Vicarious Liability, Nuclear Verdicts & the Impact to HNW Families

27 Jan Vicarious Liability, Nuclear Verdicts & the Impact to HNW Families

In July of 2024, the Wall Street Journal published an article titled “Nuclear Verdicts by Juries Get More Common.”  The article highlighted the rising trend of social “class warfare” driving “nuclear” verdicts — defined as exceptionally large jury awards exceeding $10,000,000 – against not just America’s corporate community but high-net-worth individuals and families.  Aggressive litigation tactics, media coverage, and societal shifts combine to spur some juries to “send a message” to wealthy defendants.

The purpose of this RiskTip is to highlight the issue, its implications, and how best to manage the risk.

Consider a scenario where you hire a contractor to work on your home.  During the project, one of the contractor’s employees is severely injured.  Pursuant to most state laws, the injured employee is entitled to workers compensation benefits on a “no fault” basis, meaning free from a legal requirement to establish employer responsibility.  The statutory trade-off from such “no fault” laws, however, is that the injured employee waives their rights to sue the employer.  Yet, workers’ compensation benefits are limited strictly to medical costs, wage relief, and limited awards legislatively established.  I.e., workers’ compensation benefits exclude major compensatory or punitive damages.  In severe cases, there is a growing trend for the injured individual to seek greater compensation from any related party, including the homeowner.  High-net-worth families are finding themselves brought into these cases through lawsuits regardless of fault.  One’s wealth makes an attractive target, the financial stakes can be significant, and the misery of litigation highly inconvenient.

Under the legal doctrine of “Vicarious Liability” – where one party is held responsible for the actions of another – such exposures exist, are growing, and can occur from various relationships and activities: third-party relationships, contractors, household staff, volunteer activities, non-profit boards and committees, or parties and events.

How does one’s personal insurance respond?  Is the Personal Umbrella applicable?  If only it were so simple.  Properly issued, yes.  Excess/Umbrella liability policy contracts are subject to an underlying schedule of assets and generally apply “excess” of underlying insurance contract forms with definitions, terms, conditions, and exclusions.  Certain exposures require specific endorsements that not all underwriters are able or willing to include.  Simply the existence of an Umbrella or its limit is insufficient.  Additionally, the imposition of being dragged into a lawsuit can be avoided through proper non-insurance risk management mechanisms.

Harkening back to the injury scenario, what about the respective contractor’s business insurance?  Again, if it were only so easy.  Just because the contractor carries insurance does not equate to protection for the homeowner.  In our scenario, standard (unmodified) business insurance will exclude coverage for the homeowner.  Only with appropriate risk management oversight between the parties can the homeowner shield themselves effectively.  Proactive contractual risk control, personal risk plan architecture that includes ongoing oversight must be employed to ensure HNW assets and livelihood are properly protected.