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The hospital liability insurance market is taking a beating. Nuclear verdicts — those exceeding $10 million — have become increasingly common. This legal conundrum presents a fundamental challenge for health care providers seeking to provide quality care and still stay in business.
The numbers tell a striking story. In 2022, there were approximately 48 nuclear verdicts totaling $1.3 billion in damages. Three years later, that number had jumped to 55 verdicts totaling $2.5 billion — an increase of nearly $1 billion in just a few years.
“The hospital professional liability and general liability market is in a hard market right now,” said Robert Ellis, EVP of Healthcare at Arch Insurance. “It really boils down to a couple of factors at play, and a lot of it is driven by claims costs — the increase in claim costs and what the industry calls frequency of severity.”
“If you go back to pre-COVID, we were experiencing mid-twenties nuclear verdicts annually, with occasional spikes to the mid-thirties. Obviously, it dropped off during COVID because the courts were closed, but in 2022, it just came roaring back with numbers topping the high forties to mid-fifties, and they’ve stayed there.”
This hard market environment is reshaping how insurers approach underwriting and how hospitals must think about their risk management strategies. Understanding these dynamics has become critical for hospital leadership and risk managers tasked with securing appropriate coverage while managing premium increases.
Hospitals are particularly vulnerable targets in this environment. “Hospitals tend to have deep pockets. They buy big towers of insurance, and plaintiffs’ attorneys know that,” Ellis explained. “Hospitals have been under attack, and we’re seeing these larger verdicts and larger settlements play out in the hospital space, which have driven up losses for carriers and led to less limit in the marketplace.”
Robert Ellis, EVP of Healthcare, Arch Insurance
Not all hospitals face equal risk, and geography plays a critical role in underwriting decisions. Certain jurisdictions have developed reputations for higher settlements and verdicts — what industry professionals call “judicial hellholes.”
“There are certain venues that tend to drive higher settlement and verdict values, as well as a greater number of those verdicts,” Ellis said. “These include the boroughs of New York, Cook County Illinois, Philadelphia County Pennsylvania, South Florida, New Mexico, and Georgia.”
The venue issue is crucial because it’s understandable and, to some degree, controllable. Hospital systems operating in high-risk venues understand they’ll face different underwriting criteria and likely higher premiums. However, Ellis stressed that geographic risk alone doesn’t tell the complete story.
“If you’re going to write that business, you have to make sure you’re looking at the right factors,” he said. “For instance, you want to look at the number of births in those hospitals because birth injury or emergency department claims can drive severity. You want to try to figure out what perils are going to drive the severity of these claims and how much that hospital or hospital system is exposed to those perils.”
Understanding hospital specialization and case mix is essential for proper risk assessment. Teaching hospitals and larger health systems that focus on high risk procedures carry different exposure profiles than community hospitals and smaller systems that do not have the resources to perform higher risk procedures. These distinctions shape underwriting decisions and premium determinations.
While the litigation environment receives significant attention, Ellis emphasized that modern underwriting extends well beyond courtroom dynamics. Insurers are increasingly focused on hospital operations, risk management practices, and leadership awareness of the litigation landscape.
“When we underwrite these hospitals, we need to understand how they’re managing risk and whether they’re doing it effectively,” Ellis said. “Are they learning from their own mistakes? Are they learning from the mistakes of others?”
Hospitals that have experienced significant claims and responded with robust process improvements present lower risk profiles to underwriters. Those systems that proactively implement controls and demonstrate learning from adverse events gain confidence from carriers.
“We also evaluate their awareness of the legal environment,” Ellis added. “Do they know which plaintiff attorneys are targeting them? Do they understand the track record of those plaintiff firms? Have those firms tried cases similar to incidents that have occurred at their hospital?”
This awareness extends to claim handling strategy. “Beyond awareness, we examine their actions. Are they getting out in front of potential issues? Are they attempting to settle early?” Ellis said.
Hospitals that take a proactive approach to claims management — flagging potential issues early and settling when appropriate — demonstrate sophisticated risk management. These practices not only reduce ultimate claim costs but also signal to underwriters that a hospital system’s leadership understands the current environment.
While health care businesses face multiple risk categories, one particular exposure — sexual abuse and molestation (SAM) claims — presents unique underwriting challenges distinct from other liability exposures.
“Sexual abuse and molestation claims, however, pop up in any venue—it doesn’t really matter where. You don’t see them coming, and they tend to have a lot of severity,” Ellis said. Unlike geographic risks that can be managed through targeted underwriting decisions, abuse claims are fundamentally unpredictable.
“I can stay out of areas like Chicago, the boroughs of New York, and Philadelphia if I choose to,” Ellis explained. “You’d probably see fewer claims and less premium as well, but you can underwrite to that approach. Abuse claims, however, create an entirely different challenge and one that the industry is still trying to figure out how to manage.
The unpredictability of these claims creates significant premium uncertainty. Carriers writing SAM coverage must price for potential claims with a frequency and severity that remains difficult to predict accurately.
Sophisticated hospital systems understand that their relationship with insurance carriers extends beyond policy issuance into the claims process itself. When significant claims emerge, lead layer carriers can provide valuable consulting support.
“On the lead layers we place, our claims team gets involved and works almost as a consultant with the insured,” Ellis said.
“We know which plaintiff firms have tried what cases and what the verdict amounts are, and we flag claims quickly. We need to get out in front of these claims and settle early, if possible.”
This collaborative approach allows hospitals to benefit from carriers’ broad claims data and experience across their entire book of business. Carriers tracking which plaintiff firms specialize in particular injury types or have achieved notably high verdicts can help hospital systems calibrate their claim response.
Looking forward, Ellis offered a realistic assessment of the market trajectory. “It’s not optimistic. Unless there’s major tort reform across the board, I don’t really see any end to it,” he said. “Plaintiffs’ firms are emboldened and tend to be one step ahead much of the time.”
The hard market is likely to persist in its current form for an extended period. While no specific timeline can be predicted with certainty, fundamental market conditions suggest this environment will continue until either legislative action occurs or hospital purchasing behavior shifts materially.
For hospitals committed to improving their underwriting profile and managing insurance costs effectively, the focus should be on demonstrating superior risk management practices, proactive claims handling, and awareness of the litigation landscape. These improvements won’t eliminate hard market conditions, but they can help individual hospital systems secure better terms and demonstrate to underwriters that they’re serious about managing risk and claims.
Navigating today’s liability market requires understanding both macro trends affecting the entire industry and specific factors unique to each hospital’s operations and geography. By combining awareness of these dynamics with sophisticated internal risk management, hospital leaders can position their organizations to secure appropriate coverage and manage the financial impact of hard market conditions.
To learn more about health care liability solutions, visit https://insurance.archgroup.com/north-america/united-states/offering/healthcare-liability/.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Arch Insurance Company. The editorial staff of Risk & Insurance had no role in its preparation.
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