Why Fox is likely to pay much less than $787.5M in defamation settlement

Dive Brief:

The April 19 settlement between Fox Corp. and Dominion Voting Systems for $787.5 million is one of the largest defamation amounts agreed to in the United States, although not as large as the more than $1 billion that Alex Jones was ordered to pay last year to victims’ families in the Sandy Hook school shooting in their defamation suit against him.
But the amount Fox will end up paying for its role in spreading unsupported allegations about Dominion’s role in the 2020 presidential election results likely won’t be the full amount, according to an analysis by the Associated Press.
The main reasons: The company is expected to deduct a portion of the amount as a necessary business expense, helping to defray the cost by millions of dollars, and its liability insurer could pick up a substantial portion as well. “We don’t expect significant operational effects or changes to our business” as a result of the settlement, the company has said.

Dive Insight:

Companies often deduct a portion of settlement amounts as a cost of doing business, the AP report says.

Most likely, Fox will write off about a quarter of the cost, Robert Willens, a tax professor at the Columbia University School of Business, told AP. That leaves the company on the hook for about $590 million.

“The key is that if the payments are being made to private parties and not at the behest of the government, then you can pretty much conclude without any fear of contradiction that the payment will be deductible,” he said.

AP summarized the results of a Government Accountability Office 2005 study that found most of the companies involved in lawsuits they looked at deducted some portion of their settlement amounts. It also found that big banks deducted settlement amounts stemming from lawsuits related to the 2007-2008 financial crisis.

After taking into account the deduction, a portion of the remaining amount could be paid by its insurers, Chad Milton of Media Risk Consultants told AP.

Milton thinks a company of Fox’s size will have between $100 million and $500 million in coverage, which would include media liability insurance.

As with most insurance, Fox would first have to pay the deductible, which tends to include attorney fees. Given the considerable amount of legal work the company paid for in the case, most if not all of the deductible could be taken up by the fees, Milton said.

Also, expect the insurer to look carefully at the policy to see if it even has to pay a portion of the settlement. There are caveats written into contracts that allow insurers to avoid paying under certain circumstances, Milton told AP.

In 2017, for example, an insurer sued Disney to get out of paying its share of the settlement amount in a defamation suit, although it lost, the AP report said.

A potentially bigger problem for Fox, given the other big defamation suit hanging over it, from Smartmatic, is whether it can expect to get any help should it have to settle that one, too.

Policies typically include an annual aggregate limit of liability, so while the insurer might end up paying a portion of the Dominion settlement amount, if there’s an annual limit on liability, it might not have to pay anything in a Smartmatic settlement. And that case is for more than $2 billion, more than twice what Dominion was seeking.