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The Confidential Settlement

By Aaron Larson
March, 2005

Contents

Within the context of efforts to settle a personal injury lawsuit, sometimes the defendant (and at times even the plaintiff) will request that the settlement be confidential - that is, that its nature, terms, and amount be kept secret by the parties to the litigation.

Why Should Settlements Be Confidential?

A confidentiality agreement will usually be requested by a defendant. The defendant may wish to be able to publicly deny wrongdoing, and may be concerned that a large settlement will overshadow any protestations of innocence. The defendant may wish to avoid creating a precedent which might inspire other potential plaintiffs to make similar claims in the hope of achieving a similar settlement. A celebrity defendant might fear that lawsuits based upon false accusations might follow from public knowledge of a substantial settlement, or may hope that a confidentiality agreement will help facilitate recovery from career damage caused by high profile litigation.

Occasionally, a plaintiff will desire that a settlement be confidential. For example, a plaintiff may be concerned that a small settlement will suggest to the public that the suit had little to no merit. A plaintiff may also agree to confidentiality in order to secure admissions of wrondoing from the defendant, which the defendant might be unwilling to make in any public document or setting.

Public Policy Issues

There are strong arguments against confidentiality agreements for injury settlements. Perhaps the strongest is that confidential settlements enable a defendant to maintain a veil of secrecy about facts which might improve the safety of the general public. For example, the manufacturer of a dangerous product might engage in dozens or hundreds of confidential settlements with plaintiffs, while if the injuries and settlements were publicly known it might be forced to make its product less dangerous or to remove the product from the market.

A manufacturer might respond that most or all of the injury claims made in relation to a given product are without merit, and that public disclosure of its settlements might encourage additional baseless claims against it. Also, if the amounts of its settlements were known, plaintiffs would attempt to secure settlements based upon the highest known prior settlement, whereas if settlement amounts are confidential the manufacturer may be able to save a lot of money in settling subsequent claims.

Considerations For The Plaintiff

The plaintiff should be aware of, and should be comfortable with, any provisions which might subject the plaintiff to penalty in the event of disclosure.

When agreeing to a confidential settlement, the plaintiff must carefully read and consider any language in the settlement agreement which imposes a penalty or voids the settlement in the event of disclosure. First, any such language should relate only to disclosures which are the fault of the plaintiff, and not to disclosures beyond the plaintiff's control. The failure of the plaintiff's lawyer to properly safeguard the file, an understandable mistake, or disclosure as the result of a burglary, for example, should not automatically create an obligation that the plaintiff return the settlement funds to the defendant. Similarly, a court-ordered disclosure of the settlement terms should not result in any sanction upon the plaintiff.

About The Author
Aaron Larson is a Michigan lawyer whose practice emphasizes civil appeals and litigation consulting. Copyright © 2005, Aaron Larson, all rights reserved.
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