Why You Should NEVER Agree To Confidentiality In Your Settlement

We NEVER agree to confidentiality in any settlement. In 21 years of practice, I have never agreed to confidentiality in a single case nor will this ever happen. This is non-negotiable in every case.

There are TWO BIG REASONS we never agree to confidentiality:

  • Secret settlements allow bad doctors to hide their malpractice from the public;
  • Secret settlements expose injury victims to income tax liability on their settlements.

The fundamental purpose of injury litigation is thwarted by secret and confidential settlements. A bad doctor can hide one malpractice settlement after the next with confidential settlements and the public will have no information about the doctor’s malpractice history. A bad doctor can have a string of malpractice settlements but if the settlements are confidential, the public has no way of knowing.

It is not enough to get a good result for our client—the goal of malpractice litigation is to improve the quality of medical care for all patients. Confidential settlements do nothing to establish a standard of care for future cases or help improve medical care for others. For this reason alone, I will never agree to confidentiality.

As if that’s not enough: all consideration for confidentiality is taxable income to our client. Amos v. Commissioner, Tax Court Memo. LEXIS 330 (2003). Although payment to settle a personal injury case is not taxable under the Internal Revenue Code, compensation paid for confidentiality is taxable income to our clients. Even if you agree to partial confidentiality (limited to the amount of the settlement), the injury victim is still subject to some income tax liability for such a clause.

26 U.S.C.A. section 104(a)(2) provides that gross income does not include “the amount of any damages (other than punitive damages)…on account of personal physical injuries or physical sickness.” Pursuant to 26 U.S.C.A. section 104(a)(2), our clients have the right to expect that their personal injury settlements will not be subject to income taxes. But if a portion of a settlement is allocated to confidentiality, our clients will have to pay income taxes on at least a part of their settlement…and we will be faced with a legal malpractice lawsuit.

The simple way to avoid these headaches? Never agree to confidentiality at any costs.

However, when a case settles, we will agree to the following conditions provided our clients give their consent:

It is stipulated and agreed that none of the parties have requested, nor have they agreed to, confidentiality as part of the consideration for the settlement of this matter.

The parties and their attorneys do voluntarily represent to each other and to the court that:

  • They will not affirmatively seek to disseminate information regarding this settlement or its terms to the news media;
  • For purposes of this representation, the term “news media” is used to describe print media (newspapers, magazines), broadcast media (radio station, television stations, television networks), but shall not refer to any news media whose primary attention is the members of the legal profession or the insurance industry, or the website, www.protectingpatientrights, and print newsletter, Lawyer Alert, of the law firm of The New York Injury & Malpractice Law Firm, P.C.;
  • It is expressly understood and agreed that this voluntary representation is not a condition of, and does not form any part of the consideration for, the settlement of this matter;
  • It is also expressly and understood that this voluntary representation shall not be enforceable by action or proceeding, whether in law or equity, in any state or federal court;
  • This voluntary representation constitutes the complete agreement and understanding between the parties regarding the settlement and the parties have not entered into any other agreements, understandings or representations.