Ivory soap is renowned for being 99.44 percent pure. In the advertising realm, that is an impressive percentage. In corporate liability and risk management, however, 99 percent effectiveness and safety may not be impressive enough.

In my career handling and managing claims — helping policyholders who have been the target of lawsuits — I often hear clients insist that they have a strong legal defense because an accident or an adverse outcome is "statistically insignificant." For example, when dealing with prescription drugs or medical liabilities, perhaps only a few dozen patients out of 10,000 have a fatal reaction. Maybe only 66 out of a million are adversely affected. In this calculus, it is easy to rush to judgment in dismissing a plaintiff's liability argument. One could say the claim is bogus and has no merit, anticipating a slam-dunk trial victory.

Risk managers defending such suits must exercise caution with this argument, which juries may simply find unconvincing. In bodily injury claims, a patient's appearance and soft and squishy sympathy factors may hold sway. If you, your child, or your spouse suffers an adverse outcome or has a severe accident, then you would likely find little solace in knowing that the incident is "statistically insignificant."

That Pesky Percent

Further, a complication or a mishap may only occur one percent of the time, or even only 0.1 percent. A standard of 99.9 percent effectiveness sounds remarkable and — in many contexts — it is. Consider, however, the reality:

  • Hospitals would give 12 newborns to the wrong parents, daily.
  • Footwear companies would ship out 114,500 mismatched pairs of shoes each year.
  • The U.S. Postal Service would mishandle 18,322 pieces of mail every hour.
  • The IRS would lose two million documents this year.
  • Publishers would ship 2.5 million books with the wrong covers.
  • Two planes landing at Chicago O'Hare would be unsafe every day.
  • Webster's Dictionary would contain 315 misspelled entries.
  • Doctors would write 20,000 incorrect drug prescriptions this year.
  • As many as 880,000 credit cards in circulation would have incorrect cardholder information on their magnetic strips.
  • During the year, 103,260 income tax returns would be processed incorrectly.
  • Five and a half million cases of soft drinks produced would be flat.
  • A total of 291 pacemaker operations would be performed incorrectly.
  • Approximately 3,056 copies of tomorrow's Wall Street Journal will be missing one of its four sections.

Should we still feel good about this defense? It may not be fair or reasonable, but juries may decide that, in managing risks, 99.9 percent is simply inadequate. The broader issue is that, in the realm of risk management, there is a disparity between board room reality and courtroom reality. A board room consisting of many like-minded people could easily brand a claimant's or plaintiff's lawsuit as specious. One might surmise that the outcome is statistically insignificant; therefore the claim is bogus and should be denied.

In the Juror's Shoes

One problem remains: the typical trier of fact in a liability case will not be a group of corporate executives or managers. There is no guarantee that the jury pool will draw from the most educated or even employed socio-economic strata. In fact, sympathy for the underdog is rampant in many jury pools, and the ability to understand scientific and technical defenses can be limited.

Try putting yourself in the juror's shoes, as one viewing an injured plaintiff in the courtroom. Perhaps the plaintiff arrives in a wheelchair. Maybe she is on oxygen because of an alleged product defect or an act of carelessness. How would you feel if a man who was disfigured from a fire allegedly caused by a defective product or corporate action stood before you? What if the plaintiff died, and the estate is pursuing a wrongful death action? Imagine the plaintiff's counsel running a projector, showing color photos of the deceased with his family, enjoying outside activities and volunteering in the community. The plaintiff went in for a routine medical procedure but is now dead, presumably because of a defective product or a physician's screw-up. The jurors' hearts go out to not only the family but also the patient.

Enter the defense attorney to explain this away with the argument that the outcome was "statistically insignificant."

How persuasive would you find that? If you were permanently disabled because of an adverse outcome, would you accept it philosophically as a "one-in-a-million" scenario? Juries may still fault a company if, during the trial, evidence suggests that modest and economical changes could have eliminated that one-in-a-million risk.

Takeaways for Risk Managers

This is not to say that risk managers must eliminate all risk or embrace anything other than zero defects as unacceptable outcomes. Sympathy for plaintiffs may override the number-crunching that demonstrates that the adverse outcome was indeed rare. Here are some tips for risk managers:

  • Use the "statistical insignificance" defense with caution and have realistic expectations of how it may not work.
  • Tactfully educate management about the pitfalls of this approach, which may appeal to "quants" and financial types.
  • Have outside legal counsel thoroughly review warnings to include statistically rare but not unheard-of hazards and contraindications.
  • Blend that defense with other strong arguments: no defect, no negligence, thorough warnings about the statistical possibility of adverse outcomes, intervening cause of the injury, and so on. It is wise to avoid putting all of your defense "eggs" in the basket of statistical insignificance.

After all, in the event that a jury awards $10 million in punitive damages against you, then you and your CEO will find little consolation knowing that such an award was…statistically insignificant.

Claim expert and author Kevin Quinley helps claim professionals boost their productivity. Visit his blog at http://claimscoach.blogspot.com, or sign up for his e-Newsletter by sending an e-mail to kquinley@cox.net.

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