What Are Nuclear Verdicts & Settlements?
Nuclear verdicts refer to exceptionally high jury awards, namely those exceeding $10 million. Similarly, nuclear settlements are payment agreements made between disputing parties outside the courtroom that are either larger than $10 million or consist of more substantial noneconomic damages (e.g., pain and suffering) than economic damages (e.g., medical bills and lost income). Such losses have become increasingly common in recent years. In fact, the National Law Journal reported that the average jury award among the top 100 U.S. verdicts has more than tripled since 2015, skyrocketing to over $200 million. Additionally, the latest research found that average and median settlements have risen by at least 65% and 70%, respectively, over the past decade.
A variety of factors have contributed to these trends, including rising litigation funding, eroding tort reform and, above all, deteriorating public sentiment toward businesses. Amid growing corporate distrust, businesses have not only been expected to meet higher standards within their operations, but have also been held more accountable for their wrongdoings. Upon being sued and taken to court, businesses have frequently encountered juries sympathetic to plaintiffs, making them more susceptible to nuclear verdicts. Even when businesses opt to handle lawsuits out of court, plaintiffs’ lawyers have leveraged the precedent of large-scale verdicts to secure nuclear settlements. Compounding these issues, there’s a rising perception that businesses (especially large ones) can always afford the cost of damages, driving up associated awards.
Nuclear verdicts and settlements can carry significant consequences for businesses of all sizes and sectors, causing lasting reputational harm, posing underinsurance concerns and wreaking major financial havoc. That’s why it’s vital for businesses to better understand these losses and how to prevent them. This case study summarizes a recent nuclear settlement, outlines factors that led to the loss, highlights associated compliance considerations and provides related risk mitigation measures.
$27 Million Product Liability Loss
In September 2015, a Florida woman was bathing her 2-year-old granddaughter in the kitchen sink of her family’s home while soup was simmering in an 8-quart pressure cooker on a nearby stovetop. At this time, the grandmother said that the pressure cooker suddenly malfunctioned, spraying hot liquid across the kitchen. In response, the grandmother tried to move the pressure cooker off the stovetop; however, as she was doing so, the product’s lid blew off, causing her to drop the pressure cooker altogether. From there, the product struck the toddler and covered her in scalding liquid, leaving her with second- and third-degree burns across more than half (60%) of her body. The toddler was hospitalized for nearly a year to receive treatment for these severe burns. During this time, the toddler contracted sepsis from her injuries, with the infection ultimately forcing her to have her left leg, right foot, left hand and all of the fingers on her right hand amputated.
In the coming months, the toddler’s parents filed a lawsuit against the pressure cooker’s manufacturer, Lifetime Brands, alleging that the incident stemmed from the company selling a faulty product and neglecting to issue a recall. Lifetime Brands initially denied these allegations, stating that the grandmother misused the pressure cooker and was responsible for the incident. The company conducted various safety tests and consulted police, fire marshals and engineering experts in an effort to prove that the product wasn’t defective. Yet, the legal team for the toddler’s parents eventually discovered that the company was using a newer model of the pressure cooker while conducting its safety tests. When using the older version that the toddler’s family owned, tests revealed that this model possessed an incorrectly sized internal lock bar, which allowed the lid to open even when the product was under pressure and exposed users to scalding injuries.
Upon further investigation, the legal team for the toddler’s parents found that Lifetime Brands sold the faulty version of the pressure cooker for three years before detecting the problem and quietly fixing the issue in newer models. The company never recalled the faulty version, and didn’t report any product upgrades to the Consumer Product Safety Commission (CPSC) until July 2018, thus allowing thousands of consumers who purchased the older model to continue using defective and potentially hazardous pressure cookers within their homes. Following these revelations, a Broward County Circuit Court judge approved a substantial settlement agreement between the two parties in November 2018, with Lifetime Brands paying $27 million to the toddler’s parents. As a result of this settlement, the toddler was able to receive state-of-the-art prosthetics for her amputation injuries. The legal team for the toddler’s parents also filed a report with the CPSC in hopes of having a recall issued for the older model of the pressure cooker.
Factors That Led to the Verdict – $27 Million Product Liability Loss
In taking a closer look at this case, the main factors contributing to the loss were product defects and a failure to meet associated safety standards. A product defect refers to any component of a product that negatively impacts its ability to be used or operated as intended by the original designer or manufacturer. Such defects often pose hazards or other safety concerns for consumers, thus increasing the risk of related injuries. As it pertains to this case, the incorrectly sized internal lock bar on the older model of the pressure cooker constitutes a product defect.
Product safety standards are rules put in place by governing bodies and organizations (e.g., the CPSC) that establish guidelines for properly designing and manufacturing consumer goods. These standards aim to safeguard consumers from unreasonable harm when using or operating products. Common product safety standards include the following:
- Products should be reviewed and tested to confirm they pose no or a minimally acceptable level of risk to consumers.
- Products should be clearly marked with adequate safety warnings and instructions for correct use.
- Products that display defects should be recalled immediately to ensure consumers are aware of their possible dangers.
In regard to this case, Lifetime Brands continuing to sell the older model of the pressure cooker and not issuing a recall upon discovering the product’s defect showcases a failure to meet product safety standards. It’s also worth noting that Lifetime Brands worked with a foreign manufacturer to produce the older pressure cooker model. Since product safety standards can differ between countries, this model likely never met U.S. guidelines.
This loss also poses some compliance considerations related to product liability. Such liability refers to the legal responsibility of product designers and manufacturers to compensate consumers who experience bodily injury, property damage or other losses as a result of purchased goods. In other words, any party with the potential to profit from the sale of a product is responsible for taking reasonable steps to ensure nobody is harmed by using or operating their product as intended. While there are no federal product liability laws in place, most states possess such legislation. These laws typically require proof that a product was the clear culprit of a consumer’s loss, whether due to direct liability or negligence. Product liability claims may fall into one of the following categories:
- Defects—These claims can result from designers and manufacturers neglecting to address or simply ignoring defects in their products, which go on to injure or otherwise harm consumers. They may also stem from designers and manufacturers failing to equip products with essential safety features or provide ample warning labels and instructions. Defects often arise in the absence of proper product testing and quality control measures.
- Post-sale duties—Such claims can result from designers and manufacturers failing to uphold their duty to warn consumers if they discover product hazards after they have been sold, regardless of whether these hazards existed before the sale. A post-sale warning is generally required if a designer or manufacturer knows or reasonably should know that a product poses a risk to others, the consumers who require notification can be easily identified and are likely unaware of the product’s risk, the warning can be effectively communicated and acted upon, and the product’s risk is significant enough to justify the effort and investment required to issue the warning.
Risk Mitigation Measures
- Minimize product liability exposures. Businesses should make it a priority to invest in high-quality product manufacturing processes and equipment. In some cases, businesses may want to transfer a portion of their product liability risks to other parties through supplier contracts (e.g., hold harmless agreements). It’s also best for them to conduct regular inspections and tests to ensure their products function correctly and are safe for consumers, making adjustments as needed. When creating product warning labels and instructions, businesses should consider leveraging consumer focus groups to confirm that their wording is clear, accurate and easy to follow. Even after their products have been sold, businesses should take consumer feedback seriously and investigate any reports of product defects. In the event of post-sale concerns, businesses should have product recall plans in place that outline key steps to limit related losses (e.g., removing remaining products from store shelves and notifying impacted consumers). Lastly, all processes and risk management measures associated with products’ lifecycles should be properly documented, including design layouts, quality control assessments, production and sale logs, and liability claim records.
- Ensure compliance. Workplace policies should be regularly assessed to maintain compliance with product liability laws and safety standards, as well as any other applicable federal, state and local regulations. Businesses can consult legal counsel for additional compliance assistance.
- Secure proper coverage. In this increasingly litigious environment, it’s crucial for businesses to purchase adequate insurance.
Reach out to one of our trusted insurance advisors to discuss specific coverage needs, so you can avoid a nuclear verdict.