When I was in car rental risk management, if I saw one of our cars on the six o’clock news, I knew I needed to get intimately acquainted with that file, because we were to become constant companions for a long, long time. So when I saw the Vioxx wrongful death decision on every news channel recently, I was quietly happy that I do not work there.
This case accentuates a philosophy that we in the risk management profession know can become a harbinger of bad things to come—when someone in upper management says those five dirty words: “Let the lawyers handle it.”
Now, I have nothing against lawyers. Well, most lawyers. Okay, a couple of lawyers. Seriously, though, legal representation is essential in our area because of the very nature of torts. That is not the issue. The issue is whether or not counsel should have the ability to dictate the strategy and direction of a claim, and whether that direction is in the best interest of the organization.
First and foremost, I have never been comfortable with putting my organization’s financial future in the hands of twelve people who are not smart enough to get out of jury duty. The Vioxx case exemplifies exactly why the executive branch must weigh the concerns of risk management more heavily than the concerns of the legal team. The legal team’s place is to execute the will of the organization to determine the best possible economic outcome from the mess that has been made. The company holds the map, the lawyers drive the car.
Just for the heck of it, let’s look at the numbers on this thing. Merck has reserves on this of $675 million. Let’s just say that Merck decided to settle these claims. First, you should remember that 4,200 people did not die. Although the plaintiff attorney stated over and over that this was never about the money, as I have so liberally stated in the past, it is always about the money. In a death case, it is the only remedy. There is an economic value to a 63-year-old man, and eventually you are going to hit the plaintiffs number. I would say that number would be about $2 million. If Merck decided to aggressively settle these cases, you could safely say that its legal fees would amount to about $25 million.
Conservatively assuming that 25% of these cases go away for nuisance value, it would leave about $200,000 per case to settle. If a wrongful death case is worth $2 million, $200,000 per claim should be plenty to settle out.
This case in Texas will probably cost Merck $20 million, and conservatively about $3 million to litigate. There are 4,200 other cases out there which will grow to over 10,000 cases because of the publicity in this case. Kenneth C. Frazier, Merck’s senior VP and general counsel, was quoted as saying “There are other Vioxx cases coming to trial and we will vigorously defend them one by over the coming years.” Litigation costs will conservatively top $100 million, leaving about $550 million to settle. Using the same 25% in nuisance cases, this leaves a little less than $75,000 per case.
Settling leaves about 167% more per claim to pay out. Litigating increases legal fees by over 400%. If you use all of the $200,000 per case for this scenario, total paid losses would amount to about $1.5 billion plus the $100 million for legal fees. I rest my case.
I have two very simple standards when it comes to the direction of a claim and whether to litigate or settle. One, if I like their case better than mine I settle, period. Second, if the cost of litigation could exceed the total amount for which the claim can be settled, I am inclined to settle.
Even if I know the plaintiff is not entitled. Even if I know that “we can win this thing.” I would rather pay someone who may not really be entitled to a settlement than to let twelve people I don’t know make that decision for me.
Again, let me state that I have the greatest respect for attorneys. An organization needs to understand that claims management is economic, and upper management must be involved in the decision making process, since their allegiance is to their company, while attorneys and outside vendors have primary interests which may be secondary to the company.
Rick Vassar, CPCU, ARM, is the corporate risk manager for Valcourt Building Services located in Arlington, Virginia. Seriously, some of his best friends are lawyers.
Reprinted with permission from Risk Management Magazine.Copyright Risk and Insurance Management Society, Inc. All rights reserved.
Risk and Insurance Management Society (RIMS) · 1065 Avenue of the Americas · 13th Floor · New York, NY 10018 ·
No comments:
Post a Comment