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Why do so many business lawsuits settle instead of going to trial?

On Behalf of | Feb 9, 2024 | Business Law

If a business ever faces litigation, there could be reason to worry about significant financial consequences. Many people have heard the claim that approximately 90% of all civil lawsuits settle. Some researchers claim that the 90% figure is a gross exaggeration. Research does indicate that settlement rates vary between different court jurisdictions and even different types of lawsuits.

Still, a significant percentage of business-related lawsuits do eventually settle outside of court. Even those abiding by the most conservative estimates could agree with the statement that a majority of all lawsuits settle or get dismissed by a judge. Why do so many business lawsuits settle out of the courts?

Settling is often more cost-effective

Even in scenarios where businesses or their insurance companies maintain that the defendant is not to blame for a situation, they could potentially still agree to settle the matter outside of court. They may do this to keep costs low, as the expense involved in litigating can extend multiple times beyond the cost of negotiating and settling.

Businesses don’t want the publicity

Lawsuits brought by consumers who claim they got hurt by a dangerous product, allegations of abuses made by former employees and even claims of nonpayment by vendors could do real damage to a business’s reputation. Allegations made an open court become part of the public record and could harm a company’s reputation, even if the organization eventually defeats the lawsuit that it faces. Settlements, even those that require mediation to achieve, are typically much more private and might even include confidentiality clauses for the parties embroiled in the dispute.

Settlements preserve working relationships

Two businesses hoping to work together in the future or an individual who might want to use an employer as a reference later usually prefer to resolve disagreements as amicably as possible. A settlement could lead to far less long-term damage to a working relationship than litigation that goes all the way to trial.

Although filing a lawsuit is sometimes necessary to move a conflict forward, those representing businesses often need to be ready to consider settlement opportunities. Learning from the actions of other businesses can help those running organizations achieve optimal outcomes for their effort.