What is the difference between a judgment and settlement?

Editorial headshot of Mike Mosser
A lawsuit against a business typically ends in three different ways: the case is dropped, there’s an out-of-court settlement, or there’s a judgment issued by a jury or a judge.
Picture of judge with gavel.

When someone blames your business for causing them a physical injury or a financial loss, they might sue you for financial compensation. Even if you’re not at fault, fighting a court case can be expensive.

Before a claim goes to court, both parties may try to resolve the issue with a an out-of-court settlement. If both sides are unable to reach a settlement agreement, and a case isn’t dropped or dismissed, the case will proceed to a trial in court.

Even if the suit does go to trial, both parties could still decide to settle the case at any point during the proceedings.

What is a settlement?

A legal settlement is an agreement between two parties that resolves a legal claim. In a lawsuit against your business, a settlement offer would involve your business (the defendant) paying a financial sum to the injured party (the plaintiff) in exchange for them dropping their lawsuit.

This is typically handled as a negotiation between attorneys for both sides. If your business has insurance that covers such a claim, the insurance company could help defray your cost of hiring an attorney, or have one of their attorneys represent you. Your insurance company would also help you in paying any settlement costs.

If you have to pay settlement costs by yourself, you may be able to work out a structured settlement. This happens when the plaintiff settles the case for a large sum of money and your attorney strikes a deal that allows you to pay the amount through installments over time.

You and the other party will have to agree to a payment schedule. For example, you and the plaintiff may decide on annual installments, which means you’ll pay a lump sum each year until the settlement is paid off.

A settlement agreement typically includes:

  • The amount of compensation and any payment plan involved.
  • A full liability release, also known as a liability waiver or a hold harmless agreement. It’s a legal contract in which the plaintiff agrees to drop any claims against the defendant.
  • A confidentially clause that prohibits either side from talking about the case in public.

Although a settlement agreement involves the plaintiff waiving their claim against the defendant, any violation of this agreement could result in an additional lawsuit.

There are three reasons why many business owners prefer legal settlements:

  • They’re less expensive than fighting a lawsuit in court.
  • Court trials can be unpredictable, with a judge or a jury delivering a verdict against your business that’s much larger than what a settlement might’ve been.
  • Settlements attract less attention from the public and the media than a trial would, especially when a confidentiality clause is part of the settlement.

What is a malpractice settlement?

When a client sues you on a claim of malpractice, they’re alleging that you or your business made a professional mistake.

A dentist, for example, is expected to recognize a cracked tooth and recommend treatment. An architect should be able to design a building without structural flaws. A lawyer must provide sound legal advice to clients.

A malpractice settlement is an out-of-court agreement whereby a plaintiff agrees to drop their lawsuit against you in exchange for monetary compensation. If you failed to pay up, you could face an additional lawsuit and stiffer penalties.

What is a workers' compensation settlement for nonprofit organizations?

There are key differences between a regular personal injury case filed by a customer and a personal injury claim that involves an employee and workers’ comp.

The most obvious difference is that workers’ compensation insurance is required in most states for any business or nonprofit with one or more employees. It covers the medical bills and lost wages that result from work-related injuries and illnesses.

It also insures the employer against employee lawsuits over a personal injury claim, if a member of your staff is injured on the job, or a wrongful death claim if a work-related mishap results in an employee’s death.

For example, imagine if your nonprofit organization has a barbecue fundraiser where a leaking propane tank or gas line results in an employee getting serious burns while working the grill.

This would result in a workers’ compensation claim against your organization, because the injury happened while the employee was working.

You would notify your workers’ comp provider, who would appoint an experienced attorney or law firm to handle the case. In this attorney-client relationship, the attorney would represent both your organization and the insurance company.

If your organization, the employee, and your attorneys agree to a financial settlement, all parties could settle this case out-of-court. Your insurer would pay the employee’s settlement claim and your organization would pay the deductible, as stipulated in your workers’ comp policy.

It’s worth noting that insurance companies prefer settling these types of cases because they’re less time-consuming and amount to fewer legal fees than pursuing a legal action all the way to a jury trial.

Settlement agreements can also be less risky, if an at-fault party is worried about a personal injury lawyer convincing a jury to grant a larger amount of money to the plaintiff than what the plaintiff could’ve achieved by settling the case.

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What is a judgment?

A judgment, also known as a verdict, is a legal decision made by a judge or a jury in a civil trial, where both sides present their evidence and arguments in court.

In criminal trials, a prosecutor has to prove that a defendant is guilty “beyond reasonable doubt.” With civil trials, the plaintiff’s attorneys have to meet the much lower standard of a “preponderance of evidence” to win a case.

This means in order to win a lawsuit against your business, a plaintiff would have to prove that your business was more likely at fault than not. Another way of looking at this would be that a judge or a jury verdict concluded the evidence was more than 50 percent on the plaintiff’s side.

If your business is found liable, the court will next have to decide how much money you owe the other party to make them “whole.”

If you fail to pay the judgment, the plaintiff can file a judgment lien against your business to ensure you pay what you owe. A judgment lien attaches to your property and your assets until the debt is satisfied.

Either side has the option of appealing a legal judgment to a higher court, which can be expensive for both sides.

Judgments are typically considered public records, so all the details of a case would be available for the public and the media to examine. This is one of the reasons why many business owners prefer to settle any lawsuits against them, rather than heading to trial.

What is a malpractice judgment?

A malpractice judgment is the result of a civil lawsuit where a defendant is found guilty of failing to meet the standards of their profession. These cases typically involve someone who has a professional license issued by their state.

Examples of malpractice cases include:

  • A healthcare provider who failed to diagnose a health issue or provide appropriate treatment, resulting in health complications, pain, and other issues for the patient.
  • A realtor who neglected to disclose a building’s defects when showing and selling a property, leaving the buyer unaware of costly repairs that need to be done.
  • A construction contractor who failed to follow building codes or blueprints when working on a building, creating undue safety or legal issues for the occupants.

What is a declaratory judgment?

A declaratory judgment, also known as a declaration, is an opinion issued by a judge that spells out the legal obligations and rights of both parties involved in a dispute. It’s a binding and enforceable final decision that can be obtained from a judge without going to trial.

It’s similar to preliminary injunctions and temporary restraining orders, except that violating one of these court orders could result in a charge of contempt and financial penalties issued by the judge.

If either party fails to abide by a declaratory judgment, it would take a lawsuit to enforce the provisions spelled out in the judge’s ruling. If both sides abide by the judgment, it could eliminate the need for either party to pursue a trial in court.

For example, if an employee was injured in a car accident while using their employer’s vehicle for their own private use, they might seek a workers’ compensation claim with the employer.

The employer and their insurance company might reject this claim because the employee wasn’t working at the time they were injured.

Both sides could ask a judge to issue a declaratory judgment that stipulates whether the injury should be covered by workers’ comp and what the employer’s obligation is.

If the employee, the employer and their workers’ comp provider agree to follow this judgment, they could avoid an expensive lawsuit.

What is a default judgment?

A default judgment, also known as a judgment by default, is issued by a court in favor of a plaintiff when the defendant doesn’t respond to a court summons or fails to appear in court. In such a case, a judge may also include a damage award to the plaintiff, based on the claims made in their lawsuit. Such a ruling might be reversed if a defendant can offer sufficient reasons why they failed to appear.

What is a summary judgment?

A summary judgment is a decision issued by a judge that resolves a lawsuit without a trial taking place. A summary ruling is possible when the facts of a case aren’t in dispute and one side asks the court to issue a judgment that decides the case as a matter of law.

"Settlements attract less attention from the public and the media than a trial would, especially when a confidentiality clause is part of the settlement."

Ways to remove a malpractice judgment lien

To have a judgment lien removed from your property, you can:

Pay off the debt

If you pay off the judgment that you owe, the creditor (your client who won the case) will file for the release of the lien. Once the lien is removed, you can do whatever you want with your property, such as sell, trade, or transfer it.

Claim the property with the lien as exempt

Depending on your state laws, you may be able to claim certain property as exempt from collection. The court will decide whether the property qualifies for this classification.

File for bankruptcy

This option should only be exercised as an absolute last resort. Declaring bankruptcy will destroy your credit (and possibly shut down your business for good), but it will also fast track your request to remove the lien.

Insurance helps you avoid paying out-of-pocket

Instead of worrying about how you will afford lawyer’s fees and any settlements or judgments levied against your business, you can breathe easy by getting insurance coverage and knowing that you have a financial safety net in place.

General liability insurance covers common business third-party risks, such as a customer injury at your business, advertising injury, or damage to a customer's property.

If you might face a professional malpractice claim, medical malpractice insurance, errors and omissions insurance, or professional liability insurance would be a financial necessity. This coverage might also be needed as part of your licensing requirements.

As mentioned above, workers' compensation insurance would cover employee claims involving workplace injuries and illnesses.

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Mike Mosser, Content Specialist

Mike spent several years as a reporter and editor covering politics, crime, and the world financial markets. He’s worked for several newspapers, a financial newswire, and a monthly magazine. As a copywriter, Mike has produced SEO-based content, marketing, public relations, and advertising work for a variety of companies.

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