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Study shows early litigation settlements save businesses money
June 6, 2008
A study of court settlements in personal injury lawsuits against businesses estimated companies could save an average total of $114,000 per claim or $670,000 for severe injuries by promptly settling cases instead of fighting them in court.
The study, which was published this month in the Columbia Business Law Review, also projected $32,000 in savings from lower legal expenses, or about $211,000 for cases involving severe injuries.
The study based the projections on how much it would cost businesses to make "early offers" to pay out-of-pocket medical expenses and wage losses of injured claimants. The quick settlements would reduce legal fees and "pain and suffering" damages.
University of Virginia School of Law professor Jeffrey O'Connell and California State University-Northridge associate professor Patricia Born wrote the study, which analyzed court settlements of personal injury and defective product injury cases against companies between 1988 and 2004 in Texas and Florida.
The study proposes an early offer system that would give businesses 180 days to offer claimants no-fault-like payments of medical expenses and wage losses not otherwise covered plus an additional 10% for attorneys fees.
Although claimants would not be compensated for pain and suffering, the study predicted a payment wait time of two-and-a-half years less than going to court.
Under the model claimants could only turn down offers if the defendants' actions involved gross misconduct, which the study found only involves about 4% of business liability cases, said O'Connell.
"Thus a crucial element of the tort system's deterrence mechanism is 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," O'Connell said.
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