A major retailer’s earnings took a surprising hit in late August 2025. CFO John Rainey revealed the company took on roughly $450 million in unplanned liability and workers’ comp claims in Q2 – about a 560 basis-point drag on profits.
It was the firm’s first quarterly profit miss in three years, a stark counterpoint to otherwise strong sales. The news jolted investors and underscored how runaway legal settlements can erode the bottom line.
Stakes
Industry experts warn this is not an isolated blip but part of a broader liability “crisis.” Marathon Strategies reports US nuclear verdicts (jury awards over $10 million) rose 52% in 2024 (to 135 cases), totaling $31.3 billion.
The median verdict also shot up (to $51 million). In total, analysts estimate social-inflation-driven liability losses already span on the order of hundreds of billions of dollars worldwide.
This hyper-growth far outpaces economic inflation, a phenomenon now widely dubbed “social inflation.”
Context
Social inflation has been building for years. Swiss Re’s latest index shows US liability claims costs grew about 7% in 2023, nearly double core inflation.
That jump follows a mid-2010s trend of ever-larger jury awards and mega-settlements (especially in personal injury cases). Unlike past claim surges driven by legal reform, today’s wave reflects shifting social attitudes: jurors are increasingly willing to hit companies hard.
Legal trends are being driven more by cultural change than by new statutes.
Pressure
Jurors’ attitudes are a big part of the shift. Recent surveys find that only 48% of prospective jurors today say they trust U.S. courts (down from 67% pre-pandemic).
Nearly two-thirds now say it is an “important function” of juries to send a message to corporate defendants about their behavior, and a striking 77% favor using punitive damages to punish companies. That means many Americans see large verdicts as tools for social justice.
This anti-corporate mindset among younger, more diverse juries is a driving force behind soaring claim awards.
Walmart’s Breaking Point
Walmart’s own reports illustrated the dynamic. CFO Rainey explained that claim frequency actually fell, but “the cost to resolve claims has risen, both for us and across the retail industry”.
In Q2, those higher settlements added up to about $450 million over budget – a 560-basis-point hit on operating income. In other words, even though accidents weren’t spiking, the price tag per claim jumped dramatically.
That gap between flat claim counts and exploding costs is emblematic of social inflation’s toll.
Impact
The liability storm is hitting all retailers. Dollar Tree CFO Stewart Glendinning bluntly told investors, “The cost of claims continues to rise across the industry,”. Dollar General likewise reported growing general liability expenses.
At Best Buy, executives noted that a $19 million rise in SG&A was “primarily due to … higher medical claims”.
Even routine injuries that used to cost a few thousand dollars are now yielding multi-million-dollar settlements. Every merchandiser – from mom-and-pop outlets to big-box chains – is having to recalculate their risk exposure.
Human
Company leaders have tried to put a reassuring spin on it. Rainey told analysts that “unexpected costs are part of managing a business of this complexity”, highlighting that Walmart self-insures most of these claims.
CEO Doug McMillon likewise framed the $450 million hit as temporary “noise in our numbers,” urging shareholders to focus on the bigger picture.
Their comments illustrate the tightrope: retail executives must acknowledge a very serious financial challenge while still projecting confidence in the underlying business.
Competition
Even insurers and reinsurers are taking notice. Swiss Re announced in late 2024 it was boosting its U.S. casualty reserves by $2.4 billion in Q3 alone – a clear signal that even global reinsurers see a wave of big verdicts on the horizon.
Marathon Strategies found a record 135 nuclear verdicts in 2024 – the most ever identified. Notably, about two-fifths of those involved product-liability cases, driven mainly by lawsuits over a weedkiller and suits against tobacco companies.
These mega-awards now span roughly 50 industries, sending shockwaves far beyond retail.
Macro
Social inflation is going global. Swiss Re data show social factors added 10+ percentage points to UK liability costs in 2022, and about 7 points in both Australia and Canada.
Much of that reflects a spillover from US courts: after a big American verdict, companies often tap their foreign insurers or bring claims overseas.
For now, continental Europe has been relatively insulated (its civil-law system, with judges instead of juries, has kept awards smaller). But experts warn: with new EU litigation directives and growing funding pools, no region can ignore these trends.
Aging Workforce Costs
One engine of higher claims is demographics. Workers aged 60+ are filing more costly claims. Sedgwick reports that in 202,4, claims by employees 60 and over grew 2.8% – the steepest jump of any age group – and those claims averaged nine more lost-work days and 35% higher medical costs than claims by younger workers.
In other words, as the retail workforce ages, both the frequency and size of claims are climbing. This intersection of an older workforce with hyper-inflated settlements is creating a perfect storm for employers.
Frustration
Inside boardrooms and brokerages, frustration is rising. Retail executives admit their old risk models didn’t see this coming, while insurers feel caught between rising reinsurance rates and clients demanding stable premiums.
Patrick Edwards of RPS Insurance explains that carriers have been papering over the problem through accounting tricks: “That’s where the masking aspect comes into play,” he said, referring to how insurers release reserves to hide what’s really happening to loss ratios. Many losses have been quietly deferred – and now the concealed deterioration is surfacing.
Response
How is Walmart coping? Unusually for its size, the retailer self-insures general liability and workers’ comp (via its Claims Management Inc. unit), so it bears the full brunt of higher awards. Rainey noted this structure explicitly: “This expense pertains to… claims for which we self-insure”.
That grants Walmart direct control over claims handling, but it also means it fully absorbs social inflation. Executives say they’re taking mitigation steps (some undisclosed), but essentially view the $450M hit as manageable given $177B+ in quarterly revenue.
As Rainey put it, running a business this big means budgeting for the unexpected.
Strategy
Industry experts recommend proactive approaches. Carriers advise building an “enterprise risk management” culture: use data analytics, telematics, and safety reviews to prevent accidents before they become claims.
When claims do arise, strategies include early case assessment and choosing alternative dispute routes (mediation or bench trials instead of juries) to contain costs. Some insurers are even offering new coverages (sometimes called “verdict insurance”) to protect companies from catastrophic judgments.
Meanwhile, retailers are refocusing on accident prevention – investing in store safety, equipment upgrades, and employee training – to drive down the number of claims altogether.
Outlook
Everyone agrees the pressure isn’t letting up. Swiss Re leaders list social inflation as a top concern heading into 2025. New analyses back them up: the average plaintiff verdict climbed to $16.2 million in 2024 – a 76% jump from 2022.
Record seven- and eight-figure awards are being handed down at an accelerating pace. Industry watchers warn that this contest could persist for years. If so, companies may have to rethink everything from how they underwrite insurance to how they price goods and fund cash reserves, knowing big payouts might always be just a jury verdict away.
Forward
That raises a crucial question: can traditional self-insurance models survive? Walmart’s example suggests it will be tough. Even a juggernaut with sophisticated risk teams couldn’t fully insulate itself from these costs.
Now, many experts say the only answer is to fundamentally adjust the playbook. Retailers may need to widen their insurance programs, beef up loss prevention, and redesign financial plans to weather unpredictable verdicts.
This means viewing social inflation not as a fluke but as a permanent shift – a new normal that must be integrated into every level of strategy.
Political
Lawmakers are starting to pay attention. In early 2025, a bipartisan Litigation Transparency Act was introduced to force the disclosure of third-party lawsuits. State legislatures have entertained similar measures – requiring funders to be revealed and even debating limits on non-economic damages. But politics complicate things.
Many consumer advocates see damage caps as anti-victim, while corporate interests push back hard against large verdicts. For now, meaningful federal tort reform seems unlikely; companies will likely see piecemeal changes (mostly at the state level) before any sweeping solution emerges.
International
Retailers with global footprints face fresh threats. In the EU, sweeping legal reforms are on deck. The new Collective Redress Directive (2023) and upcoming Product Liability Directive (effective 2026) will broaden who can sue and for what – including modern products like AI-driven devices.
At the same time, litigation funding is exploding in Europe: roughly €3+ billion is currently invested, projected to hit around €7 billion by 2032.
This means US-style mass tort and class-action suits are likely to rise on multiple fronts. International retailers will need to factor these liabilities into their global insurance programs, especially if foreign policies can be tapped after a big US verdict.
Legal
Legal tactics themselves have evolved. One trend is the use of “reptile theory”, where plaintiff lawyers appeal to jurors’ fears about a defendant’s actions to drive up awards. Meanwhile, even cases that settle out of court now cost more.
Extended discovery (more depositions and expert reports) and aggressive motion practice have become standard, jacking up defense bills. Some insurers suggest co-defending panels (where companies pool defense efforts) to share intel. Bottom line: companies can no longer rely on the same litigation playbook.
Every product, policy, and practice now needs scrutiny, because even one overlooked risk can lead to a costly legal battle.
Cultural
Beyond law, social inflation reflects deeper cultural tensions around corporate power and justice. Polls show modern jurors hold businesses to higher ethical standards. For example, 67% of jurors now say companies “knowingly sacrifice safety to make more profit,” and 88% insist firms must take all precautions—even beyond regulations—to keep customers safe.
These attitudes tie into broader concerns about income inequality and corporate accountability. As Millennials and Gen Z increasingly serve on juries, many analysts warn that these verdict-minded attitudes will only strengthen.
Litigators see jury pools that want to use awards as moral statements, and companies will have to reckon with that expectation.
Reflection
Walmart’s $450 million liability charge is more than a one-off earnings miss – it symbolizes a fundamental shift in risk. Social attitudes and organized litigation mean that big verdicts are now part of the landscape, not an anomaly.
Carriers are already adjusting: as one analysis notes, insurers are “increasingly pushing for settlement” rather than risking runaway awards. The retailers that thrive will be those who treat social inflation as a wake-up call, not just a cost.
They’ll invest in safety, foster customer trust, and align their legal and financial strategies to this new reality. In an era of heightened scrutiny, the winners will adapt by making accident avoidance, transparency, and community engagement as central to strategy as inventory and pricing.