There have been a number of high-profile cases in the news lately involving alleged payments of large sums of money to sexual assault victims and others, in connection with the signing of non-disclosure agreements (NDAs). How do these agreements work in the context of a personal injury settlement? Are they above-board, and why would a plaintiff sign one? Read on to learn more.
From politicians to media personalities, a number of famous individuals have lately been linked to confidential settlements stemming from legal disputes, allegations of wrongdoing, and potentially embarrassing entanglements (just ask Stormy Daniels and someone whose name allegedly rhymes with "Lonald Lump").
When the existence of these settlements is brought to light, the public figure's representatives often "spin" it as money paid in settlement of a bogus, unsubstantiated claim, while claiming that the recipient's disclosure of the situational details was made in violation of a confidentiality agreement, otherwise known as a nondisclosure agreement or "NDA."
It's easy to understand why a person who has paid money to settle such a claim would want to keep the existence and terms of the settlement (and the existence of the very dispute or situation itself) confidential. Anything to avoid damage to reputation or career. But what about settlements of more run-of-the-mill legal disputes, like car accidents or slip-and fall incidents?
From the perspective of the injured plaintiff, an NDA may be desired for various reasons. For example, an NDA prevents the details of the person's injuries from becoming a matter of public record, and most people do not want the world to know the specifics of their medical treatment. Additionally, because there is usually value to the wrongdoer defendant in having the injured plaintiff agree to keep the terms of a personal injury settlement confidential, this often translates into a bigger settlement.
Where the wrongdoer defendant is concerned, an NDA may be thought of as a necessity. In the typical personal injury settlement, the proceeds are being paid by an insurance company that defends many similar types of claims on an ongoing basis, and the conventional wisdom is that public knowledge of the existence and terms of other settlement agreements would have a detrimental effect on the number of claims filed -- as well as on the claimants' settlement demands. The concern is particularly great when there is a highly-publicized incident (such as the case of the scalding hot coffee spilled on a patron of a fast food chain restaurant years ago), that would likely give rise to a flood of claims if the public learned of the multi-million dollar amount paid to settle a given case.
A well-drafted NDA will usually provide that the existence and terms of the settlement are to be held in strict confidence by the parties, although the injured plaintiff is often permitted to disclose this information to his attorney, accountant, spouse, and others who have a legitimate need to know.
The NDA should also provide that a proven breach of confidentiality will obligate the breaching party to pay a stipulated sum, sometimes known as "liquidated damages", to the non-breaching party; in the alternative, some NDAs require the injured plaintiff to pay back the entire settlement amount if terms of the NDA are breached. In any event, there is typically a severe penalty "baked in" to the NDA, which is triggered when its terms are violated.
Finally, it is wise to include within the NDA a provision that gives the parties a "script" to recite in response to the inevitable questions that will be asked about how the case was resolved (at least if it's a high-profile matter). For example, the NDA might state that when an inquiry is made, the parties are only permitted to answer that the matter has been amicably resolved to their mutual satisfaction, and that the terms of that resolution are confidential. The benefit of such a provision is that it avoids arguments about whether a party has in fact disclosed confidential settlement terms in violation of the NDA. If the parties stick to the script, there's usually no legal gray area around what can and cannot be said.