Canadian Underwriter

Paid “Dark Clouds on the Horizon” – The Impact of Nuclear Verdicts on Canadian liability insurance

March 30, 2020   by AXA XL

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It is widely acknowledged that the United States has a more litigious environment than Canada.  However, the rise of recent jury awards in the United States, dubbed “nuclear verdicts”, will have a greater impact on Canadian companies that operate in the United States. In the 5-year period from 2014 to 2018, the median value of the top 50 US verdicts has doubled, increasing from USD 27 million to USD 54 million. This claims trend is prompting many Canadian insurance carriers to re-evaluate their strategy around liability business, particularly in excess casualty where loss was traditionally viewed as more remote.

 Some of the main drivers of the increase in liability are the frequency of large awards, the cost of litigation, the impact of results on historical data, and the increased societal pressure to hold firms accountable.

 Moving the Goal Posts

The industry is experiencing what is known as “frequency of severity”: an increase in frequency of severe losses. Moreover, there is an impetus to bring more claims to court which is incentivized by the potential for a larger amount awarded at trial as well as readily available financing through third parties who are in the business of litigation funding. This heightened litigation environment significantly increases the defense costs for corporations. Since a large verdict today becomes the starting demand for tomorrow’s claim, insurers and clients are having to react to significant change in the liability exposure they face.   

 Past Not Reflective of the Present

In Canada, there are reference materials with industry standards that provide guidance for awards related to specific incidents, for example the Accident Benefit tables in Ontario that outline the award amount paid depending on type of bodily injury. There are also case precedent records available to provide benchmarks when predicting potential jury awards for a case. However, the established precedents related to past judgements are arguably no longer a reliable indicator of potential jury awards; Insurers must now look beyond the traditional reference points when determining the true cost of the present and future litigation environment.

 Corporate Scrutiny

In the US, many verdicts against large corporations are also intended to punish with the mindset of bridging the economic disparity between the “poor” victim and the “billionaire” corporation who is perceived to have “deep pockets”. The underlying motive amongst jurors is to hold large firms accountable for their actions. In 2019, these outcomes included a USD 8 billion verdict against Johnson & Johnson for their Risperdal drug, a USD 2 billion verdict against Bayer’s herbicide Round Up, and a USD 11 billion verdict against PG&E related to wildfires. With the number of cause of actions continuing to grow (concussion litigation, auto liability and climate change are some examples) firms are facing a significant increase in the number of claims they face. More disturbingly, multiple parties are being pulled into the litigation. For instance, in the opioid industry, litigation is no longer limited to the manufacturer- distributors and packagers are now also targets. Additionally, a lengthy trial can often lead to politicized outcomes.

 Impact on Underwriting

Underwriting pricing is based on actuarial science, using loss history to project the future. These new litigation trends are proving that past indicators are unreliable when forecasting the future. This is most true in the excess casualty space where the risk of loss from litigation was traditionally seen as more remote. Insurers must now react to the new normal which will invariably affect the customer through higher pricing, increased deductibles and reduced capacity.  Undoubtedly, certain industries will be affected more than others – the transportation is one such industry. 

 Although these trends have not yet made their way into Canadian courtrooms to a large extent, insurers are monitoring these developments closely. Canadian firms operating in the US or considering entering the region should be aware of these trends and what can be done to mitigate the risk they present. The ability to transfer risk may well be impacted by a reduction in the capacity being offered by insurers and/or higher deductibles and pricing. It would be prudent to begin negotiations with insurers well ahead of renewal with a focus on differentiating your risk both in terms of exposure and the risk management steps you have taken to mitigate the risk. 

 James Lee is Senior Vice President and Head of Casualty for AXA XL’s Global Risk Management and Multinational Casualty business in Canada.  He leads a team of underwriters that provides domestic and international casualty insurance solutions for AXA XL’s Canadian clients.  He is based in Toronto and can be reached at

 Jonathan Ashall is Vice President Client, Distribution and Delegated Authority for AXA XL in Canada. He is based in Toronto and can be reached at