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In some lawsuits, falling on your sword may be smarter than wielding it.
Kris Frieswick, CFO Magazine
May 1, 2001
On the eve of a high-profile trial last winter involving Ford Motor Co., Bridgestone/ Firestone Inc., and a woman paralyzed in an accident involving a Ford Explorer and defective Firestone tires, the case was abruptly settled. The terms of the settlement were not disclosed, except for one crucial element. On January 7, Ford and Firestone officials visited Donna Bailey in her Houston hospital room and gave her the one thing she demanded before she would settle out of court: a videotaped apology, which was subsequently broadcast on national television.
The apology was highly unusual for Ford, if not for Firestone, a subsidiary of Japanese tire maker Bridgestone. Unlike their counterparts in Japan, U.S. companies are loath to extend such gestures in liability cases. Part of the reason is cultural. "In Japan, there's a tradition of apologizing," says Marilynn Rosenthal, who has authored or edited books that deal with medical malpractice issues, and is director of the University of Michigan Forum on Health Policy. "But in America we have a tradition of not wanting to get knocked down."
Another reason U.S. companies look askance at such acts of contrition has to do with the prevailing legal system. Simply put, they fear that apologizing for negligence amounts to an admission of guilt, opening the legal floodgates to copycat suits.
That fear is not entirely unjustified. Most states allow apologies to be entered as evidence if they've been offered outside of settlement negotiations. But those that are negotiated are not admissible as evidence of liability in subsequent court cases. Meanwhile, Massachusetts and California have created laws that protect "benevolent gestures," such as expressions of remorse or regret, from use as evidence of liability in both current and subsequent cases. Other states are considering adopting similar laws.
As a result, attorneys who specialize in this area say companies are starting to rethink their approach to apologizing in liability cases (although none of the companies contacted by CFO would admit to doing so). But lawyers contend that an increasing number of corporate clients are starting to conclude, at least in some cases, that apologies can be an effective way to settle or mitigate the impact of negligence lawsuits and potentially staggering judgments.
Obviously, a company should vigorously defend any case in which it bears no responsibility. Often, determining who is responsible can take months, as it did with the Firestone-Ford case. But once negligence has been established, a speedy apology can be effective in reducing settlement amounts, say experts. This is especially true in cases where there is a preestablished bond between the plaintiffs and defendants, as in employment discrimination or malpractice situations. When harm occurs in these cases, there is a sense that a bond has been broken, so court awards based on intangible losses such as pain and suffering can run very high, says Daniel Shuman, an attorney and a professor at the Dedman School of Law at Southern Methodist University. And Shuman insists that apologies go a long way toward restoring that lost sense of trust.
He isn't alone. "An apology can work wonders" in employment discrimination cases, "particularly if it comes early on," says Kenneth R. Feinberg, founder of The Feinberg Group LLP, a Washington, D.C.- based law firm that specializes in mediation and other forms of alternative dispute resolution. He points to one case in which a company laid off 450 workers, many of them older employees who were unwilling to relocate to a new facility. The workers filed an age- discrimination lawsuit. When the case went to mediation, the company sent its vice president of human resources to the meeting with a settlement check, but without lawyers.
Says Feinberg: "He said to the plaintiffs' lawyers and representative employees, 'We're sorry. We had to do it. We feel like it was a break with family.' If he hadn't done that, the case would have ended in protracted litigation. It ended up settling for a modest amount of money and a written apology, and the [plaintiffs] went away."
WHAT VICTIMS WANT
Studies indicate that besides compensation for tangible damages such as medical expenses, most victims of negligence want three things, says Rosenthal: a sense that their complaint is being taken seriously, a satisfactory explanation of what happened, and an assurance that steps are being taken so it won't happen again to someone else. At the moment, however, most firms facing lawsuits find it safer to play hardball, and lawyers say that's especially true in the arena of product liability involving physical injury.
Unless a company's liability is beyond doubt, says Feinberg, "corporations don't apologize, and don't feel they can. It's a signal that they're liable. In those cases, the implications go way beyond the individual case." He contends that apologies should most likely occur in cases where the causation is clear or unassailable, and in which the consequences beyond the individual case are negligible. In the Firestone-Ford case, he explains, the liability was apparently so clear, and the impact on other cases apparently so negligible because of the unusual circumstances, that the apology to Bailey could only help, especially since it kept the case out of court, where damning evidence was likely to come out.
But even in such cases, some experts say, most companies are not inclined to issue apologies, if only because attorneys for their insurance companies have an interest in seeing cases drag on. "The big insurance defense lawyers rarely settle before discovery, so they can bill the hours that they have budgeted for the case," says attorney Shuman.
Also, insurers all too often threaten to end coverage when apologies are granted. And the industry is notoriously slow to change. Even so, William Bailey, special counsel for the Insurance Information Institute, contends that insurers would have no choice but to respond if enough customers demanded coverage that remained in place despite apologies.
Ultimately, of course, the question depends on how much money is at stake. And it's impossible to determine how much has been saved by swift, sincere apologies, both in avoided court costs and lower settlement amounts, since most settlements are confidential. Shuman points out that 90 percent to 95 percent of all cases, civil and criminal, are eventually settled out of court. The only place such information would be available is with defendants' insurers, and they're not inclined to discuss the figures.
In the end, companies are left with a difficult choice. They must ask themselves, says Shuman, "Do we spend a few million dollars fighting this, or do we acknowledge and address the harm we've caused" on the assumption that the savings in terms of settlement costs or public relations down the road will dwarf the expenditure? At the moment, at least, few if any companies besides Ford and Firestone are willing to make such an assumption, or to admit to doing so.
Kris Frieswick is a staff writer at CFO.
BENDING OVER BACKWARD
If you decide an apology is worth making, attorneys warn against hedging; for example, expressing regret but failing to accept responsibility for the results. A case in point is the first apology offered by U.S. Navy Comdr. Scott Waddle, the man in charge of the submarine USS Greeneville when it rammed the Japanese fishing vessel Ehime Maru off the coast of Hawaii. Last February, Waddle offered the families of the nine people who died in the accident "regret," but he took no responsibility for the accident. That fell far short of what the victims' families wanted. So a few weeks later, Waddle ignored the direct advice of his attorney and took full responsibility, saying it was a burden he would carry to his grave. Whether that will lead the families to settle rather than sue isn't yet clear, but the fact that they expressed compassion for Waddle following his second apology is an encouraging sign.
Lawyers go so far as to suggest that halfhearted apologies can actually backfire. "Apologies make people angrier if they aren't truly sincere," says Joan Roover, executive director of the Center for Health Care Negotiation, in Lexington, Massachusetts. "They don't accept it. Physicians get very frustrated by this. They think just saying 'I'm sorry' is a huge concession."
An apology that comes from someone who was not involved in the dispute can also work against you. "An apology by the wrong person is no apology at all," says Kenneth R. Feinberg, founder of The Feinberg Group LLP, a Washington, D.C.-based law firm that specializes in mediation, who likens it to "sending in your hired gun, who is still arguing that you did nothing wrong even while saying he's sorry." --K.F.