A Lasting Peace in Mass Torts

Strong v. Weak Claims

Mass tort litigation often includes a blend of plaintiffs with stronger and weaker claims. Although the promise of a large payment should provide incentive for plaintiffs with strong claims to settle, finality requires settling the other cases, too. In such instances, a tiered approach to adjusting settlement claims and allocating payments can encourage participation across the settlement population.

For example, a settlement of diverse cases can include fixed, expedited payments to plaintiffs with weaker claims. Although such plaintiffs will not receive significant payments relative to others, the promise of a quick payment and closure may be sufficient to convince them to join the settlement. More serious claims likely will require more time and effort to ensure a fair allocation among plaintiffs.

For these claims, a point system differentiating recoveries by type and severity of injury, relative proof of causation, and other factors may be appropriate. In addition to creating incentives for differently situated plaintiffs to settle, payment and administrative tiers reduce costs and accelerate certain payments, thereby making the settlement more attractive to more plaintiffs without increasing its overall cost.

A mass tort settlement also should provide for an up-front payment to all settling plaintiffs to incentivize participation. Because it is often impossible to know in advance into which payment tier a particular plaintiff will fall, this initial payment should be equal to the lowest possible recovery under the settlement, to avoid the possibility of overpayment.

Fair Allocation

Establishing a fair and transparent allocation process promotes participation in the settlement and, thus, finality. Because plaintiffs counsel may be conflicted with respect to allocation among their differently situated clients, it is often necessary to engage an independent third party to perform the allocation. Doing so will assure all litigants that the process will be administered fairly. This can be costly, of course, and the parties should agree in advance how and when administrative costs will be paid.

Thresholds and Incentives

Settlement can be conditioned upon satisfaction of a participation threshold. In other words, defendants can offer to settle all pending cases, but require that a specified percentage of eligible plaintiffs accept the offer in order for the settlement to become final.

Although any participation threshold protects defendants, multiple thresholds targeting different groups of plaintiffs can produce even greater finality. By using multiple thresholds, defendants and participating insurers can retain greater control over the mix of plaintiffs that must elect to settle before the deal is finalized. It also is possible to increase the aggregate settlement amount if plaintiff participation exceeds a baseline threshold. This offers plaintiffs and their counsel incentive to exceed the minimum participation threshold necessary for the settlement to take effect.

Specialized Claims

Just as payment tiers and participation thresholds promote finality, so does dedicating a portion of the settlement amount for particular groups of plaintiffs. Such groups may include plaintiffs who underwent an invasive surgery or who are disabled as a result of their injuries. By earmarking portions of the settlement amount for such groups, high-risk claims are more likely to settle.

Alleged Future Injuries

Achieving finality requires a release of each settling plaintiff's past, present, and future claims against the defendants, including claims based upon injuries discovered after the settlement. Such broad releases are commonplace and typically enforceable, although relevant state law must be evaluated to ensure finality. Defendants should be attuned to the risk that a plaintiff will challenge the enforceability of his or her release. The settlement paperwork can be tailored to mitigate this risk.

Funding the purchase of an insurance product to pay settling plaintiffs if they develop specified injuries in the future is another way to encourage participation and minimize future claims. For example, if a plaintiff population fears developing cancer in the future, part of the settlement amount can be used to purchase an insurance policy that will pay settling plaintiffs should they develop a future cancer.

Mark Colins and Ryan Smethurst are partners in the insurance disputes group at McDermott Will & Emery. They served as negotiators and principal drafters of the recent World Trade Center litigation settlement agreement, which resolved 10,116 personal injury suits brought by individuals who participated in the rescue, recovery and debris removal work on and after 9/11. This article also appeared in Corporate Counsel, an ALM sister publication of this newsletter.

Mass tort claims can create a tremendous financial and legal burden on a company. In-house counsel recommending settlement of a mass tort to company management, often at significant cost, must be confident that the settlement will buy a lasting and comprehensive peace. There are several key negotiating points that can help in-house counsel achieve such finality.

Give Plaintiffs Incentive to Participate

In all mass tort settlements, the parties are keenly interested in the settlement amount, but other settlement terms often are crucial to an individual plaintiff's decision to participate. These include how an aggregate settlement amount will be allocated among the settling plaintiffs; how quickly payments will begin and will be completed; and whether and to what extent individual plaintiffs can challenge what they perceive as erroneous payment determinations after they sign a release. Because these terms do not directly affect the defendants' and participating insurers' bottom lines, they should be designed to attract as many plaintiffs into the settlement as possible, thereby providing the most bang for the settlement buck.

Strong v. Weak Claims

Mass tort litigation often includes a blend of plaintiffs with stronger and weaker claims. Although the promise of a large payment should provide incentive for plaintiffs with strong claims to settle, finality requires settling the other cases, too. In such instances, a tiered approach to adjusting settlement claims and allocating payments can encourage participation across the settlement population.

For example, a settlement of diverse cases can include fixed, expedited payments to plaintiffs with weaker claims. Although such plaintiffs will not receive significant payments relative to others, the promise of a quick payment and closure may be sufficient to convince them to join the settlement. More serious claims likely will require more time and effort to ensure a fair allocation among plaintiffs.

For these claims, a point system differentiating recoveries by type and severity of injury, relative proof of causation, and other factors may be appropriate. In addition to creating incentives for differently situated plaintiffs to settle, payment and administrative tiers reduce costs and accelerate certain payments, thereby making the settlement more attractive to more plaintiffs without increasing its overall cost.

A mass tort settlement also should provide for an up-front payment to all settling plaintiffs to incentivize participation. Because it is often impossible to know in advance into which payment tier a particular plaintiff will fall, this initial payment should be equal to the lowest possible recovery under the settlement, to avoid the possibility of overpayment.

Fair Allocation

Establishing a fair and transparent allocation process promotes participation in the settlement and, thus, finality. Because plaintiffs counsel may be conflicted with respect to allocation among their differently situated clients, it is often necessary to engage an independent third party to perform the allocation. Doing so will assure all litigants that the process will be administered fairly. This can be costly, of course, and the parties should agree in advance how and when administrative costs will be paid.

Thresholds and Incentives

Settlement can be conditioned upon satisfaction of a participation threshold. In other words, defendants can offer to settle all pending cases, but require that a specified percentage of eligible plaintiffs accept the offer in order for the settlement to become final.

Although any participation threshold protects defendants, multiple thresholds targeting different groups of plaintiffs can produce even greater finality. By using multiple thresholds, defendants and participating insurers can retain greater control over the mix of plaintiffs that must elect to settle before the deal is finalized. It also is possible to increase the aggregate settlement amount if plaintiff participation exceeds a baseline threshold. This offers plaintiffs and their counsel incentive to exceed the minimum participation threshold necessary for the settlement to take effect.

Specialized Claims

Just as payment tiers and participation thresholds promote finality, so does dedicating a portion of the settlement amount for particular groups of plaintiffs. Such groups may include plaintiffs who underwent an invasive surgery or who are disabled as a result of their injuries. By earmarking portions of the settlement amount for such groups, high-risk claims are more likely to settle.

Alleged Future Injuries

Achieving finality requires a release of each settling plaintiff's past, present, and future claims against the defendants, including claims based upon injuries discovered after the settlement. Such broad releases are commonplace and typically enforceable, although relevant state law must be evaluated to ensure finality. Defendants should be attuned to the risk that a plaintiff will challenge the enforceability of his or her release. The settlement paperwork can be tailored to mitigate this risk.

Funding the purchase of an insurance product to pay settling plaintiffs if they develop specified injuries in the future is another way to encourage participation and minimize future claims. For example, if a plaintiff population fears developing cancer in the future, part of the settlement amount can be used to purchase an insurance policy that will pay settling plaintiffs should they develop a future cancer.

Mark Colins and Ryan Smethurst are partners in the insurance disputes group at McDermott Will & Emery. They served as negotiators and principal drafters of the recent World Trade Center litigation settlement agreement, which resolved 10,116 personal injury suits brought by individuals who participated in the rescue, recovery and debris removal work on and after 9/11. This article also appeared in Corporate Counsel, an ALM sister publication of this newsletter.