Study Proposes Early Settlements to Lower Business Costs-at the Expense of Injury Victims


If you've been injured in an auto accident or as a result of medical negligence (or through any other means, for that matter) and have decided to file a lawsuit to receive compensation for medical expenses, lost wages or pain and suffering, you have possibly been offered a settlement by either the company or individual you are suing or by their insurance company.

Of course, there are reasons why you might wish to accept a settlement, but one overwhelming reason not to is that the settlement is often offered because the defendant knows that you stand the chance of gaining much more compensation from a jury. Many settlements are last-ditch efforts made to try to avoid the burden of paying for expensive items like medical bills.

You should be aware that professional practice in business law encourages early settlements as a path to cheaper litigation. A new study published in the Columbia Business Law Review sheds light on what goes on behind the scenes in company boardrooms as your injury claim or lawsuit is being considered.

Professor Jerry O'Connell from the University of Virginia and Professor Patricia Born from California State University-Northridge examined court settlements made by businesses between 1998 and 2004 for personal injury and defective product lawsuits in order to test an "early offers" system, which would allow business to pay out-of-pocket for what the study calls "essential losses" like medical bills and lost wages.

Under the system O'Connell and Born propose, costs for business would be reduced for general liability of around $114,000 per injury claim and by $670,000 for severe injuries. Their system would scrap the large costs of legal fees, as well as non-economic damages such as pain and suffering. In legal fees alone, businesses would save $32,000 per case under the system (or $211,000 per case for severe injuries).

The system tested out the effects of early offer minimums at levels of $100,000, $250,000 and $500,000, finding that at each level, insurance premiums and legal fees were substantially reduced. Which, as it turns out, is great for businesses who are seeking to minimize costs while maximizing profits; O'Connell claims that avoiding costly legal fees is better for plaintiffs as well.

The simplicity of the "early offer" system sounds compelling when told by O'Connell, who argues that determining fault in an accident is often complex and can take a long time. His arguments, in fact, smack of the political rhetoric surrounding the issue of tort reform, which offers caps on medical malpractice lawsuits as a solution for so-called "frivolous lawsuits" while ignoring the reality that compensation caps do not work as intended. In fact, they simply mean more profits for insurance companies and less money for injury victims and doctors. It is all too obvious that a real danger for accident victims lies in the very complexity that the system would try to avoid.

Pain and suffering are difficult to determine, but also should be, because the costs of a tragedy like a severe injury or a wrongful death are immeasurable in monetary terms. Negligence that results in loss of major functions or even life should be costly. Legal tools such as punitive damages, for example, help consumers by holding companies accountable for systemic shortcomings and promoting change.

Additionally, jury verdicts often help families or individuals stuck with a permanently changed lifestyle to gain a sense of closure or justice after an accident or death. While settling early may be cheaper or faster, getting on with the healing process may be worth it.

And that's something you can't write on a balance sheet.

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