Large Fleets a Big Target for Pricey Litigation

SHzoom’s Monthly Minute

Large Fleets a Big Target for Pricey Litigation

January 2023 | This article was originally published on FleetOwner.

Even safety awards are not shields for large judgments and settlements in court. Plus, there is the toll of smaller verdicts, the ones that don’t garner a lot of media attention. And attorneys that defend fleets increasingly ask: ‘Why settle?’

Larger fleets know the crushing math too well: The more tractors, trailers, and people they have out on the road, the greater their vulnerability is to accidents and, ultimately, the much higher their exposure is to costly litigation. Factor in that many of these large fleets have robust and multilayered safety and driver-training programs—and are winners of safety awards as well—and the irony grows even greater.

This shows that all the accolades in the world do not shield larger fleets from “nuclear” verdicts. In fact, the bullseye on their backs might be bigger. So safety, technology, and driver screening and coaching at any big fleet becomes that much more important. Happenstance, of course, also plays a part.

All of the top 50 fleets in the FleetOwner 500: Top For-Hire Fleets of 2022 have at least 2,800 total vehicles when split between tractors and trailers. Memphis, Tennessee-based FedEx Corp., for example, which is No. 1 on the list, runs almost 110,000 trucks, including 36,300 over-the-road tractors and 134,270 trailers.

That’s literally tons upon tons of liability. It doesn’t come as a surprise that FedEx has been on the wrong end of some well-publicized and large verdicts.

Omaha, Nebraska-based Werner Enterprises, which is No. 12 on the FleetOwner 500: For-Hire list, with more than 10,000 tractors, over 25,000 trailers, and more than 14 terminals, is no stranger to this phenomenon—and costly litigation.

Werner professional drivers are safety award-winners. A Werner driver, Allen Parker, won the Commercial Vehicle Safety Alliance’s 2021 International Driver Excellence Award and had several President’s Safe Driver Club recognitions from the Nebraska Trucking Association (NTA). CVSA is the industry standard-bearer for equipment inspections, driver quality, and safe operation. NTA runs its own Safety Management Council.

Werner routinely hands out its own safety achievements to hundreds of its drivers who have gone 1 million, 2 million, 3 million, and 4 million miles free of any accident. Werner Chairman, President, and CEO Derek Leathers just recently was named chairman of the board (he had already been a board member) at the American Transportation Research Institute (ATRI), a top trucking safety and data watchdog, making Werner even more of a stakeholder in the safety conversation and movement within the industry.

Sometimes Fleets are Forced to Pay, Even When not at Fault

The case is on appeal, but Werner was held liable for a $92 million judgment in 2018 resulting from a crash in winter weather near Odessa, Texas, in December 2014, when the driver of a passenger vehicle crossed a median on Interstate 20 and hit Werner’s truck head-on. A trooper testified in the case that the truck driver was traveling below the speed limit and could have done nothing to prevent the accident, which resulted in the death of one child and left a second quadriplegic. Safety allegations against Werner unrelated to the Odessa case were presented at trial.

“If an accident like this is the fault of the driver who was hit by the out-of-control vehicle, think about what that means for every motorist on the road,” Werner Enterprises said in a statement at the time of the nuclear verdict.

More recently, this July, Werner announced a $150 million settlement of a lawsuit from the parents of two children killed in a May 2020 crash along Interstate 30 near Sulphur Springs, Texas. In a statement, the trucking company disputed allegations from the parents that the company was at fault. Investigating officers assigned no fault to Werner’s driver, but the driver of the car was criminally charged. Three adults, including that driver, had exited the SUV while the children remained inside. The Werner rig struck the SUV, resulting in the children’s deaths.

“The circumstances of this tragic accident were set in motion by the decision to park a vehicle on a highway in the lane of travel, as indicated in the investigating officer’s report,” Werner’s Chief Legal Officer Nathan Meisgeier said in the statement. “Nonetheless, corporate defendants are facing ‘nuclear verdicts’ in courtrooms across the country, including in Texas. Werner believes it prudent to resolve this case, to bring closure for the family affected by this tragic accident, and to protect Werner, its employees, and its shareholders.”

In another older and large verdict, a Werner entry-level truck driver, who had just graduated from driver’s school owned and operated by Werner, was involved in a February 2017 crash on Interstate 10 outside Las Cruces, New Mexico, and the carrier was sued by the family of the woman killed. A Santa Fe jury awarded the plaintiffs $40.5 million in 2019, finding Werner, its driver, and the driver’s instructor negligent, according to reports.

“I will tell you this issue has become such a big one in the industry; it’s on the minds of everybody,” said Steve Keppler, co-director of Scopelitis Transportation Consulting, which advises the trucking and transportation industries on myriad issues and is an arm of Scopelitis, Garvin, Light, Hanson & Feary, a law firm that often represents commercial carriers in many kinds of legal cases.

Keppler mentioned that he had spoken to Werner about the $150 million settlement this year. “They were not at fault; the other driver was criminally negligent, yet they still settled,” Keppler observed. In the same interview with FleetOwner, Keppler called the trucking industry “a feeding ground” for the trial bar.

Keppler’s colleague, Steve Stanaszak, a partner in Scopelitis Law who helps defend trucking companies, said plaintiffs’ attorneys often turn cases against the trucking company rather than the driver involved in any particular case “because the driver is an average juror; there’s a chance [jurors] might have a relative who is a truck driver. The idea is to make the jury as mad as possible, not at the driver but the company. It then becomes very difficult to control that, to control nuclear verdicts. Get a giant verdict, put a billboard up.”

Stanaszak, who practices in Wisconsin and is a member of the board of directors of the Wisconsin Motor Carriers Association, added this bit of legal advice to any freight hauler: “A well-defended case starts the day of the accident,” meaning gather evidence that might exonerate you or your driver immediately. “Do not hesitate.”

Studies Show Force of Verdict Explosion

Detailed studies from 2020 and 2021, both researched and released by ATRI (and criticized by the trial bar, including one law firm licensed in 10 states and Washington, D.C.), often are cited when stakeholders talk about high-dollar verdicts and settlements. The American Tort Reform Foundation’s colorfully named, ongoing, and longer-term Judicial Hellholes report gets prominent mention in this debate around the freight-hauling industry.

The 2020 ATRI report, “Understanding the Impact of Nuclear Verdicts on the Trucking Industry,” perhaps told industry stakeholders what they already knew, but it did so in stark detail. The report, which throws a lot of data around and mostly covers cases of more than $1 million, found that large verdicts usually result when serious injury or death have been involved, but that the judgments often are reached based on tenuous legal grounds—for example, when other, unrelated incidents involving a carrier defendant are brought into the proceedings.

According to ATRI, from 2010 to 2018, the average verdict for truck crashes jumped from $2.3 million to $22.3 million, a nearly 1,000% increase. The 2020 report also saw a dramatic uptick in cases, particularly those over $1 million, in the 14 years before it was released, an even larger surge than in the six prior years.

In 2006, for example, only four cases with verdicts in excess of $1 million had been included in ATRI’s litigation database. At their 2013 peak, however, more than 70 cases with verdicts over $1 million were awarded, according to the 2020 report. Cases over $1 million increased 250% between 2006 and 2011. When children were involved in a truck-involved crash and they were injured or killed, the size of the verdict increased 1,687%, from $2.3 million to $42.3 million, the report states.

As a result of all this, commercial insurance rates are increasing an average of 20% to 25% annually, which is suffocating smaller companies, according to ATRI.

John McGlynn, director of transportation at insurance broker and underwriter Burns & Wilcox, explained in the 2020 report: “It is really the smaller and midsize operations that feel the brunt of this. They have less financial flexibility. I think, ultimately, the ones that will not be able to afford the premiums will be the smaller, family-owned, 10-unit-and-less drivers. We will lose that history, that free spirit, and independence that was the foundation of the trucking industry.”

Trials that end in high-dollar verdicts, the 2020 report notes, also tend to have other key attributes.

Crash data plays a significant role, as do plaintiffs’ attorneys who bring their own experts to the witness stand. Also, pre-crash actions by motor carriers—prior accident history, their drivers’ adverse history, lack of driver training, little or no safety programs, and little or no mitigation technology—come into play. Verdicts go up when defendant carriers haven’t invested in often costly experts and pre-trial research themselves. In contrast, the verdicts tend to go down when they do; awards decrease 13% when the defense invests in expert witnesses, for example, according to the 2020 report.

The report also cites five factors brought against defendant drivers that yielded 100% verdicts in favor of the plaintiff: hours-of-service or logbook violations, lack of clean driving histories, driving under the influence of controlled substances, fleeing the scene of the crash, and health-related issues. A driver on a cellphone yielded a verdict for the plaintiffs almost 92% of the time, according to the report. Also, plaintiffs won 100% of the time in verdicts with truck-involved crashes in these states: Georgia, North Carolina, Virginia, New York, Connecticut, Kansas, Nebraska, Wyoming, and Oregon.

The report also addresses dangerous “chameleon” or “reincarnated” freight carriers and the threat they pose to trucking’s litigation landscape. These carriers are shut down, often after they’ve been hit with FMCSA regulatory and safety penalties, but they reopen as new legal entities with largely the same drivers, equipment, and back-office and dispatch staff. They represent a wild card in trucking: bad carriers that, time and again, evade the regulations that reputable haulers must follow.

“Government regulatory agencies do not have the resources to identify and pursue the myriad of chameleon carriers, so it is not surprising that the Government Accountability Office found in 2012 that ‘18% of the applicants with chameleon attributes were involved in severe crashes compared with 6% of new applicants without chameleon attributes,’” according to the 2020 ATRI report.

Intertwined: Verdicts, Settlements, and Insurance

All 2020 ATRI survey respondents reported that insurers had to increase premiums as a result of large verdicts. As margins for insurance companies have decreased, they have responded by raising annual premiums across all fleets—completely independent of their safety ratings.

Inflation is dragging down America. When it comes to nuclear verdicts, insurance is very much part of that, said Nick Saeger, who is an outspoken insider on the problem as assistant VP for transportation pricing and products at Sentry Insurance. Saeger touched on social inflation’s part, too. One statistic blames social inflation for adding $20 billion to the cost of commercial auto liability claims—which includes trucking—between 2010 and 2019.

Saeger also mentioned research by the American Property Casualty Insurance Association, the primary U.S. trade group for home, auto, and business insurers, which found that “tort abuse” has resulted in a “tort tax” on U.S. families of $3,300 per household in higher premiums or increased costs of goods and services.

“I’m surprised it’s that low, quite honestly,” Michael Lasko of Boston area-based Boyle Transportation said of the “tort tax.” Lasko guides safety and driver-training efforts companywide as director of environmental health, safety, and quality at Boyle.

“Verdicts are increasing rates; that’s the bottom line,” Saeger added. “Things like ‘reptile theory,’ appealing to a jury’s tendency to punish evil-doers, the idea that $1 million is less of a shock award than it used to be five to 10 years ago; $1 million seems like nothing to a jury now. We see athlete salaries, so it doesn’t seem like anything anymore. Things like litigation financing, which encourages attorneys to take cases to trial for higher awards, [factors like] the disparity in income across the country itself, trying for that big score.”

The smaller scores in court—which another source likened to “death by 1,000 cuts”—are proving just as injurious as the big ones to the industry, its bottom line, and its reputation, according to another ATRI report, which came out just last year.

Although payments under $1 million are referred to as “small” in this 2021 report, “they are anything but to the motor carriers and their insurers faced with paying them,” it concludes. “While cases of this size are not individually as devastating to motor carriers and thus do not attract the attention of media outlets, in aggregate they have a significant negative impact.”

“It’s the smaller verdicts that kill us,” said John Esparza, president and CEO of the Texas Trucking Association, who also weighed in on tort reform’s standing in the Texas Legislature, trial bar tactics, how carriers defend themselves, and the tattered state of insurance rates in the Lone Star State.

“Your rates are going to look different if you’ve got miles in Texas,” Esparza added.

The 2021 ATRI report, “Impact of Small Verdicts and Settlements on the Trucking Industry,” also mentions “settlement mills”—or personal-injury law firms that may have 200 to 300 cases open at a time, settling as many as 600 in a year, but that actually don’t take that many all the way to trial.

“Florida is more of a settlement mill,” Florida Trucking Association President and CEO Alix Miller said, adding that after her speech in October at American Trucking Associations’ Management Conference & Exhibition, an insurer told her most companies that indemnify freight carriers will no longer write policies in the Sunshine State because it’s “too dangerous to go to court or to settle.”

“Settlement values have gotten out of control,” said Adam Blanchard, a former trial attorney and co-founder and CEO of Double Diamond Transport, a San Antonio-based smaller long-haul and regional motor carrier of 75 trucks and 285 trailers that exclusively uses owner-operators to haul freight.

Double Diamond received a second-place TCA Fleet Safety Award in 2020 for carriers that operate 5 million to 15 million miles per year. Blanchard also is involved with trucking matters before the Texas legislature, having testified before both the Texas House and Senate, and he ran but lost this year in the crowded March 1 Republican primary for the House District 122 seat there.

Blanchard also questioned the propensity of trucking company defense teams to settle cases, rather than take them to court, hoping to dodge large verdicts.

“This all isn’t going to work unless we start trying cases,” he added. “We have to get a handle on settlement values. Nobody is actually trying cases right now.” He cited an example where Double Diamond, which has not been involved in a larger verdict from a trial, received a “demand letter” from an opposing attorney in an incident where the carrier’s driver wasn’t at fault. “We fought them on it, and the lawsuit was dropped.”

“There is no question that small trucking companies feel vulnerable—because they are vulnerable,” said Blanchard, who is a proponent of cases against interstate trucking companies being heard in federal—rather than state—courts. “We’re hauling interstate freight. It seems we should have the ability to try these cases in federal court. Frivolous lawsuits don’t survive in federal court.”

The 2021 ATRI report also says a majority of cases processed by “settlement mills” are minor vehicle crashes, not even ones that involve serious injuries or fatalities. Minor incidents have led to requested payment amounts five times greater than the true medical cost for soft-tissue injuries that are not severe, regardless of fault. The inflated figures in these cases result from collaboration between law firms, doctors, and other medical professionals, this report claims.

ATRI’s report also says that since insurers incur the majority of inflated medical costs, they must pass excess costs onto all their other policyholders. Motor carriers have responded to higher policy costs by raising deductibles or retentions, meaning that they must increasingly pay more of these inflated costs. The average deductible or retention for fleets with 100 to 1,000 power units is $242,857, or more than 50% of the average payment in the report.

“Doctors pump up the value of damages,” Double Diamond’s Blanchard added. “The attorney and the doctor agree that the doctor is not going to get paid until the final outcome of the case, and the doctor ends up sending these outrageously high bills, and the case gets settled for outrageous amounts for the lawyers and doctors. It’s just a total racket. Now it’s turning into a profit center. Trial lawyers are in the business of churning cases. They aren’t in the business of going to trial.”