Navigating the Challenges of Nuclear Verdicts & Reptile Theory in Construction

The construction industry is currently navigating a complex array of challenges, including economic instability, labor shortages and stringent regulatory demands. Adding to these pressures is an emerging issue: the abuse of the legal system, which can lead to unexpected costs and disruptions.

The Escalating Threat of Legal System Abuse

Legal system abuse in the U.S. is contributing to extended litigation and higher claim settlements. These settlements can quickly escalate an ordinary claim into a nuclear verdict of $10 million or more, threatening a company’s financial stability and its capacity to complete projects.

Here’s an example: If a construction company allows an employee with a record of unsafe driving to operate a company vehicle, and that driver causes an accident, the owner of the vehicle can be held liable for negligent entrustment. Attorneys might leverage previous motor vehicle records (MVRs) and telematics data to demonstrate that the company was aware of the individual’s history but neglected to address the concerns. This could result in a substantial settlement, far exceeding what might be expected from a minor accident, as attorneys can convince the jury that the company deserves to be punished for its failure to take action. For business owners, these cases are not only financially devastating — they also carry reputational risks that can be harder to recover from than the settlement itself.

Nuclear verdicts are drastically inflating legal and insurance costs for construction businesses, impacting their ability to insure their jobsites, finish up ongoing projects and bid on new ones. A significant contributor to this issue is the surge of third-party funders backing lawsuits in construction.

The Role of Third-Party Litigation Funding 

Third-party litigation funding (TPLF) is a financial arrangement where an entity, such as a hedge fund or private equity firm, funds a plaintiff’s legal claim despite having no legal stake in the dispute. In return for bearing the financial risk, the investor receives a significant portion of the proceeds if the case is successful.

This practice is often referred to as “jackpot justice,” as it transfers the case from a plaintiff’s lawyer — who has a fiduciary responsibility to negotiate an adequate and fair settlement for their client with the insurance company — and into the hands of anonymous investors who are betting on liability claims they believe will result in substantial settlements or nuclear verdicts. These third parties are not concerned with compensating the injured party; instead, they’re focused on maximizing their investment returns.

Between 2024 and 2028, Ernst & Young estimates the direct costs from TPLF to the property and casualty insurance industry could be as high as $25 billion, with indirect costs potentially reaching $50 billion.

This practice undermines core principles of insurance by placing the needs of financers above those of impacted parties. It turns courts into profit centers for wealthy, nameless investors at the expense of business owners.

It also desensitizes jury pools to awarding nuclear verdicts. Ad campaigns by trial lawyer groups communicating that they can win “$10 million for your injury” influence jurors’ perceptions of fair compensation. In 2024 alone, the American Tort Reform Association reports that $2.5 billion was spent on local TV, radio, print and billboard ads by plaintiffs’ attorneys aiming to normalize exorbitant settlement amounts.

Reptile Theory: Appealing to Jurors’ Fears

Plaintiffs’ attorneys are also employing a strategy called “reptile theory.” This concept is a litigation tactic where plaintiffs’ attorneys appeal to jurors’ survival instincts and primal fears to influence their decision-making. They do this by portraying construction businesses as threats to community safety, rather than the community builders they truly are.

In 2019 alone, reptile theory helped contribute to a 300% increase in verdicts of $20 million or more compared to the average from 2001 to 2010.

These challenges not only make construction businesses targets of money-motivated investors, but they also result in higher insurance rates and deductibles, increased coverage limit requirements and reduced access to the coverages they need to protect their livelihoods.

Nationwide’s data shows that severity trends in general liability continue to escalate and lead to higher costs for businesses, and this can be largely attributed to legal system abuse.

• Ten-year severity trends show that general liability premiums were expected to double every 14 years; however, six-year trends indicate premiums are now doubling every 8.6 years.
• The percentage of general liability claims hitting customers’ coverage limits nearly doubled between 2012 and 2022.

How Insurance Carriers Can Help Construction Businesses

Comprehensive Fleet Safety  

Fleet safety is particularly important as construction owners are especially vulnerable to lawsuits involving their fleet vehicles and drivers. In addition to having a robust fleet safety program and training for drivers, it’s critical for construction business owners to regularly monitor MVRs for their drivers to ensure compliance with legal regulations and reduce liability risks.

For instance, if a driver receives a DUI and the contractor only reviews MVRs annually at policy renewal, they remain unaware of the violation, exposing them to negligent entrustment. This increases the risk of a nuclear verdict and severe reputational damage if the driver causes an injury or fatality.

Working with partners can remove this burden from the business owner through continuous monitoring of MVR violations.

Telematics are another essential technology for construction businesses due to their ability to track vehicle usage, monitor driver behavior and optimize fleet management. Our review of the construction businesses Nationwide serves found that businesses effectively using their telematics data to coach and improve driver behaviors are seeing a 30% or greater improvement in their historical business auto loss ratios.

Contractual Reviews & File Documentation 

As construction businesses rely on subcontractors, construction contract review helps mitigate risks, clarify responsibilities and prevent disputes during the construction process. Construction risk management experts can assist with establishing a contractual review process to ensure the right elements, like risk transfer practices and prequalifications for subcontractors, are in place.

Maintaining comprehensive documentation of incidents is another critical protection against reptile theory and nuclear verdicts. When documentation or supervision is lacking, it becomes easier for plaintiffs’ attorneys to manipulate jurors’ perceptions of the event. Carriers can provide resources, such as job file checklists, to help construction businesses and foremen capture all necessary documentation, which is particularly important at the time of a claim.

Advanced Technology 

The construction industry is increasingly leveraging advanced technology to improve safety, efficiency and project management. Similarly, the insurance industry is adopting new technologies, such as artificial intelligence (AI), to evaluate claims and identify litigation risks.

Nationwide has implemented AI to analyze claims in the early stages — typically the first 30-60 days — and gather information about the loss, including jurisdiction, injured parties, nature of injuries and other relevant factors.

Taking Action Against TPLF

To combat the negative impacts of TPLF, businesses must join the insurance industry in engaging with policymakers to advocate for balanced reforms.

In most jurisdictions, the presence of a TPLF agreement is not required to be disclosed, enabling funders to remain hidden and lurk in the shadows. This flies in the face of insurance policies, which have long been required to be disclosed. This discrepancy places insurers and litigation funders on uneven informational footing.

Proposed legislation like Ohio Senate Bill 10 and Ohio House Bill 105, which require disclosure of TPLF agreements, can help establish informational parity between parties in a lawsuit and uncover whether third-party funders — including foreign governments — are exercising undue influence or violating ethical rules. This proposed legislation will ultimately protect consumers. 

Similarly, Georgia Senate Bill 69, which was recently passed into law, mandates registration of third-party litigation financers with the Georgia Department of Banking and Finance, imposes strict limitations on their role in legal proceedings, and brings transparency to funding agreements.

Businesses Must Build a Robust Defense

Construction business owners must recognize these growing litigation trends and learn how to navigate the evolving legal landscape to safeguard their businesses. By taking a comprehensive approach — emphasizing safety, timely claims reporting, clear workplace policies and strong risk management — companies can reduce their exposure to legal system abuse.

Ensuring adequate insurance coverage and collaborating with specialized risk management consultants are also critical steps in building long-term resilience.