is offered for informational and educational purposes only. You should consult with your financial, legal, insurance, or other advisors about any practices suggested by this program. -- Please note that this session is being recorded and may be used as Travelers deems appropriate.

Text, The Exponential Rise of Nuclear Verdicts. Logos, MetroHartford Alliance, Travelers Institute, U.S. Chamber of Commerce Institute for Legal Reform, and the American Property Casualty Insurance Association.

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And a huge thanks to our webinar partners today, the MetroHartford Alliance, the American Property and Casualty Insurance Association, and the U.S. Chamber of Commerce Institute for Legal Reform. Today we're going to talk about the evolving litigation landscape and the extreme jury awards.

From 2015 until 2019, the average verdict in the National Law Journal's Top 100 Verdicts more than tripled from 64 million all the way up to 214 million. These jaw-dropping verdicts are creating challenges for the insurance industry and commerce alike, making it very difficult to underwrite potential legal risks, increasing premiums and threatening to put legal insurance out of reach for a number of our businesses. And we don't want that. So we're working very hard. I know certainly the Chamber of Commerce is working hard in Washington, and so is Travelers working hard to try to reverse this trend.

Here today with us to help understand what's driving this trend and how businesses can really manage this legal risk in today's environment are two experts: the Chief Legal officer and Executive Vice President for the U.S. Chamber of Commerce and President of the Institute for Legal Reform, Harold Kim-- Harold, thank you for being with us today. And also, I have a colleague and friend of mine at Travelers. I have Alexia Cruz, who is Claim General Counsel.

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Text, Joan Woodward, Executive Vice President, Public Policy; President, Travelers Institute. Travelers. Harold Kim, President, Institute for Legal Reform, Chief Legal Officer and Executive Vice President, U.S. Chamber of Commerce. Alexia Cruz, Senior Vice President and Claim General Counsel, Travelers.

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So Harold Kim was elected president of the U.S. Chamber Institute for Legal Reform in December 2019, where he's responsible [for] providing strategy, policy guidance, programmatic management and leadership. Before joining ILR, Harold was the special assistant to President George W. Bush in the White House office of Legislative Affairs where he served as the liaison to the Senate. Harold also served as counsel to the U.S. Senate Judiciary Committee.

Alexia Cruz has been with Travelers for 18 years and now serves as Senior Vice President and Claim General Counsel, where she leads over 1,300 claim legal professionals. Alexia spent seven years in Claim General Liability and six years leading the Major Case and Complex Claim Units for Subrogation. Prior to joining Travelers, Alexia was a civil trial attorney.

So thank you both for being here today. We're so looking forward to your comments and sharing your expertise. To begin this conversation, I'm going to ask each of our speakers to go ahead and provide a brief overview of what they see in the landscape and the perspective of what's been happening with these nuclear verdicts, and also what they do in their jobs.

So then we're going to bring everyone together as we always do for a moderated discussion. And we'll take lots of your questions today. So put your questions in the Q&A. We'll monitor the chat feature. We're going to have some interesting work there. And I'm going to turn it over now to Harold to kick us off.

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HAROLD KIM: Well, thank you, Joan, really appreciate the opportunity to talk to everyone. When we talk about nuclear verdicts, it sounds very apocalyptic, right? But I think it is a fitting term in terms of what we are seeing, at least over the last 10 years. Joan, you mentioned the National Law Journal.

But there are other sources that have, from a data perspective, shown a very sharp increase in terms of the number of nuclear verdicts in addition to the amounts of these nuclear verdicts. And I think, just to level-set here, when we talk about nuclear verdicts, we're generally talking about verdicts that are in excess of $10 million. But of course, we've seen in national headlines verdicts reaching in the billions of dollars.

And unfortunately, it's not just an isolated event. We are seeing this on a widespread basis, whether it's in California to the Midwest to the Southeast to the Northeast. And there is something going on here, which, from our vantage point at the U.S. Chamber, we think is absolutely wreaking havoc on our civil justice system.

To zoom out a little bit, the reason that I'm here at the Chamber, that I've been working on this for close to 20 years, is because I truly believe and this organization truly believes in the rule of law as a cornerstone to our free enterprise system. And that rule of law begins to erode when you have disproportionate outcomes in terms of how cases are resolved and adjudicated in this country through our common-law system. So that when you have irrational awards, because of tactics or other rules of play here that are being misused by our friends in the plaintiffs’ bar, it creates the type of distortion that I think in the long run has a potential threat to our democracy. Because businesses really care about having a stable, predictable legal system in order to protect their property rights, to adjudicate disputes, and to make sure that our legal system is adhering to a narrow and straight course so that risk is assessed in a way that is a little more predictable.

And then my only other comment, specifically when it comes to the insurance community, is that these types of awards, these types of outcomes, I fear, is going to threaten the availability of insurance because you need to have insurance as a critical component to starting a business. You need to have a good idea. You need to have capital. And you need to be able to insure that risk.

But when premiums are rising, when the availability of commercial insurance, whether for trucking or other types of risk coverage, are now becoming out of reach for small and big businesses, that becomes a huge problem here in the United States and something that we are firmly focused on trying to correct. Because, again, what I've seen in the last 20 years has been significant abuses in our legal system, but when it comes to these nuclear verdicts it is shocking, absolutely shocking to see this developing on such a widespread scale. And there are a lot of reasons for that that I look forward to talking about. So with that, Joan, I'll kick it back over to you. Or actually, I think I'm kicking this over to Alexia.

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ALEXIA CRUZ: Hi, everyone. Thanks, Harold. So as we think about this incredibly challenging environment that Harold just went through, and we think about all of us coming together for longer-term industry-wide change and solutions-- which I think we'll get to later-- I wanted to talk to you today and give you just a little bit of hope in the short-term that there are some things we can do right now to counter the progression of social inflation and nuclear verdicts. So as we work on these larger industry-wide changes, I think right now there's opportunities for each one of us in each of our areas to think about what we can do proactively in the short-term.

What comes to mind first is we really need to be picking the right cases to settle, and pick the right cases to take to trial. Every bad verdict arguably drives up the cost of future cases, so it's imperative that we try and win these cases. Inflammatory facts can lead to very large punitive damage awards. If you study some of these nuclear verdicts recently-- and we have-- you'll see very large amounts awarded for non-economic damages or punitive damages, including pain and suffering, emotional distress.

And if you dig even further, it's typically tied to a bad fact or bad testimony that has angered the jury. A bad witness or bad testimony from your client or insured can inflame a jury and push them to award astronomical amounts as punishment, or what we call punitive damages. So you really need to know early on in your case how the witness testimony or the bad fact is going to be received so you can understand if it's a case to try or to settle. It's obviously easier to settle early on in the life of a claim.

We also need to think about identifying these potential nuclear verdict cases very early so we can properly prepare the witnesses, specifically our customers and insureds. For example, if you know a reptile theory is going to be an issue in your case-- that's typically in the safety cases or negligent security cases-- we really need to make sure your client or insured is not answering hypothetical questions during deposition because you'll see those same questions at trial. That's how they build the case. And that's how the plaintiffs need-- need that testimony to build their theories and case, so it's better not to provide that testimony at all. So it's critical we get in really early to do these preventative measures.

We need to continue to support the defense bar getting seats in the state judiciary in our most troubling states, especially where they're elected. We need better state judges. The plaintiff bar continues to pour money into these local state races and has been very successful in getting plaintiff-orientated judges on the bench.

These judges are very liberal in their rulings and in allowing emotional arguments into opening and closings that inflame the jury and lead to these nuclear verdicts. This leaves us with a reported verdict that we now have to rely on the appellate court to overturn or reduce the verdict as a matter of law. It's much easier if we don't get the large verdict to begin with.

We also need to continue to learn about our opposing counsel through data and analytics so we can counter their trial tactics before trial. Motions in limine can be a great tool to keep certain statements, evidence, testimony that you know the plaintiff counsel is going to bring into the case, keep it out altogether. For example, if you know your plaintiff counsel is going to be mentioning numbers early on in voir dire and trying to anchor a number, you can file a motion in limine to try to prevent the plaintiff counsel from mentioning the numbers at all. And then if that doesn't work with the judge that you have, you can preserve that objection for appeal. And that helps us with later on if we do get a nuclear verdict.

Understanding your jury, for your customers and insureds, their reputation in that demographic area is critically important. You really need to understand how the jury is going to view your customer and insured in how they're viewed in the community. That can really be a large component in these cases.

There's a large amount of publicly available data right now involving courts, judges, opposing counsel. Anything you can think of that you can get from the public record, we all need to come together and leverage this data to slowly eliminate the element of unpredictability in our cases. It's a really great opportunity to predict whether motion-- which way the judges are going to rule in these cases.

And then we need to share our successes in the industry. We're not always good at doing that. We haven't in the past. But sadly, any nuclear verdict hurts us all. So the plaintiffs have learned that this is true for them as well.

Each large verdict helps each one of them with their future cases. So it's really important that we share our successes and tactics that work in these cases. And we have to realize that we need to be successful overall in order to slow the impact of social inflation in the future.

So those are my comments. And I'll turn it back to Joan.

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JOAN WOODWARD: OK, terrific. Well, thank you so much, Alexia and Harold, for setting the stage for us. And we want to dig a lot deeper into all of the details of the workings of what the courts and the juries are doing. But before that, we're going to turn the tables on our audience, like I like to do, and ask them a question.

So we're going to start this off with just one question, today, folks. If you can, take a look at your screens, and we're going to ask you if you've seen an ad advertising for mass torts, class action lawsuits or personal injury in the past week. So you can answer yes or no to-- well, you can answer yes to any one of these. Have you seen it on TV? Have you seen it online?

You can click as many of you've seen, on a billboard, on public transportation, side of a bus, et cetera. So have you seen one in the last week, and where have you seen it? Or have you not seen one at all?

Let's give it a second here. So it looks like about 88% of our audience saw at least saw one ad on one of these venues here. And 12% did not. 12% did not. Of course, it depends on, I guess, which state you live in because a lot of different states are more active in advertising, like Florida and others. So 88% of our audience now is saying they've seen an ad. Does that surprise you, Harold? What are your thoughts there?

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HAROLD KIM: Does it surprise me? No. And I wasn't able to vote, but had I had the chance to vote, I would have clicked each and every one of those boxes because I have seen a billboard ad. I have seen something emblazoned on the side of a taxicab or a bus, and certainly social media and television.

And I think it's appropriate to have this survey because, frankly, trial lawyer advertising is probably one of the biggest drivers of these nuclear verdicts that we're talking about today and something that has accelerated considerably over the past several years. Just on television alone, we know that the plaintiff's bar and the lead generators are spending billions of dollars to run these ads on a national basis, in local markets. And then even on social media, whether you're using Instagram, Facebook, that is a huge platform to generate volume, if you will, for mass tort cases, for slip and falls, and something that is a very pervasive tool that plaintiffs' bar has been using in order to generate these types of verdicts, this lawsuit claims culture that we're currently confronted with, and something that our organization is certainly trying to advocate for in terms of reforms.

Because right now, a lot of these ads are being governed at the bar association level, and it doesn't really have the teeth. And we're particularly concerned about how these ads are deceiving consumers, especially when it comes to FDA prescribed products. You see these ads on TV where it says, the FDA, or this is a public-service type of announcement, where this drug has caused bleeding, or a jury has awarded something in the billions of dollars because of this product. And it creates a very unsustainable message, where we've seen some adverse health consequences, where people are not taking their prescribed medications because of what they are seeing on television.

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JOAN WOODWARD: Wow. OK, so other than kind of advertising-- which, of course, we see it. I see it all the time everywhere. Outside of the advertising, what is actually driving the extreme verdict part of this? Because the jury awards certainly have happened in many, many decades, but now they've just become extreme or nuclear. So talk to us about why these amounts are just so huge?

HAROLD KIM: Well, I think one of the things, when you look carefully at some of these ads, they differ in content. And I would argue that some of these ads are actually having an impact on jury pools. It's not-- you have the type of ad where, if you've been injured, call this number.

But then there are other ads where the quality of it is attacking a particular defendant. This company knew that this product would cause X, Y and Z. And sometimes these ads are very targeted towards certain jurisdictional markets, where there might be a trial, where there might be jury voir dire. And so it's something I think that the public ought to know that is happening. And it's very strategic.

I would encourage our viewers to go to Mass Torts Made Perfect. It's an organization that hosts two or three events per year in Las Vegas. And it talks about the entire business of the mass tort industry. And a big part of that is what's happening on the advertising front.

The conference is sponsored by lead generators and those who are creating content to advertise for plaintiff lawyers. And it just really gives you some visibility into the multibillion-dollar industry that we're talking about here. This is not just one-off ads that are being played in a particular market. This is a systematic, orchestrated marketing effort by the plaintiffs' bar, as well as the lead generators and the other advertisers.

JOAN WOODWARD: OK, thank you for that, Harold. So Alexia, I want to talk to you about social inflation because this has been coming around for the past several years. And it's really reared its ugly head in our industry. So can you define for us what exactly social inflation is, and how it impacts the underwriting of an insurance product?

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ALEXIA CRUZ: Yes. So social inflation, the term itself has been around for a while. So historically speaking, the term social inflation evolved over the years from it being originally defined as a broad definition by society and juries, what is covered by insurance policies, to what we're hearing more today and more familiar with, which is an increase in insurance losses or the rising cost of insurance claims. And then this is where it gets different, caused by-- it's the caused by-- so an increase in insurance losses caused by such factors as increasing litigation, higher jury awards, more liberal treatment of claims, shifts in societal preferences and views over who should absorb the risk, and new concepts of tort negligence.

You may also hear references to other causes, such as attorney advertising, litigation funding, erosion of tort reform and desensitizing jurors to large awards. But through the years, all the scholars seem to agree on one thing. It's hard to predict social inflation trends, making it challenging to underwrite and price the risks most vulnerable to the growing nuclear verdicts.

And so in my opinion, it would be very difficult to evaluate the potential risk created by the nuclear verdict, since the award amounts continue to get larger. Even the best risks for our insureds or customers-- they did everything by the book, they have the protocols set up-- we're still seeing juries hold defendants, especially businesses, to a higher standard for anything that happens. So you can think of a client who complies with all the safety standards, but the jury thinks they could have done more beyond what's required by the law.

So how do you anticipate and evaluate that risk? In society, it seems to be getting more comfortable with overlooking the personal accountability and less likely to find fault with the plaintiff, who has comparative negligence, especially if they themselves are substantially injured or there's a way the plaintiff attorney can get more emotion on the injured party. So I think it's going to be-- it's a very challenging environment to be an underwriter and evaluate the risk.

JOAN WOODWARD: OK, thank you for that. Let me shift a little bit. Because if you're a business with, say, directors and officers insurance or employers practice liability, commercial auto even, how do these trends impact you directly then?

ALEXIA CRUZ: So since the #MeToo movement and Black Lives Matter, certainly, there's a definite increase in excessive verdicts in the directors and officers and employment practices liability space. And within these businesses, it's critical to have procedures in place for reporting of the sexual gender discrimination harassment and racial discrimination, and most importantly, to follow all the protocols and procedures. Awareness of these activities in an action are critical issues that the juries are keying in on.

And it's causing them to be angered and push the awards up. So it's critical when you think about these businesses to really think about, are my protocols and procedures as detailed and strong as they can be? Are we following them? How do I monitor that we're following them? Because those are the facts that seem to be driving the juries to get angry.

For commercial auto, there's a lot to talk about there, but the theme is the same. Having good procedures for background checks for your drivers, driving violations, safety checks and procedures in place, and again, to follow the procedures strictly. The jury seem to be honing in on for negligent hiring cases in commercial auto-- that's how they get to the corporation versus the driver-- really on whether you strictly followed all the procedures you put in place. So, it's a challenging environment for those areas, for sure.

JOAN WOODWARD: OK, thank you for that. So Harold, back to you, you mentioned FDA-approved drugs. Can you give us some examples of the industries that are really being hit the hardest and what you're seeing and the trends for different industries, beyond just FDA-approved drugs or devices?

HAROLD KIM: Well, thank you, Joan. I would start with the trucking industry. The trucking industry has been on the front lines of these nuclear verdicts. In addition to supply chain problems, in addition to a litany of pandemic-related matters, the trucking industry is under siege. And a big part of it are these nuclear verdicts and the availability of insurance.

I constantly hear that the I-10 corridor from Texas all the way down to Florida, it's like one of the most expensive stretches of road to insure. And it really should be no surprise. If you've been in Louisiana and you see the big rig trucking accidents billboards emblazoned throughout the state, it gives you a sense of what the truckers are facing.

In fact, I think just last April, there was a trucking company based in Illinois called Marvin Keller that just filed for chapter 11 bankruptcy because they received one of these nuclear verdicts and compounded with the economic conditions. And there's a significant concern that moving freight, which is so critical to the economy here, is going to really start freezing up. When we see grocery store shelves empty, the trucking industry is so critical, especially during the pandemic, and when you make it much more difficult because of the liability piece of this, then you know something has gone completely haywire. And so the trucking industry, for sure, and then also the shippers-- we're now seeing cases where the shippers are being held responsible for their goods being moved on a separate independent trucking shipment for not having adequate supervision of the drivers. So the blast radius of this liability reaches well beyond the trucking industry. And unfortunately, we don't see that subsiding any time soon.

JOAN WOODWARD: Yeah, we heard from-- on a webinar we had about six months ago, Harold, we heard from Chris Spear, who is the President and CEO of the American Trucking Association. And we had him on right after that infrastructure bill passed and became law to talk about the challenges, of course, supply chain issues, trucker, actually shortages, because they can't find drivers, and some of the things that were in the infrastructure bill. So if anyone's interested in that webinar-- he also talked about the litigation environment-- go back on the replay list and look for the one-- I believe it was mid-December time frame, when the infrastructure bill passed. And we also talked about some of the issues facing the trucking industry.

So thank you for raising that, Harold. It's critically important, as you say, especially during the pandemic, right? And with gas prices being high, the pressure really is on. And you can understand why inflation and just economic inflation has reared its ugly head because of all of these contributing factors that are really out there today.

OK, Alexia, I'm going to hit you with the COVID question because we have a lot of people interested in how the pandemic has really exacerbated or impacted the litigation landscape.

ALEXIA CRUZ: Great question, and I guess we'll continue to see. But right now, the litigation landscape, including nuclear verdicts, really slowed down during COVID, the shutdown period of COVID, due to the court closures and jury trials in most areas stopping for a period of time. So in that time, we had many cases that were settled. But others were just sitting there waiting to be tried.

And so as we come out of COVID, we really have to try to understand how COVID has impacted the societal views on certain issues. And that's somewhat unpredictable, since most jurors are experiencing the pandemic very differently. It's a very personal experience.

Some jurors have had good experiences with financial institutions. Some have had good ones with small businesses, or maybe they had a bad experience. Some have lost loved ones. Some may view the medical industry more favorably

So again, it's really going to depend on their own personal experiences. So what's interesting is, as we've come out of COVID, we're seeing defense verdicts, and then we're seeing nuclear verdicts again. So it's really digging in to see, how did COVID overall-- because it's a very long impact over multiple years.

Typically, when you have a tragedy, it's one event, or it's a short-term event, so seeing how a two-year situation can really impact the jurors’ perception of how they're going to view these cases and large awards. So I think it's going to be an interesting time. Right now, we're coming out of it and just trying to understand if it's going to be like it was going into COVID, the environment, or if there are some nuances in how the juries view these cases.

JOAN WOODWARD: OK, we're going to shift gears again on everyone, and we're going to start talking about third-party litigation funding. So this is where the third-party investors are providing funding for the plaintiffs' litigation cost really in exchange for part of the eventual payout. And if you're not familiar with this, according to Bloomberg, the hedge funds, the private equity players, the sovereign wealth funds are now piling, quote, "billions of dollars into the outcome of high stakes court cases at a faster rate than ever before, turning litigation funding into a $39 billion global industry in 2019," end quote.

So Harold, can you talk about the evolution of litigation funding? And how does it work? Why are funders getting so involved here? What's their strategy? What impact does this have on businesses who are trying to hold on to their business and have insurance coverages?

HAROLD KIM: Well, funding started in the 1990s I believe in Australia. And it is now developed in the European Union in the United Kingdom. And it's here now in the shores of the United States. The genesis of funding was really in reaction to the prohibition against contingency fees in these original countries. But the industry has certainly developed considerably.

And when we talk about funding, there is the sophisticated high-end hedge fund private equity type of funding, where they're funding law firms based on a portfolio of cases. It could include patent disputes, it can include mass torts, really just a variety of potential assets, if you want to call it that. There's also the consumer lending part of funding. And these are lower-dollar direct loans that carry with it extremely high interest rates that we're seeing here in the United States.

We're seeing funding now develop for government investigations. Specifically, there's at least one outfit that we know of called Aaran Capital-- that's A-A-R-A-N-- which is solely marketing to cities and counties as part of their own litigation, whether it's in public nuisance for a variety of potential theories of liability. And so this is an industry that has grown significantly. The fundamental problem is we just don't know a whole lot about them because they really hide in the shadows.

And the other thing I would point out, the litigants, if you're a defendant, you're not going to know if-- unless it's disclosed, and more likely than not, it's not going to be disclosed--  you're not going to know if there is somebody driving the bus here who has a financial interest, setting aside what the outcome of the case might be.

And so it raises a whole host of issues that, I think, again, distorts the adversarial system here in the United States, where you're trying to get an adjudication of disputes. If you inject a third-party disinterested financial-only pecuniary interest, then you have different outcomes. And because of that, I think that that is also another driver of the nuclear verdicts that we're seeing.

And the last thing I would say is, one of the funders, Omni Bridgeway, their Chief Investment Officer, she told The Wall Street Journal that our products are there to make it harder and more expensive to settle cases. That's not coming from Harold Kim. That's coming from the funders themselves. And I think that really captures the essence of what we're dealing with in the funding industry.

JOAN WOODWARD: And what percentage-- so say I'm an investor and I've put in $10,000, and I really think that this case is going to be won. So what percentage, on average-- I know it's not the same all over the place-- but do they expect to get back of that money? What is the return on--

HAROLD KIM: We don't quite just because the industry is so opaque, but what we've heard, anywhere from 30-, 40-, 50% returns. And the other thing that I would really note for the viewers here is that, you look at an outfit like Burford Capital, which is probably one of the bigger investors here in the United States, I would ask, where are they getting their money from? And I think you mentioned it-- sovereign wealth funds. Well, geez, which sovereign wealth funds?

Are these countries that are investing in litigation against critical U.S. infrastructure, against our tech companies, against defense contractors? We don't know. So what's happening here behind the scenes, and something that I think the public ought to be really scrutinizing, just given the nature of the opaqueness of the funders.

JOAN WOODWARD: And this became an asset class, right? Just like there's ESG investing, who is regulating? Is the SEC looking at this investor group? Who is regulating these third-party funders?

HAROLD KIM: It's almost like the Wild West, Joan. That's the problem here because we're talking private equity. And so there are some reporting requirements. Burford is publicly traded, and you can see their annual report online. But it really doesn't get into the details of what litigants-- certainly, what litigants ought to know.

What cases are being invested in? What's being hidden from defendants from current litigation? And there are discovery disputes. And there's certainly a movement to try and get more disclosure during discovery of these funding agreements. And we're starting to see more and more judges pay attention to what's happening.

JOAN WOODWARD: OK. All right. We're going to talk more about this in the Q&A. But I want to get to data and analytics because we are a very, very data-driven company. If anybody does business with Travelers, we look at the numbers, and we analyze them, and then we make decisions on those numbers. So Alexia, what other role do data and analytics really play in both plaintiff and the defendants' cases here? And how does the defense better use data and analytics? Because I know we look at it a lot in our cases.

ALEXIA CRUZ: And right now, it's an exciting time because there's so much publicly-available data right now. So you have your internal data, and you have all this external data. So anything that is publicly filed in the court cases, there are many multiple vendors trying to consolidate that and put that together and make it available. It's available for all federal courts right now. Typically, people use PACER to access that.

But the state court, during COVID, there's been quite a good movement on the amount of available state court information as well. So we'll be able to go back years to study these documents. This data will enable you to understand a certain judge's propensity to grant a certain type of motion, how a certain attorney matches up with a certain judge, the history, the outcomes. We know the plaintiff attorneys keep data files on carriers, like ourselves, and defense counsel. So it's really critical that we are proactively looking at ways we can use available data to understand our opponents as well.

And analytics, my prediction, personal opinion, the opinion of only me, that analytics will be instrumental in the future in helping us identify the cases at risk for nuclear verdicts much sooner so we can put the right resources on those files from the outset, and then ultimately, someday, be able to predict outcomes. So if you're not looking in the public databases or looking at judge's history of motions, it's a real opportunity for you to get a leg up.

JOAN WOODWARD: Yeah, I agree with you. I think it is an opportunity for not only our industry, for the insureds as well. Harold, do you have a thought on what you're seeing in people using more data and analytics to predict what might happen, or prevent?

HAROLD KIM: I think we have to assume that the funding industry is very sophisticated in terms of identifying the best types of cases to invest in. We know that certain funding outfits are using things like the blockchain in order to tokenize certain investments in lawsuits. And we know that the industry is constantly just evolving in terms of the financial products that they are putting out there.

And we just have to assume that data is a big part of it. How can they, with greater specificity and precision, predict a certain outcome in a particular jurisdiction under a particular cause of action? What is the propensity of a certain judge in a state court to deny a motion to dismiss, which then opens the doors to discovery, which then changes a leverage on a settlement?

And that is something that factors into those decisions. And I think that-- again, look at Mass Torts Made Perfect. Just Google it. And you will see the vendors, the advertising strategies, the entire business that is behind this, for a lot of different mass torts that we're seeing televised and advertised through our airwaves.

JOAN WOODWARD: OK, thank you for that. So let's shift a little bit, and let's talk about preventative measures or risk control and how to navigate, what the role of insurers are. So let's talk about prevention, Harold. You mentioned it. What can businesses actually do to prevent litigation from occurring in the first place?

HAROLD KIM: Well, I think having good compliance programs, understanding what the risk is, being very mindful of what could happen, in terms of any types of liability that your business face. Also being thoughtful about the insurance products that you're going to have, I think, are things that any company should be considering, and keeping your ear to the ground on litigation trends, as kind of the immediate what you could do. But also, I think that the folks on this call who are concerned about the issues that we are talking about, I would encourage you-- obviously, come support the U.S. Chamber. Be part of our efforts.

But also talk to your legislators, whether at the state or at the federal level. Underscore with them the importance of having a rational litigation system and making sure that they understand the importance of this issue. I will tell you that, during the pandemic, during 2020, when the entire country was shutting down, if you recall, there was a huge groundswell of concern about what would it look like if businesses reopen, and what does the liability look like? And everybody was coming out of the woodwork, small and medium-sized businesses, universities, and legislators at the state and at the federal level heard their constituents. And so I think that there has to be an urgency in terms of making sure that your elected officials know that this is an important issue.

JOAN WOODWARD: Yeah, no, certainly that was a huge wake-up call for everybody to realize that we want our businesses open, we want them running. And so thank you for your work. I know it was hard work in 2020 with Congress on those issues.

OK, so Alexia, I know you're on the claim side, but let's talk about the front end of insurance. So what are businesses actually looking for in insurance? There's many ways-- when you're signing up with your carrier, you're looking for a partnership, someone who has huge and deep expertise in litigation and avoiding that. So what should you really be looking for in an insurance carrier to help protect you from these litigation issues?

ALEXIA CRUZ: You should really be looking for an insurance carrier who has a strong risk control department to help you evaluate the potential risks before-- key in before the accident or event happens, and a carrier that is leveraging data and analytics to optimize the outcomes for your clients or insureds. When the loss happens, you also want to carrier who will put the right resources on the case to protect your clients, will prep your clients appropriately and well to give them the best chance to achieve a good outcome in their cases. So it's really, what you said, Joan, a good partnership, utilizing all the available tools we can in this really challenging environment.

JOAN WOODWARD: OK. Again, we're shifting gears. We're going to talk about tort reform. So in the 1980s, liability claims pushed the U.S. insurance industry almost to the brink of collapse in the '80s. Those coverage costs rose dramatically across all the sectors. Tort reform were enacted in many states across the country, and loss ratios generally then declined in those states. So some of these tort reforms have been rolled back, Harold, in the last decade or so. So what should policymakers do in the area of tort reform and to really address the rise of extreme verdicts? What is the Chamber doing in terms of tort reform?

HAROLD KIM: Well, we're keeping the pedal to the metal because you can't just expect the enactment of a major legislative accomplishment as being that proverbial silver bullet. When it comes to litigation reforms, we saw it post 1990s. It was a big platform for the GOP as part of the contract with America.

And then that developed into securities litigation reforms. You saw class action reforms at the federal level. But it's almost like a game of Whac-A-Mole, where the plaintiff lawyers are very smart. They know how to exploit loopholes and to work around the litigation reform.

So you have to constantly make sure that you are enacting reforms to limit those abuses. And I think a lot of the reforms that we have seen, at least during the 2010s that the states have done, have been in the procedural arena, whether it's on discovery, whether it's on greater access to motions for summary judgment. And I think that as policymakers look at the existing current state of litigation, you have to look at the litigation drivers, like trial lawyer advertising.

You have to look at third-party litigation funding, but also things like expert evidence standards, which the Federal Rules Advisory Committee, they're going to be looking to update the current standards to really reinforce the gatekeeper role of the judges at the federal level to ensure that junk science is not coming to a jury. So there are a lot of different ways of addressing this through policy solutions. But I guess my biggest takeaway is you have to keep at it because there will constantly be needed changes moving from forward.

JOAN WOODWARD: OK. Well, I have lots of other questions for our guests, but I'm going to get to your questions now. So if you have a question, put it in the Q&A feature. We have a bunch coming in. This one's from Hank Halderman, Amwins Group in California. Alexia, why don't you take this one? Are there-- are these really nuclear verdicts concentrated in certain jurisdictions, or is it pretty much national?

ALEXIA CRUZ: It's a great question. They are concentrated right now, so I'll say for right now. We started to see these pretty early on in California, specifically Los Angeles County. But as they were becoming more lucrative and the plaintiff attorneys saw that opportunity, they moved throughout California and found pockets in California. So I'd say all of California, whether it's Northern or Southern Cal, is pretty challenging. And you could see some nuclear verdicts in pockets throughout California.

So the other states that-- I'm sure this is not a big surprise to people-- Texas, Florida, New York. Illinois, that traditionally was basically Cook County, that's spreading as well as attorneys are finding other pockets within Illinois to get a larger verdict. And now Georgia recently popped up as a challenging jurisdiction with some larger verdicts. And then traditionally, you'd see-- Philly has always been known as that challenging city within a state. But we wouldn't say all Pennsylvania would be characterized as the same.

So I do think plaintiff attorneys approach this as a business. They want to maximize the return. There's a lot of fights about where to file and getting it in certain counties that are more open to larger verdicts. So that is a fight you should be having, as well, trying to keep your case in certain counties that aren't more prone to nuclear verdicts. So yes, it's something you really need to be aware of and study. And again, that's just digging in and understanding the case and where you are.

JOAN WOODWARD: OK, thank you for that. Harold, this question comes in from Randall Gilts, Northern Insurance Agency in New York. Is there ever enough insurance when one of these nuclear verdicts occur?

HAROLD KIM: Well, I think there won't be enough insurance if these nuclear verdicts continue to happen because the cost of insurance will be so prohibitive for companies. We now know that excess carriers are getting hit. They're getting hit beyond the primary levels.

And so it's really something that, as we look at it, as I mentioned during my earlier remarks, it's the availability of insurance. You can't run a business if you don't manage your risk. And if it's so cost-prohibitive, where you can't pay your employees or you can't pay for supplies, then it makes the business go away, or significantly impaired, or you're filing for chapter 11 bankruptcy.

JOAN WOODWARD: Yeah.

HAROLD KIM: So I guess the answer is, no, there probably isn't enough insurance if this trend continues.

ALEXIA CRUZ: And I was just going to chime in, Joan, from a claim perspective because I thought it was a really interesting question. Many plaintiff attorneys are chasing the larger limits and picking defendants in cases that have larger limits. And they're really focused on policy-limit demands and putting pressure and trying to pit the insured against the carrier, or now excess carrier against excess carrier. So it's really changing the landscape, the larger towers, and the policy-limit demand. So I think either way it's going to be challenging, whether you have a lot of insurance. It's just an interesting environment.

JOAN WOODWARD: OK. Alexia, this question is for you. It's coming in from Scott Buchholz at Beecher Carlson in Georgia. So he would appreciate Travelers' perspective on how the U.S. should reduce or eliminate third-party litigation funding. Is maybe more transparency the answer here?

ALEXIA CRUZ: Yes. Really listening to Harold and his discussion of the third-party litigation funding, I really think transparency is key. Eliminating it altogether does not seem likely. So whether it's through discovery in a case or legislation that requires disclosure of the terms of the funding, it's been challenging in certain jurisdictions even to get the disclosure of the agreements or the existence of an agreement. We really need to know what's underlying the agreements for many of the reasons Harold brought up prior.

And when we talk about litigation financing of the medical, which we see quite often throughout the country, it's really unfortunate that if the claimant that suffers is the one who suffers the most from these litigation funding agreements with 30% plus interest rates that they alone have to pay back. And sometimes they owe money at the end of a case. And so it's really important that there's transparency and that they're not taking advantage of individuals at the medical financing end of it. Because we were talking a lot about hedge funds before, but we have some real concerns with the litigation financing in the medical arena as well.

JOAN WOODWARD: OK, thank you for that. Alexia, you get another one here. This comes from Dan Roy, Business Insurance in California. So how often do judges amend these large jury awards?

ALEXIA CRUZ: And I'll say they do sometimes, not enough. It's a great question. We do have opportunities here. What we see a lot of times is large verdicts come in, and then there's that settlement after the large verdict comes in as the plaintiff attorney was really just going for the number and maybe taking limits after the fact. So I don't think we're challenging the jury awards enough.

Recently, there's been a couple of cases where, at the appellate level, the courts have granted remittitur. You apply at the state court level for remittitur, which would reduce the jury award. And then if that's denied, you'd have to go to the appellate court level. So there has been some success. There was a popular recent one in New Mexico that made its way around in emails for some people that was not reduced.

So I think we're seeing-- and that was in New Mexico. And what's really interesting is, for this multiple fatality case, they looked back at other nuclear verdicts in the state to say that they didn't think it was unreasonably large or irrational because there had been another case where the award was very large for a single fatality. So again, once-- every time there's a large verdict, it can impact future cases and even impact judges' decisions on whether or not the large jury award is reasonable or irrational. So I think it's challenging. It can be done. I think we need to be more proactive in seeking remittiturs on these large awards. But we'll see. It's very jurisdiction-dependent as well.

JOAN WOODWARD: OK, Harold, we have a follow up on that topic of reasonableness. So can the industry-- well, first it's coming from David Guthrie from Verisk in New Jersey. Can the industry introduce reasonableness factor legislation where judges may override these verdicts?

HAROLD KIM: I think the answer is yes. It's going to depend on the state of the law at the state level. Certainly, there is a standard at the federal level. But setting aside what the solutions are in terms of what judges can do, I will point out that, if you have a multimillion, multibillion-dollar verdict, that feeds into the trial or advertising aspect of our concerns.

You've seen these multibillion-dollar verdicts, and the next thing you know, within a week, you have ads on air saying, a California jury recently awarded $2 billion dollars. Even though that judgment is reduced, let's say, or its appealed and it gets reduced, that becomes the new benchmark. And that is what is advertised constantly. And I think that that has this spiraling down effect. So there is an impact from a jury award, despite the fact that the judge may have the authority to reduce it.

JOAN WOODWARD: OK. Another couple of questions here, first to you Alexia. Can you explain reptile theory? And is it really reptile, R-E-P-T-I-L-E.

ALEXIA CRUZ: Yes, sorry, I didn't define it before. I know there's many on that have listened to these kind of theories before. But it's a technique the plaintiff attorneys have been very successful in using to appeal to the reptilian part of your brain, which is susceptible to emotion. So I like to explain it-- the easiest way is in some safety cases.

You'll hear deposition questions of, would you agree you want to make the place safer for certain people? And then they go on, and they focus on safety. So what they're doing is appealing to the jurors' sense of fear that they want safety. And of course, your client would answer, “of course.”

But then they use those questions against them to distract the jury from what's required by law. Did they follow the law? Did they comply with the safety laws of their jurisdiction? And they appeal to the emotions to make the juries more fearful and likely to award based on emotion versus the actual rule of law. So that's a very basic overview of the reptilian theory, but sorry for not explaining it earlier.

JOAN WOODWARD: OK, good. This question comes from Laurie Olson. So is the answer then to have lower limits of insurance for businesses to make your company look less attractive to the attorneys? Is that a strategy?

ALEXIA CRUZ: I think that's a dangerous strategy. And I was thinking we might get that question when I was talking about how the plaintiffs shop around for larger, deeper pockets. And it's really, the deeper pockets they're looking for are corporations and companies versus individuals. So if you're a corporation or company, you want to have sufficient limits that cover your exposure. So I wouldn't recommend having lower limits and taking your chances because then there could be the attempt to go after assets of the corporation or company.

JOAN WOODWARD: OK. One more for you, Alexia, from Robert Booher. What has been Travelers' experience with appeals based on excessiveness? And I guess this is for you, too, Harold-- so appeals based on excessiveness.

ALEXIA CRUZ: And I talked a little bit about it, so I won't comment on Travelers’ cases. But I think the industry itself, you really need to be thinking about objections throughout the trial so you can preserve your right to appeal the issue of excessiveness. So I think that's the number one critical thing is preserving the issue for appeal, and then making that decision, whether you want to appeal, and then choosing the right case to appeal based on the jurisdiction. But Harold, I didn't mean to jump in ahead of you if you had a thought on that.

HAROLD KIM: No, I think that's right. I don't really have anything else to add to that. Just back to my original point, there is still damage that is done by the virtue of the fact that there is a big jury award, long-term damage. And it is being manipulated, I think, in terms of the advertising that we're seeing on TV.

ALEXIA CRUZ: And we're finding a lot of firms are just taking a case, even if there aren't sufficient funds, just to get the large verdict and the headline so they can put it on their website or they can use it for future to drive up the value of cases in the future.

JOAN WOODWARD: OK. Harold, this one's for you, from Ronald Thompson. I guess Texas recently passed a bill, HB19. Does that address the third-party litigation in any meaningful way in your view?

HAROLD KIM: Did they? HB19-- I know that they had a trucking--

JOAN WOODWARD: Yes, it was on the trucking-- laws that could be used on trucking companies. Yes, I'm sorry, to be specific, yes.

HAROLD KIM: OK, yeah. So yes, that bill is great. But the problem is Louisiana hasn't done anything. Florida hasn't done anything. And so it's like this patchwork of laws that are out there. There is a federal bill that I think amends the Motor Carrier Safety Act that was introduced by Congressman Cuellar from Texas. He's a democrat from the Texas area, which would also include disclosure of third-party litigation funding agreements related to trucking accidents.

So that's at least a federal bill that has bipartisan support in the House of Representatives. But obviously, the trick is going to be in the Senate, where you're going to likely need 60 votes to overcome the legislative barrier, let alone having the president sign it because there really isn't an appetite, we don't think, for legal reform with this particular administration.

JOAN WOODWARD: OK. I don't know, Alexia, do you want to add anything there, or we'll go on to the next one?

ALEXIA CRUZ: No, I agree. I think that's right.

JOAN WOODWARD: So talking about the legislation related to requiring disclosure of litigation funding-- so Harold, kind of explain to us-- a lot of people are not familiar with private equity groups or hedge funds or sovereign wealth funds. We don't say those words in our daily kitchen-table discussions with our families. So we know they're funding these things. And you talked about they're not really regulated. So why not ask Congress, or are you asking Congress, to better regulate and disclose who's funding these third-party litigations?

HAROLD KIM: Well, Senator Chuck Grassley from Iowa with Senator Tillis from North Carolina and Senator Cornyn from Texas have introduced a bill called the Litigation Funding Transparency Act, which would require disclosures at the inception of discovery of these funding arrangements. It is aligned with a current petition that we have before the Federal Rules Advisory Committee to get an amendment to Rule 26 that would require party litigants to disclose funding arrangements, just like they have to do when it comes to insurance agreements. Because that's been a time-honored rule of discovery because we think that there is a very similar type of situation when it comes to funding.

But I will say that the states have also looked at funding and disclosure of funding arrangements. Wisconsin several years ago was one of the first states to enact litigation funding disclosure requirements. But now the federal court judges are getting involved in this. Just about two or three weeks ago, the chief judge in the District of Delaware now requires funding agreements to be disclosed, in addition to the Northern District of California.

So I think the judges are starting to see this happen. It's being discussed at the Federal Rules Advisory Committee level. It's being discussed in the hallways of Congress. So there's a lot more awareness than there was, let's say, even five years ago.

JOAN WOODWARD: OK. Last question, and maybe I'll have Alexia, or Harold, too, from Richard Comer. How many driverless trucks-- how may driverless trucks affect, either positively or negatively, the trucking industry? So driverless, autonomous vehicles, because we know that the trucking industry or commercial will have a use case for that before our personal lives. So we see a lot more-- and maybe platooning, where you have one driver upfront, you have two or three driverless trucks behind it. So can you speak to that Alexia?

ALEXIA CRUZ: Well, I definitely-- I've seen it. I've seen the mockups and how it would work. So it should definitely reduce the amount of severe accidents we have with trucks. And assuming there's nothing wrong-- this is me as the lawyer speaking-- with the technology, it would become a different type of case if there was an accident because now you'd be looking at the technology.

I would assume they'd still have video recordings in the front of the trucks to capture the accidents, which is used very often to drive up these verdict amounts because you have a lot of the tragedy on tape now. So I think it would be-- hopefully move the needle and having less cases and these catastrophic events that have these huge verdicts. So, I think that's my take on it.

JOAN WOODWARD: All right, Harold, do you have any comments?

HAROLD KIM: I think in theory it will reduce the number of fatalities on the road. But then comes the question that Alexia alluded to, and that is the intersection between technology and the liabilities that could flow from that. So in the European Union right now, they have an AI, an artificial intelligence directive that they're looking at to assess the potential liabilities and compensation for people who are injured because of a drone or because of a driverless vehicle. And these are some trickier issues that we are looking at here in the United States.

I will tell you that the plaintiffs' bar has advocated for a strict liability standard when it comes to a particular software application or a technology that does not necessarily work and causes an injury. We have been of the position that creating new rules of the road could have adverse outcomes. It could chill innovation, and that our current set of laws and procedures to address personal injury is equipped to address these new technologies coming online. So it's a very emerging issue in the legal reform world and in the legal world.

JOAN WOODWARD: Yeah, and actually, we at the Travelers Institute, our thought leadership platform for the company, we wrote a white paper for the U.S., and also a separate white paper for Canada, talking about insuring autonomous vehicles and how that might work in the future. And so check that out on travelersinstitute.org because we did write a white paper with our thoughts on what should happen.

And again, there's going to be a messy middle. We're going to have many, many people driving their cars in the front seat behind the wheel alongside some driverless autonomous vehicles in the next decade or two. And so we have a thought about how those should be regulated and insured. And so check that out on our website.

So we have come to the end of our hour. I cannot thank you enough, Harold, and all the work that you've done at ILR and in Washington. And then Alexia, for being our resident expert and claim guru running the operation for us, it's a lot of lawyers that report up to you, and it's a big job. So we're really appreciative and thankful to have you at the helm and have you with us today. So thank you guys again and hope to have you back in the future.

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Text, Upcoming Webinars: July 20 -- Wildfire Mitigation: Cutting-Edge Insights, Tech and Research. July 27 -- On the Front Lines of the Pandemic with CVS Health (registered trademark)  President and CEO Karen S. Lynch. Register: Travelers institute dot org. Note that registration for the July webinars will open soon.

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I also want to talk to my audience about our upcoming programming. We have two fantastic webinars in July. So the first will be July 20 on wildfire mitigation, and so talking about what's going on in Colorado and California and Canada with regard to wildfire and new technologies that we're seeing out there to mitigate some of the wildfire extreme weather we've seen. And then a really special guest is joining me on July 27.

I'm going to have a conversation with the CEO of CVS Health. Karen Lynch has been running that company for many years now. And it's a Fortune 5 company, one of the top women in the Fortune 100 as a CEO.

And she's going to talk about how they went through the pandemic. They've become more of a health care company than just a pharmacy around the corner. And so we're going to hear from Karen Lynch on July 27. We'll be sending out those invites very shortly.

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Text, Watch Replays: Travelers institute dot org. Logo, LinkedIn. Connect: Joan Kois Woodward. Take Our Survey: Link in chat. #Wednesdays with Woodward. 

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So I also invite you to connect with me on LinkedIn. I'm very active on LinkedIn. I post our invitations. I post lots of replays and other thoughts we have from our Travelers senior executives. So please connect with me on LinkedIn. It's right there on the website there.

And if you haven't already, take a minute to fill out our survey, what did you like about today's program and maybe some other ideas for us to have different guests and different topics. We read every single comment you put in the survey, so please do help us out. What do you want to see in the fall programming?

And by the way, we're taking August off, and we think you should too. So after our two webinars in July, we will be back in September with a really blockbuster lineup for insurance and non-insurance-related content for you. Thank you again to my wonderful speakers, Harold and Alexia. And have a great Fourth of July weekend, my friends. And we'll see you back here later in July. Thank you.

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