What is an Injury Settlement Confidentiality Clause?

Written by Jeremy D. Earle, JD

August 15, 2022

What is a CONFIDENTIALLY Clause in a Settlement AGREEMENT?

Whether the at-fault party is a person or a company, injury victims are entitled to compensation from the irresponsible party. Negotiating a settlement with the at-fault party’s insurance company is usually the first step.

Even if your attorney files a lawsuit on your behalf, most damage claims are settled out of court. According to the American Judges Association, only around 3% of civil cases achieve a trial judgment.

A formal agreement between the parties settles most personal injury claims. A secrecy provision is used in almost all injury settlement agreements.

A confidentiality provision, often known as a “nondisclosure agreement” or “NDA,” prevents both parties from disclosing the specifics of your injury claim and settlement.

Settlements are kept hidden from the public eye.

In general, a well-written NDA stipulates that all parties to a settlement will keep the details and circumstances of the agreement confidential.

However, the provisions of an NDA may provide for a few exceptions to total secrecy, and the parties in a dispute may always negotiate the specifics of a confidentiality agreement.

A provision may, for example, allow a party to reveal settlement facts to their:

  • Spouse
  • Attorney Accountant
  • Others with a genuine interest in knowing

As a normal boilerplate language, confidentiality agreements are sometimes included in settlement agreements. Other times, a party to a settlement may expressly request that a secrecy agreement be included.

Settlement agreements are legally enforceable contracts. Before signing, don’t hesitate to call a personal injury attorney to get answers to your concerns.

A confidentiality clause might be requested by both the aggrieved and the at-fault parties. Depending on the circumstances of the case, a party may utilize this power for several reasons.

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DEFENDANTS’ MOST COMMON REQUESTS FOR CONFIDENTIALITY

In many litigations, defendants (the party being sued) and insurers demand confidentiality agreements in settlements to:

Minimize the negative impact on their company’s image and goodwill. Keep things secret so that similar accusations aren’t made.

When it comes to a company’s reputation and goodwill, a personal injury claim or litigation might injure its public image.

Many settlements are compromise agreements in which the putative at-fault party refuses to accept blame but agrees to compensate the claimant. The public believes there was wrongdoing because the claimant would not have been compensated if there wasn’t.

Negative opinions and poor publicity only serve to reduce a company’s profitability. To avoid unwanted publicity, confidentiality restrictions keep topics hidden from the public eye.

For instance, a corporation seeks confidentiality to avoid public embarrassment.

In a highway accident involving a truck, Stevene sustains serious injuries. A multi-million dollar alcoholic beverage firm owns the car. The truck driver was the only cause of the collision since he was inebriated.

Stevene is offered compensation by the corporation, which is recognized for its anti-drunk driving commercials. A confidentiality provision in the settlement agreement compels Stevene to keep the details of the lawsuit and the settlement agreement private.

Stevene signed the contract.

The beverage firm wants the NDA because it understands that if the matter is revealed to the public, it will injure its brand (and sales).

A defendant’s second key motivation for requesting a secrecy clause is to prevent similar accusations.

The public will have access to the contents of a case if a corporation settles an injury claim without a confidentiality agreement. The amount of compensation obtained by the aggrieved party is one of these facts. Individuals may file identical claims to “cash in” on the reward when large damage awards are made.

Companies often want a secrecy provision to protect their financial reserves against such lawsuits. If word got out that the product maker was dealing with injured claims, there might be a boom in product defect lawsuits.

Car insurance companies want to include secrecy terms in all of their settlement agreements. If the accident victim is unaware that previous victims were paid more for identical cases, the insurance adjuster can easily negotiate lesser settlements.

EXCESSIVE LITIGATION AVOIDED BY KEEPING A HOT COFFEE CLAIM PRIVATE

Melinda goes to her neighborhood donut store for a cup of steaming coffee.

When she gets in her car with the coffee in her hand, she attempts to take a drink and realizes that the waiter did not properly close the lid. Second and third-degree burns result from the coffee spilling all over her lap.

Melinda’s injury lawyer sues the donut shop for $1.5 million, arguing that the famous eatery is responsible for storing its coffee at a dangerously high temperature.

The coffee at the doughnut store is served at the same temperature.

The company agrees to pay Melinda $1.5 million in exchange for her signing a confidentiality agreement promising not to tell anybody about the settlement. Melinda accepts the offer after consulting with her attorney.

The secrecy provision guarantees that the public is unaware of the amount paid to Melinda by the doughnut store. The ultimate goal is to prevent other consumers from filing similar damage claims in the future.

The practice of defendants requesting nondisclosure agreements (NDAs) is divisive.

Even though anonymity in settlements is sometimes utilized to speed up settlements, many public safety advocates believe it presents a danger to public safety.

Covering up possible wrongdoings or health risks, the theory goes, does not safeguard the public from the same or comparable damage. When a corporation creates faulty medical gadgets, for example, a huge number of individuals may be injured.

Confidentiality provisions are less of a problem when the injury is produced by a single occurrence, such as a rear-end accident caused by a distracted driver.

Injury victims request confidentiality for a variety of reasons.

Injured parties may have greater motivation than at-fault parties or insurers to obtain a confidentiality provision. If you’ve been injured in an accident, you might ask for an NDA to:

Maintain the secrecy of big settlements. When you obtain your money, a secrecy provision guarantees that your friends and family don’t beg for a few additional cash.

Personal injuries should be kept confidential. Because of the nature of the injure, accidents may sometimes create humiliation. An NDA might help you maintain your dignity.

Keep medical treatment information private. As with particular injuries, a secrecy agreement might help prevent the humiliation that comes with certain treatment options.

Don’t get into a fight about a case’s specifics. A claim against a specific individual or entity may be frowned upon. In these situations, an NDA will assist you in avoiding any ill will or conflict due to the settlement’s sheer existence.

Stay away from charity and financial consultants. Confidentiality agreements protect you from people who wish to instruct you how to spend the money from your settlement.

Keeping your distance is particularly important if you’re settling for a substantial sum of money.

An injured athlete, for example, requests a confidentiality clause.

Bob is a collegiate football player who aspires to be an actor. After being broadsided while driving near his house over Spring break, Bob sustained major injuries to his right arm and leg. After speeding past a stop sign in their little town, Steve collided with Bob.

Bob spends two nights in the hospital due to the accident, and doctors warn him that he will need continued physical rehabilitation.

Bob is optimistic that he will heal fully, but he is concerned that the public’s attention to his injuries may jeopardize his chances of being evaluated by professional football clubs.

Steve and his insurance company agree to a $100,000 settlement with Bob. In the settlement agreement, Bob’s lawyer negotiates a secrecy provision.

The confidentiality agreement forbids the following information from being disclosed: The amount of the settlement

Bob’s injuries and their severity

Bob’s medical condition and treatment options Identifying and Defining Confidential Information

The parties to a nondisclosure agreement might agree on what material is deemed secret. Here are some instances of confidential information:

The whole agreement of settlement

The kind and severity of an individual’s injuries

The amount of compensation received by an injured party.

A confidentiality clause usually contains either an opt-out or an opt-in provision:

Unless expressly labeled as non-secret, all settlement information is confidential, according to an opt-out clause.

The parties specify whether parts of the settlement information are secret under an opt-in clause. If material isn’t clearly described as secret in the NDA, it isn’t confidential.

It is easier to comprehend confidentiality provisions if the persons involved are referred to as the disclosing party and the recipient:

The disclosing party desires the secrecy clause. The provision is sought because the party shares particular information that it wishes to remain confidential.

The receiver gets sensitive information and is urged to keep it private by the disclosing party.

In an NDA, disclosing parties often desire a wide definition of secret. Because an opt-out clause defines confidentiality more broadly than an opt-in provision, disclosing parties may request an opt-out provision in the agreement.

On the other hand, recipients generally prefer an opt-in provision since it is simpler to comply with the secrecy clause’s conditions. They may simply consult the NDA for a list of the specific information that must be kept confidential.

Definitions are subject to change.

The parties to a secret settlement may always modify how they define confidentiality until the final agreement is signed.

The final version may contain the following: an opt-out clause

an opt-in clause

any more definitions

The revisions must be agreed upon by both the injured party and the at-fault party. They should also write a new settlement instrument that contains the agreed-upon secrecy clause revisions.

There may be some exceptions. Many confidentiality provisions include exclusions, which are particular pieces of information that are not covered by the clause. Exclusions differ from clause to clause, though they are often used for: Publicly available information

Information that is easily accessible to the general audience. Information that the receiver is required to reveal due to a court order or subpoena. Information that the receiver might obtain on their own without relying on the sensitive information of the disclosing party

While a court order may enable parties to divulge secret information, they may also be obligated to notify the other party in advance. The other party then can protest the sensitive information being released.

CONFIDENTIALITY AGREEMENT VIOLATIONS

Confidentiality agreements should spell out exactly what happens if one of the parties breaks the agreement.

Money liquidated damages, return of the settlement, and injunctive remedy are the most usual remedies for a breach of a confidentiality contract.

LIQUIDATED MONETARY DAMAGES

The term “monetary liquidated damages” refers to the amount of money a party breaches a confidentiality obligation must pay to the opposing party. In the initial settlement agreement, the amount of liquidated damages is specified.

For example, when operating on a man’s leg, a surgeon injures his groin. The damage needs continuing individual treatment. A settlement agreement is reached between the doctor, the hospital, and the wounded person.

The contract includes a confidentiality provision that prohibits the doctor and hospital from disclosing anything about the man’s injuries or treatment. In addition, if the doctor or hospital breaches the confidentiality provision, the guy is entitled to $50,000.

REFUND OF SETTLEMENT FUNDS

When parties settle a matter, the confidentiality provision may indicate that if the recipient of the settlement award violates the agreement, the money must be returned.

Example: An injury victim is forced to return a settlement award because he or she broke a confidentiality agreement.

Amanda gets critically hurt in a slip-and-fall accident in a big department store parking lot.

She gets an attorney and files a lawsuit against the firm. Later, the corporation confesses it was to blame for her injuries. Amanda’s lawsuit was settled for 1.5 million dollars.

The settlement agreement contains a secrecy clause, which states that she must return the whole settlement sum if Amanda breaks the confidentiality clause.

Amanda talks about the accident and the compensation in an interview with a news source. Consequently, the company requests its money back, which Amanda must comply with.

PRELIMINARY INJUNCTION

When a party obtains injunctive relief, the court orders the opposing party to do or refrain from performing certain conduct.

For example, the at-fault party may seek a court order prohibiting the injury victim from posting settlement details on social media in breach of the settlement agreement’s confidentiality provision.

Usually, an injunctive remedy does not entail monetary penalties. Legal Fees

When one party violates a confidentiality provision, the other party may be required to compensate the other for any legal fees incurred due to the violation.

All reasonable out-of-pocket expenditures incurred due to the litigation are included in legal fees.

The following are examples of legal fees associated with enforcing a confidentiality clause The expense of going to court

Lawyer’s fees A bookkeeper A private eye

Expert witnesses are available.

WHAT CAN YOU DO TO DEFEND YOURSELF?

You are entitled to just compensation for injuries caused by another party’s carelessness, whether a car accident, a slip and fall or any other occurrence that resulted in your losses. Minor injury claims are normally resolved directly with the at-fault party’s insurance carrier.

To effectively protect your interests, serious or sophisticated injury cases should be handled by an experienced personal injury attorney.

Always remember to bargain.

Injured parties, like at-fault parties, have objectives, values, wants, and ambitions. This implies you may attempt to acquire what you want under a confidentiality clause, which you most certainly deserve.

If you’re ashamed about your medical care, for example, ask your insurance to keep your medical records private.

You may discuss the parameters of the settlement and the amount of your compensation if you’re negotiating your injury claim. Both parties must be willing to compromise.

KEEP AN EYE OUT FOR TAXABLE INCOME.

It’s important to realize that confidentiality provisions might influence your settlement money tax obligation.

Settlements for personal injuries are often not taxable, according to the courts. For instance, if you get money from a settlement, the government can’t tax it since you didn’t list your injury-related medical bills in previous tax years.

The Internal Revenue Service (IRS) thinks that the part of the settlement attributable to the secrecy agreement is taxable where the settlement includes one. For example, suppose the insurance company offered you a bigger payout in exchange for signing a confidentiality agreement.

However, if the agreement stipulates that no consideration is being given due to the secrecy provision, the beneficiary of the settlement may avoid being taxed.

The settlement money becomes taxable if the agreement does not contain wording stating that you are not paid extra for the provision.

Because this is a complicated situation, you should get legal advice from an experienced personal injury attorney.

READ AND COMPREHEND THE CONTRACT.

Before rushing to sign a settlement agreement, make sure you thoroughly read and comprehend all of the paperwork. You must understand precisely what is expected of both you and the other party.

Before signing anything, be sure you get all of your questions answered. You have the right to contact an attorney before signing a legally binding agreement, even if you’ve conducted your settlement talks.

An expert attorney can assist you in determining the best settlement terms for you, as well as assisting you in understanding the facts that should be kept secret under a confidentiality clause.

Personal injury lawyers often provide free consultations and operate on a contingency fee basis. This means they aren’t compensated until your claim is settled or you get a court judgment.

You may normally pay a flat fee for an attorney to evaluate the proposed settlement agreement after you’ve completed talks.

Allowing the insurance company to dictate the terms of your accident settlement is a bad idea. Finding out what a skilled attorney can accomplish for you is free.

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