Private Client Risk & Resilience
Private Client Risk & Resilience
Unraveling Social Inflation and the Hidden Forces Behind Nuclear Verdicts with Chris Schon, Partner at Tyson and Mendes, LLP.
In this episode of the Private Client Risk and Resilience podcast, host Kurt Thoennessen discusses social inflation, nuclear verdicts, and their impact on the private client space. He is joined by special guest Chris Schon, a partner at the law firm Tyson and Mendes in San Diego, California.
Chris explains that social inflation refers to factors outside of traditional economic inflation that are causing the costs of insurance to rise. He emphasizes that the number one driver of nuclear verdicts is anger, which often results from anti-corporate sentiment and the perception that big corporations should be held accountable. Factors contributing to social inflation include:
- Litigation Funding: Private equity firms and investors are funding personal injury cases, allowing them to drag on and increase costs. These funding companies take significant risks, but they receive substantial payouts when cases win.
- Increased Medical Costs: Some doctors and medical providers treat patients on a lien and charge significantly higher rates for their services when treating personal injury cases compared to regular health insurance rates.
- Attorney Advertising: Plaintiff attorneys are skilled at publicizing their settlements and verdicts, sharing their strategies and techniques within the plaintiff bar, which creates a more unified approaches to securing higher settlements.
The discussion also covers strategies for mitigating nuclear verdicts, including accepting responsibility, personalizing corporate clients or individuals, arguing pain and suffering, and demonstrating empathy to jurors.
Towards the end of the episode, they highlight the importance of considering higher policy limits, especially in states and regions with a greater risk of nuclear verdicts.
The episode provides valuable insights into the complex factors contributing to social inflation and nuclear verdicts in the private client space and offers practical advice for risk mitigation.
Resources:
https://www.tysonmendes.com/
https://www.tysonmendes.com/attorneys/christopher-schon/
https://www.tysonmendes.com/nuclear-verdicts/
There are more wealthy people today than ever before in the history of the world. The risks they are exposed to through the assets they acquire and their unique lifestyles are significant. The bigger the asset, the bigger the potential loss. The bigger the potential loss, the more complicated the mechanisms for protecting those assets becomes. This show seeks to uncover the risks that successful people face. So we can provide some guidance towards minimizing, mitigating and transferring them. From Coverage contracts and carriers to client experience, technology and claims, we will cover it all. Whether you're an agent looking to hone your skills or someone with significant wealth to protect. I hope this show becomes a valuable resource you can come to rely on to help you protect yourself, your family, and your clients. Welcome back to the private client risk and resilience podcast, the show that brings you expert knowledge about protecting assets, people and lifestyles in the private client space. I'm your host courtesan. And I'm very glad to be back behind the mic for another great conversation about private client risk. Today's focus is on social inflation, nuclear verdicts and their impact on the private client space. And I'm very excited to have a special guest with us today to share his perspective on this critical component of the risk and resilience landscape. Chris Schoen is a partner at the law firm Tyson and Mendez based in San Diego, California. And I had the pleasure of meeting Chris at the CIPC summit in Dallas earlier this year, where he was a presenter. Since then, we stayed connected. And I'm very glad that we have this opportunity to have this conversation today. Welcome to the show, Chris.
Chris Schon:Thank you, Kurt. Happy to be here.
Kurt Thoennessen:Happy to have you here too. And I know it's been several months since we last talked I at the CIPC Summit. But you know, a lot has happened since then, too. So looking forward to having this conversation. I'd like to start just by asking you to give us a little bit of your background, what you do at the at the firm and what some of your areas of practice are.
Chris Schon:Sure. I am a partner at Tyson Mendez, our headquarters is in San Diego. But we are an insurance defense firm with 21 offices nationwide, and over 200 attorneys. In the last five years since I've been with the firm, we have had explosive growth. We focus on the new killer verdict kind of sector of insurance, there's a lot of risk there and our specialty is is mitigating that risk and attacking the causes of new killer verdicts. Myself, I handle higher exposure, catastrophic injury related cases, those cases that are typically in the six figures, the millions and they multi, multi, multi millions. I have a team of attorneys and support staff underneath me, which greatly assist in all that we do as a team. And without them, it would be much more difficult if not impossible to attack nucular verdicts in the way that we do.
Kurt Thoennessen:Excellent point. And I think I just the point just to point on the team, like it's so important, especially when you're dealing with these huge large situations, multimillion dollar, settle lawsuits, but you have the right team in place, you have the right people. And I think the other thing that you mentioned there that was really interesting about your firm is that you really specialize in handling nuclear verdicts. And the interesting thing to note is you're actually working for the insurance companies right? Or for Go ahead,
Chris Schon:the insurance companies retain us and pay our bills, but it is the tripartite relationship between us the insurance company, and then the insurer. And so our duty is to the insured. They are our clients. It just happens that the insurance companies retain us to defend their insured pursuant to a policy of insurance, you know, typically a commercial liability policy. But yeah, there's that tripartite relationship and we all work in concert together. And that's really where we get our best results is when we're all pulling on the same end of the rope. And what's great about Tyson Mendez is we have such a focus that is very unique in the industry on education, and that is educating every attorney in the firm over 200 of them on how to combat and defeat new killer verdicts. And that's done through training seminar. ours through in person seminars, a lot of zoom seminars that we do monthly, sometimes bi monthly, all on various topics in combating and preventing nuclear verdicts, as well as overall handling of cases where maybe it doesn't reach the nucular verdict, quote, unquote, Thresh pole, but it's still high exposure. And you know, you want to get the best possible result that you can for your clients. And the firm really puts an emphasis on training and education so that you can obtain that result.
Kurt Thoennessen:And I think that's something to talk about, too, because so with when you choose to make a focus on training, because not all firms do. When you make that choice, you're doing it for a specific reason. What is what is the reason behind making training on nuclear verdicts and avoiding a nuclear verdicts? why did why did your firm decide to do that?
Chris Schon:Well, really no other firm does it. The old adage, and we'll probably get into it a little bit later today on what is one of the causes of nucular verdicts is a lot of insurance defense firms. When they argue a case in front of the jury, they say things like just, you know, be reasonable, make a reasonable award. But what does that mean? How do lay people analyze what is reasonable when the defense is saying just be reasonable, but the plaintiff's attorneys are giving an actual number, you know, $10 million. And the defense responses will just be reasonable. But they have no idea what that means you didn't give them a number. They don't know how to equate being reasonable to maybe the facts or the evidence that is presented in a case at trial. And so the focus on education, and showing the other attorneys at the firm, how to argue a number how to argue general damages to prevent these neat killer verdicts really is what kind of puts us over the top as far as an insurance defense firm in America. And our goal, as a firm, and it's been a goal for a long time is to be the best insurance defense firm in America. And so our training and education is focused on that.
Kurt Thoennessen:That's excellent. And I think the, you know, obviously, the impact that your firm can have on the industry as a whole by doing that training, because you not only train your own people, but I think you offer training to folks outside of your firm to is that right?
Chris Schon:We do once a year we have the nucular verdicts Institute, where attorneys at other firms are in House Counsel's with other insurance companies come to San Diego for a couple days and participate in in person hands on learning seminar on the various topics and strategies and methods that we have to combat nucular verdicts.
Kurt Thoennessen:It's really interesting for me, you know, so you know, I'm an insurance advisor. So I'm on the front end of these types of issues.
Chris Schon:So the the new killer verdicts are coming in mostly from the standpoint of the general damages the pain and suffering, past and future pain and stuff, things like that are exponentially more, then what the special damages are in a particular case. So special damages would be past and future medical expenses, or past and future loss of earnings, maybe both, maybe all four added together. But think as a way to kind of put it in context. Let's say you have a case that has$20,000 in special damages, and the jury awards for 4 million in general damages. Now, that would be a new killer verdict, present day where the general damages award so far vastly exceeds the special damages, that it becomes a new killer bird, you know, a little while ago, back in quote unquote, the olden days and nucular verdict would be really anything over 10 million. But that's not really the case anymore, because new killer verdicts now, moreso are, like I said, where the general damages award vastly exceed earlier
Kurt Thoennessen:on in the conversation, you mentioned that a lot of what you do, and what you see is in the commercial auto side. And that's and that's commensurate with the research that I see to a lot of these nuclear verdicts and the data, the large verdicts are in the
Chris Schon:and you can also have, you know, pretty tragic and terrible cases that also result in new killer verdicts. I mean, if you think about it, if I were to just tell you, you know, what is the value of, of maybe a 60 year old life, who because of an accident was was taken away, due to the negligence of somebody else. Off the top of your head. What would you say that that's worth? I mean, you'd might say, a couple million, maybe a little bit more, depending on some factors at play, you know, was was the individual married? How many kids? Do they have etcetera, etcetera, would you say 100 million, say 150 million. That's, that's pretty new killer when you get when you get into those numbers, based on those very limited facts that I gave you. But that's kind of another illustration, like you mentioned about these new killer verdicts. Right?
Kurt Thoennessen:Absolutely. And, and to that point to its, you know, trying to decide or to guess, you know, what a verdict is going to be, and I'm sure you're in, but there's no crystal ball, you know, we don't know what could happen or what the verdict ultimately could be. So you know, you choose a limit that's comfortable for you, helps you sleep at night, those types of things, and that you can afford. So, now I want to, I want to back up a step on this social inflation topic, because I think we just we talked a little bit about it. But I do want to back up, because it's something that I didn't realize, and I just learned through the research before it his definition at that time was that these are factors outside of the economic inflationary factors that are causing the costs of insurance to go up. So, you know, now fast forward to 2023 Social inflation is a buzzword, you can search it up on Google or in the internet anywhere, and you'll pull ups, a lot of articles on this topic.
Chris Schon:Yeah, well, it's what social inflation you know, as the Oracle of Omaha gave us the definition. I think now it's, it's everything is costing more, everything continues to cost more risk increases, given some of these nucular verdicts, and the value of money is eroded no monthly or almost every day, especially the past couple of years. That has a major impact, of course, on insurance losses with respect to Niki, their verdicts and even new killer settlements. And when insurance losses go up, well, premiums go up. And when premiums go up for a business, perhaps the cost of goods go up, or labor goes up, and they need to charge a higher price to cover their increasing labor costs. You know, as of kind of the date of this podcast, there are some union stripes going on in America. And when those workers obtain increased wages, it's probably a safe bet that prices may increase as well. And so when rates increase
Kurt Thoennessen:on this top topic of costs, are there increased costs of litigating in today's world that are relevant to this topic that you see on your end?
Chris Schon:Absolutely. I think the number one cost is litigation funding. And that's where you have litigation funding companies think private equity, that make these bets, if you will, on personal injury cases, some of them do it on on business cases. But you have these equity groups or investors, if you will, that pay money to a plaintiff and may receive a cut of any sort of settlement. And then exchange either give the plaintiff money up front based on a certain analysis of what their injuries were their damages were, and that allows the case to maybe keep going longer than it should the longer a case goes on the greater chance that costs in defending and litigating that case, increase. An example of this. If everybody remembers a couple years ago, I think it was Peter Thiel.
Kurt Thoennessen:Let's take a let's take a quick look at this litigation funding because that really is fascinates me. Because you're taking a lawsuit. I mean, I guess I can imagine it where you say, okay, based on these factors, either a there's a fatality and where the investment company, the litigation funding company says okay, it checks all the boxes, this is something that we have a 50% or 80% chance of winning. So let's, you know, put a million dollars into the plaintiffs defense or the the plaintiffs side of it, and see if we win, and if they if they win, they get a piece of the the piece of the verdict could be 20% 10%, whatever it is, and if they lose, does the money get paid back to them? Well,
Chris Schon:that's that's a discussion for another podcast because we could go all day on that. But for the most part, from what I've seen in litigation funding agreements, no. Some may require a portion to be paid back. But for the most part, these funding companies are taking the risk. And on the back end, when they hit, they're being paid handsomely for that risk, just like on any other type of investment vehicle, at least those with higher risk profiles. So you know that they're willing to make this bet, especially in locations and states that are more at risk for nucular verdicts or new killer settlements. They're having more success there. And, you know, another part of kind of this inflationary social inflation, nucular verdict relationship is depending on the locality. Let's take California and where I'm based, some plaintiffs, I don't have a percentage, but it's it's a lot we'll treat outside of medical insurance on a lien. And these lien doctors that they go to charge anywhere between double triple, sometimes quadruple for the same insurance or for the same service exceedingly that insurance would pay for if the particular plaintiff used and utilize their health insurance benefits. So what does that do? Well, that increases the plaintiffs medical specials, both past medical specials, and maybe even future medical specials if they're alleging future surgery and future treatment. And of course, that is also a barometer that then when you go to trial, instead of facing maybe some medical bills that would be reasonable, based on a fair market value, what insurance would pay, you're now faced with medical bills that are triple or quadruple, what otherwise would be at play in a trial. So that is another kind of cause of the social inflation, nucular verdicts, correlation. Another thing, especially in California, is attorney advertising. The plaintiff attorneys in the state are very good at publicizing their settlements and their verdicts. There's an attorney billboard every quarter mile on the freeway, it seems like sometimes, they're very good at sharing their techniques and their tips and their tricks with the plaintiff bar. They're very good at doing that. And and, you know, it's interesting that really, for the most part, the defense side, doesn't really do that we by holding our nuclear verdicts Institute, and the outside trainings that we have, we attempt to do that we attempt to kind of bring in, you know, other other firms, other attorneys, and short of share our methods, but the plaintiff bar, they're much more unified. And if you think about it, that makes sense. Because if they have a unified approach, they share their tips and their tricks. And they have these strategies that they use that they find success with, will success for them as measured in dollars, success for them as measured in large settlements, nucular settlements, are large verdicts, nucular birds, so that you have that play as well.
Kurt Thoennessen:So much going on, in this in this conversation in this in this topic that I didn't realize, you know, when I first thought about a nuclear verdict, I just thought, Oh, it's $100 million. verdict. And it was because of four people died in a car accident. You know, when you start talking about social inflation, and you know, what's making the costs of these things go up, and you get into the litigation funding from outside sources, third, parties that are not involved only involve to make more money. You talk you talk about advertising. For you know, for the plaintiffs, there's so many, so many things involved, that I had no idea that can have an impact on on ultimately, the verdict. And, and I guess some of the a lot of these things are just focused on making verdicts higher. For one reason is to make more money for the third party litigation funding, but the plaintiff false also gets more money as well. You know, which is is that okay, you know, is the plaintiff getting what they deserve? Is that a fair settlement? I don't know. It's, it's beyond me at this point. But it's definitely a complex formula. And and so, you know, in the world of trying to train people on how to handle trained attorneys on how to how to handle nuclear verdicts and cases that they think could go nuclear. I mean, it sounds like that is a worthwhile endeavor for our society. Because it doesn't sound like all of these things that are going into a nuclear verdict are are all good for society.
Chris Schon:Well, absolutely. The number one driver of a nucular verdict is anger. California, I am only licensed in California, but I'll go out on a limb and I'll say, probably a lot of other states have jury instructions where you're not supposed to bring your anger into the courtroom, you're not supposed to render your verdict based on anger. But a lot of what we talked about today, if you think about it, it boils down to saying, the anti corporate sentiment, the that person got x, because they can't pick the pandemic, because they had a business versus the other person who got why, because they were they were worker. Anger, we talked a little bit about kind of the Union strife that we have going on, you know, there's there's some anger. And so a lot of this is just the plaintiff attorneys when they will utilize that anger, and try to make the jury angry about the events that that occurred, in an effort to increase the general damages award, that is eventually awarded at a trial. And one way to defeat that anger, which we try to try to teach. And what we try to impress on, is you have to argue the general damages. So it may be a very tragic case, maybe somebody let's say lost, lost a limb, or something like that. But you need to be able to argue the impact of money on a particular injured person's life. Tell the good news, that despite this tragic event, which we as the corporation accept responsibility for the injured party, can we give a number in every trial, so that the jury doesn't only hear 100 million, or 10 million, or 25 million from the plaintiff's attorney, if you think about it kind of this way, by accepted responsibility. You know, I have two kids with one on the way I know, and we were talking, you mentioned, you had had three kids, if they do something wrong, and they accept responsibility for it, you probably tend to take a more reasonable approach to any sort of response. Whereas if they're just defiant, and they're not being honest, or truthful, or accepting any responsibility whatsoever,
Kurt Thoennessen:there, I think we've we've covered a lot in this conversation, just and it's giving me a new understanding of social inflation of nuclear verdicts and how they impact a plaintiff or defendant and society as a whole. Because it does it. And that's, I think, why it's such a buzzword today, potentially, because, you know, you have inflation, you know, economic inflation through, you know, the cost of food, the cost of gas, the cost of all these things that we buy on a daily basis, but then you have all these other costs that you don't necessarily see every day, but are having an effect. You know, and as we wrap up this conversation, is there any any other aspects of of these two topics? Or are just litigation in general, that you want to share?
Chris Schon:I almost think I mean, in a sense, I see a lot of CGL policies, I see a lot of access, you know, umbrella policies for the personal insured. I see a lot of five millions now. I'm thinking it's got to be 10. At some point, depending on the California Yeah. Texas, probably, yeah. So depending on kind of where they're, they're venued I think the insurance limits gotta gotta increase for a lot of people, especially if they have, you know, a front facing business where they do interact with people that they may injure, accidentally. You know, and a common kind of thing is same, same for just an individual insured, especially that the higher net worth, folks, I'm still seeing a lot of 5 million here, and it's like, I don't know, I think, you know, 10 million might be better, because, you know, what, we didn't get into this part, but it's a whole new kind of can of worms, and I think I hit on it at the conference is, you know, in California, these plaintiff attorneys can send kind of hammer letters and say, you know, let's say you're a $5 million policy. You know, you got to settle damages or whatever. You know, it's it's, it's a certain risk assessment, maybe it has some weight. And the insurance company can settle it for 5 million with is within their insurance policy limits, but decide maybe not to, and they get a verdict of 10 million. Well, now their insured is going to sue the insurance company for bad faith because they couldn't take an amount of exposure at 5 million, but they didn't. And so it's like these these plaintiff attorneys, when the damages kind of get up to that number. You're almost like, you know, just taking, taking them to mitigate that risk, take their exposure away, settle up for 5 million, even though maybe a trial, we think a normal verdict would have been four, there's still the risk there, which, you know, you pile enough of those kind of 1 million, you know, gaps up, you keep stacking them. And it's like, Wow, we got to increase our premiums again, where if you had a $10 million policy, you're not worried about well, exposure could be 4 million, you know, that that causes premiums increase?
Kurt Thoennessen:Yeah, that's a good point. Very good point. And I also like the, the correlation you, Nate, you made between the location, the state, and you call them judicial hellholes, which I assume is a technical term?
Chris Schon:Yeah, I don't know if we made it up. But if we did, I don't take credit for it.
Kurt Thoennessen:And you can and you, and you use that as a factor for clients to to. That's excellent. Thanks for sharing that, Chris. So as we wrap up this conversation, which as I said, has been an incredible learning experience for me, and very helpful. And I hope it's been helpful to our audience as well. I. So there any final thoughts about this? And then also, how can people get in touch with you if they have a question? Or if they'd like to talk to you further about this?
Chris Schon:Yeah, sure. I think just some final thoughts I have with respect to preventing new killer verdicts is, like I said, on here, definitely accept responsibility. And you have to accept responsibility for for something, give a number. Don't let the plaintiff's attorney be the only one who's given a number. Even if your attorney is going for a defense verdict, you still need to give a number. personalise the the corporate clients or the individual clients tell tell their story, too, because their story maps, argue pain and suffering, like we talked about with respect to the general damages, because that is the biggest driver of new killer verdicts and demonstrate empathy. You know, don't don't stand up there and be difficult or not have your corporate representative show up every day. You have to care truly care, not fake care, you have to care. And if you truly care, the jurors will see that too. And it'll help minimize and prevent nucular verdicts. And then, with respect to contacting me, then go on our website, Tyson mendez.com. I'm in the San Diego office. They'll see my bio on there. My email, C S C H O N at Tyson mendez.com is another way LinkedIn. Christopher Schoen LinkedIn so they'll be able to find me there if if they want. I appreciate the time today. I hope it was an illuminating kind of discussion for for everybody.
Kurt Thoennessen:I absolutely. Thank you very much, Chris. This was a very illuminating conversation, very educational conversation. And very helpful conversation. Because you know, when we're talking to clients in the in the private client space, it is important that we understand these different, these different things that are going on, and what could potentially impact them. I have personally gone through situations where clients have gotten those lawsuit letters, which they, they were not ready for, and was definitely a big moment in their lives. And so being able to share with them different things that are going on, share with them things that they could, that could help them as they go through that is extremely helpful. So thank you for sharing your experience or knowledge. Super, super awesome. I appreciate it very much. Thank you.
Chris Schon:My pleasure. Thank you.
Kurt Thoennessen:And thank you to everyone who tuned in to this episode today. I really appreciate it and I am super happy that you did. If you have any ideas for future guests for the show, please feel free to reach out and make the suggestion I'd be happy to reach out to them. And if you would like to write a review for us, we'd definitely appreciate it. And thanks again, for tuning in. We'll see you on the next episode of private client risk and resilience. Have a great day.
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