The Personal Website of Mark W. Dawson

Who Pays for Large Lawsuit Settlements?

I generally do not pay attention to commercials on television. However, I have noticed that there has been an increase in television ads that solicit persons to join large class-action lawsuits. Mesothelioma, Zantac, Talcum Powder, Boy Scouts, Roundup, etc. are some of the most common solicitations. The question and comment that I often ask myself is ‘Who actually pays for these large lawsuit settlements, and who benefits the most from these lawsuits?’. In all of life, there are positive and negative consequences for all actions. Therefore, the question is, what are the positives and negative of these large lawsuit settlements lawsuits?

The positives are, of course, the indemnification of those parties harmed by the actions of others. When one party harms another, through deliberate actions or willful negligence, they need to compensate the harmed persons for the harm they inflicted. It is only just and proper that this indemnification occurs. It is not just and proper to be indemnified for accidental occurrences or unknowns that result in harm. In life, accidents occur, and unknowns arise that cause harm. When lawsuits are adjudicated, it is important to distinguish between deliberate actions or willful negligence that happen. If you indemnify someone for accidental occurrences or unknowns, then life becomes a lottery. A lottery that stifles economic growth, business innovation, or innovation/invention of new techniques and technologies that could benefit all people.

Large settlement lawsuits are a means to compensate persons for the deliberate actions or willful negligence of others. As such, they are appropriate and necessary. However, the amount of compensation and the persons to be compensated are disputable, and they need to be clearly delineated in the final settlement of the lawsuit. To not resolve these issues is to pile on the number of persons who join the lawsuit, which increases the settlement amounts. As a result, these large lawsuit settlements lawsuits become a lottery in which many people hope that they can win some money for which they may not be deserving.

Most businesses have liability insurance, and many people have homeowners and automobile insurance that covers many of life’s accidental occurrences. Unknowns are not insured, as it is impossible to predict them and the associated insurance premiums to cover them. But who actually pays for the settlement of a large lawsuit settlement? Many times, the insurance company will be responsible, with the business being responsible for any shortfalls of the insurance payments. Other times the business is responsible for paying the entire amount. In either case, when a business pays, they have several means of payment. They can utilize their financial reserves to make the payments, or they can reduce or eliminate dividends to their shareholders to make these payments. Another means of payment is to increase the costs of their goods or services to their consumers to make the payments. In all of these payment methods, the ultimate payment is borne by consumers.

If the insurance company pays, they will increase the premium amounts for the business in the future, and for like businesses, to cover any potential future lawsuits settlements. The business, and the like businesses, will pay for these increased premiums by folding them into increased costs of the goods or services they provide. If the business pays for the settlement from their financial reserves, then the business growth may be stymied, in which the employees or future employees, as well as the shareholders, bear the brunt of these payments. There may even be a contraction of the business in which many people will be laid off. If dividends are reduced or eliminated, then the shareholders bear the brunt of these payments, and business growth may be stunted as the stock prices may decline and/or there will be less investment by potential shareholders in the business. This, too, impacts the employees or future employees of the business. To avoid these problems, most businesses will increase the costs of their goods and services to make these lawsuit payments. For large businesses, these increases are often negligible, as they are spread out over their large customer base. For medium or small businesses, these increased costs of goods and services may result in a loss of customers, and potentially bankruptcy, or at least their profitability.

In all the forms of payment, the actual costs of the settlement trickles down to individuals; the employees, the shareholders, or the consumers. Consequently, the answer to the question of ‘Who Pays?’ is that we all pay. Therefore, whenever you see or hear of a large settlement lawsuit, you can expect that your pocketbook will be affected. Many times, it is a small effect, but sometimes it could have a large impact, especially in your investment or retirement accounts.

Lawyer costs and fees are part of the disposition of a lawsuit. Many of the lawyer costs and fees consume a large percentage of the final settlement of the lawsuit. A large percentage that decreases the compensation to those harmed. A large percentage that makes it very profitable for lawyers to institute lawsuits and which incentivizes lawyers to file more lawsuits. Many of these lawsuits are nuisance lawsuits that are paid off just to make them go away.  Some of these lawsuits are crapshoots in the hopes of a big payout, mostly for the collection of lawyer costs and fees which enrich the lawyers.

I fear for the future, as these lottery lawsuits will only increase, especially the Coronavirus lawsuits that have been filed or expected to be filed in the future (some experts estimate that these Coronavirus lawsuits could exceed 100 billion dollars). We, therefore, must institute tort reform to protect ourselves and our economy from the deleterious impacts of these lawsuits. Perhaps we should cap the percentage of the settlement that is allocated to lawyer costs and fees, as this would force lawyers to carefully consider which lawsuits to file as they may be impacted.

The answer to who pays for these large lawsuit settlements lawsuits is that we all pay, as we all pay through increased insurance premiums or an increase in the costs of goods or services that we purchase or the stunting of the economic growth of businesses. Therefore, when we see large settlement lawsuits, we can be assured that the true costs of these settlements are paid by all persons.