According to a reform strategy proposed in an article in the Columbia Business Law Review, it may behoove businesses facing personal injury lawsuits to promptly pay injured parties for out-of-pocket medical expenses and lost wages. In doing so, companies can presumably avoid lengthy litigation in which high legal fees may be incurred and even pain and suffering damages.
Jeffrey O'Connell, the Samuel H. McCoy II professor of law at the University of Virginia, and Patricia Born of California State University, Northridge, provided the basis for the article. The duo arrived at these insights after analyzing the court settlements of personal injury cases, including those product-related, between 1988 and 2004 in Texas and Florida. Their study entailed testing an “early offers” system, under which businesses would compensate injured parties their essential losses, such as out-of-pocket medical expenses and wage losses, in short order.
“The system creates a simple device,” said O'Connell. “A business facing a personal injury claim has the option to guarantee no fault-like periodic payments toward a claimant's medical expenses and wage loss beyond any other applicable coverage, plus 10 percent for attorneys' fees — within 180 days after a claim is filed. There would be no compensation for pain and suffering. On average, the wait for payment from the time of the claim would be reduced by at least two and a half years compared with today's tort system.”
Such a plan would reduce costs for general liability claims, including claims against businesses, many of which involve product liability, by an average of $114,000 per claim, and $670,000 per claim for severe injuries. The savings, the team says, can be attributed primarily to eliminating non-economic damages — pain and suffering — and from minimizing legal fees. How much does that translate to? By current projections, an average of $32,000 in legal expenses in all cases could be spared and about $211,000 in severe injury cases.
O'Connell, who is also the co-founder of no-fault automobile insurance laws, said that current tort liability insurance stipulates that fault must be assigned to determine payment of damages in lawsuits. In addition, a reasonable value for pain and suffering must be established. These complex matters can take time to sort out and therefore cause delays and cost companies hefty legal fees. O'Connell also pointed out that a crucial feature of the reform plan is that a defendant who promptly offers to guarantee a claimant's economic losses prevents future pursuit of a normal tort claim.
“Offers could be turned down by claimants, but only in cases where the defendant's injurious acts were the result of gross misconduct provable beyond a reasonable doubt,” he said. “An integral element of the tort system's deterrence mechanism is therefore retained: Injured parties could still win suitably large monetary awards under the early offers model for both economic and non-economic damages in clear cases of aggravated error. However, our study finds that in today's business liability cases, only four percent are allegedly the result of any gross misconduct.”
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