When Insurance Companies and Corporations Require Confidentiality Agreements for Significant Settlements, Customer Safety is Jeopardized
Generally, during the litigation process of a case involving a catastrophic injury or wrongful death, settlement discussions are maintained with all parties and their attorneys, and the issue of a confidential settlement becomes an issue. This often presents an interesting dilemma for the client and the lawyer. Large corporate defendants, in personal injury and wrongful death cases, often refuse to agree to settle a claim without a confidentiality clause as part of the settlement. Typically, the confidentiality clause is required by the “at- fault party,” to prevent the injured person or attorney from acknowledging that the settlement occurred, or disclosing how much money was involved in the settlement.
Recently, we were presented with a ten-page confidentiality agreement that was so oppressive and burdensome to plaintiff’s counsel and his client that we deemed it to be unethical and illegal. Typically, confidentiality clauses maintain that, if the injured person or his or her attorney ever discloses the facts of the settlement, the defendant or “at fault party” in the settlement reserves the right to go back to Court to get its money back—or otherwise punish the injured party and his or her lawyer.
Accepting a confidentiality settlement is, in fact, a double-edged sword. Acceptance prevents the dissemination of the circumstances and facts of the case to other consumers or lawyers across the United States—who share information about similar cases—and may impose a limitation on the lawyer’s right to practice law and fully represent others in the future. It keeps others—who may not have knowledge of the situation—from bringing a legal action that could potentially deter the manufacturing and distribution of unsafe consumer products. Unfortunately, when there is a confidential settlement of a significant nature, the lawyer cannot advertise about the result, to let other lawyers and potential clients know how well he or she has done in cases involving the same corporation, manufacturer, or defendant.
Obviously, smaller cases typically do not require confidentiality clauses, because the risk of exposure to the defendant is not great. It actually behooves the wrongdoer to reveal that a less-than-significant figure was achieved in the litigation of the claim, to deter others from bringing an action.
If you or your attorney is confronted with a confidential settlement, it is important to carefully read and consider any language in the agreement which imposes a penalty, or voids a settlement, in the event of disclosure. It is essential to establish that the recovering party never be punished for disclosures beyond his or her control. For example, what would happen if the lawyer’s office or the client’s home was burglarized, or a pair of snooping eyes or ears, on the part of a housekeeper or friend, leaked the information? Indeed, there are potentially significant tax consequences for the defendant, if the agreement restricts the plaintiff in this way, since the IRS may argue that the plaintiff received money not as damages for personal injury, but as payment for silence.
We understand that, if a case involves consumer fraud or anything that can be harmful to the public, there may be ethical issues in asking or advising a client to agree to confidentiality. Needless to say, confidentiality agreements must be approached carefully, on a case-by-case basis, and with comprehensive understanding on the part of the injured party and his or her attorney, as to the goods, the bads, and the uglies of the situation.
Jeffrey Reiff has been recognized as one of the Top 100 Trial Lawyers by the National Trial Lawyers, and one of the Top Northeast Attorneys by Best and Brightest Magazine. He has successfully prosecuted many cases involving confidentiality agreements.
