In Chad Calder’s recent article, he wrote about how federal Judge Stanwood Duval approved a $20 million settlement involving federal class-action lawsuits that claimed sloppy work by the Orleans, Lake Borgne Basin and East Jefferson levee districts contributed to levee breaches during Hurricanes Katrina and Rita. (The Southeast Louisiana Flood Protection Authority-East was also named in the suit.)
The reporter called the settlement a “victory” for the plaintiffs; however, this is not true. A settlement is not evidence of wrongdoing nor does a judge have to believe a plaintiff’s contentions have merit to approve a settlement.
The settlement money came from insurance proceeds resulting from policies the levee districts held on the levees. So one might wonder why the insurance companies would pay if the claims are not true. Here’s why.
Insurance companies have a risk of being found in bad faith for refusing a settlement offer within or at policy limits. If an insurer refuses to pay a settlement, it could potentially become liable for the full amount of any future settlement or a judgment even if it exceeds the policy limits.
The total damages claimed by the plaintiffs for the failure of the levees and floodwalls built by the U.S. Army Corps of Engineers were many billions. So, insurers had the choice to pay $5 million for the four local levee board defendants or roll the dice and possibly end up bankrupt. If the insurers win, they save the $5 million each (less the legal expenses of a trial). But if they lose, the insurers could potentially face an enormous bad faith judgment.
Simply stated, the insurance companies have no choice, even if they believe that the allegations are without merit.
From the standpoint of the plaintiffs, the $20 million awarded was a pittance compared with the claimed damages. So, if the plaintiffs thought they had such a good case, why did they settle?
The attorneys for the plaintiffs get paid from a $20 million award. Going to trial would cost them a fortune. And if they win, will they really be able to seize assets from the levee boards? Probably not. So a rational attorney might settle for $20 million even if they had a strong case.
The settlement reflects legal strategy on the part of both defendants and plaintiffs. To try to infer from the settlement that the pre-Katrina levee districts were at fault or, conversely, that the plaintiffs had a weak case is nonsense.
In closing, we concede that folks who are not attorneys or insurance agents might infer that a settlement is an admission of wrongdoing either wholly or partially. But, in a case like this, a settlement is just that and nothing more.
H.J. Bosworth, Jr.