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De-Risking Settlement

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De-Risking Settlement

It is no secret that class action litigation creates uncertainty and financial risk for companies.  To deal with the ins and outs of litigation, companies rightfully turn to their favorite law firms for guidance.  But for companies about to embark on settlement discussions, one way to mitigate risk, gain certainty, and efficiently resolve disputes is to engage Risk Settlements, the market leader in risk transfer.  Over the past 6 years, Risk Settlements has helped clients transfer over $2 billion in risk through Class Action Settlement Insurance (“CASI”), the only post-litigation insurance product to allow companies to transfer the risk of class action settlements to an insurer.

One Company did not heed this advice.  After largely negotiating a claims-made settlement on terms extremely favorable to plaintiffs, the Company contacted Risk Settlements to inquire about procuring a CASI policy.  In short order, Risk Settlements reviewed the data, identified weak spots in the settlement agreement, and provided pricing options to the Company.  Given that the settlement was almost fully baked, the Company had little appetite for any material changes to the agreement, even if the alterations would have reduced the likely number of fraudulent claims.  Moreover, the Company balked at pricing options that it deemed too expensive and not commensurate with the risk.  In the end, the Company decided to self-insure.  The bet did not pay off.

Fast forward one year.  The court has now granted final approval to the claims-made settlement and all the claims are in.  As a result of its ill-advised settlement with plaintiffs that lacked sufficient anti-fraud protection, the Company has paid 42% more than it would have had it purchased the CASI policy.  In a tight economy, such an error will likely reverberate throughout the Company this year and beyond.

For companies out there contemplating a claims-made settlement, the lesson is clear: contact Risk Settlements early.  Such engagement is critical, as Risk Settlements will help you design a settlement that is structured to achieve final approval while mitigating the Company’s risk.  Engaging with Risk Settlements is a risk-free proposition, as Risk Settlements gets paid only if the company ultimately purchases a CASI policy.

If 2020 has taught us anything, it’s that certainty matters.  For companies negotiating a claims-made settlement, why risk a settlement going viral?  Or a settlement that lacks sufficient anti-fraud protections?  A CASI policy can help a company resolve litigation efficiently, plan for the future, and mitigate risk.


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