Anyone paying attention to the news recently has likely noticed what appears to be a trend of ever-increasing jury verdicts and claim settlements, as excessively large awards in the tens- and hundreds of millions of dollars are reported with greater frequency. The perception of a growing trend is reinforced when plaintiff firms cite huge verdicts and settlements in demand letters to convince insurers that a client’s soft-tissue injuries from a low-impact rear-ender do, in fact, have a value greatly exceeding the combined limits of an insured’s primary and excess auto liability policies. Risk-averse insurers or insureds may find themselves overpaying for such claims, contributing to the rise in settlement values and increased demands in future claims.    

This trend of sky-high awards and the increased costs to defend and settle claims is generally described by the term ‘social inflation’. The term reflects both shifting social and cultural attitudes about who should bear risks (i.e., insurers or plaintiffs) and that insurers’ costs have increased above general economic inflation.