The Geico STD story is the new McDonald's Hot Coffee story
Hereâs a media literacy rule of thumb: any time you hear about how the courts have done something outrageous and absurd to some poor, long-suffering, gigantic, wildly profitable corporationâŚdig deeper.
The canonical example is the âMcDonaldâs Hot Coffee Lawsuitâ (aka Liebeck v. McDonaldâs Restaurants). You know, that time that an old lady got burned by her McDonaldâs coffee and then sued for for $2.7 million?! Most people heard that storyâââand they heard it for a reason.
https://en.wikipedia.org/wiki/Liebeck_v._McDonald%27s_Restaurants
The Hot Coffee story was propagandaâââspecifically, it was propaganda for the idea that corporations should be shielded from legal liability when they maim or even kill the public through gross negligence. The real Hot Coffee story is a lot more complicated than the âlady gets millions because her coffee was too hotâ tale that circulated widely.
One of the best explorations of the Hot Coffee story is Adam Conoverâs excellent âAdam Ruins The Hot Coffee Storyâ video from 2016. In that episode, Conover explains what really happened.
https://www.youtube.com/watch?v=Q9DXSCpcz9E
The coffee that burned Stella Liebeck in New Mexico in 1994 was served at 190°F. It caused third-degree burns that permanently disfigured Liebeck, required multiple skin grafts, and disabled her for two years. The surgery was so drastic that Liebeck lost 20% of her body-weight while she was recovering.
McDonaldâs had a history of serving coffee that was dangerously hot. It had received 700 complaints about the matter, and had had to settle numerous claims from people who were horribly burned by its coffee. However, it declined to settle with Liebeck, who initially sought $20k to cover her medical expenses.
Denied a settlement, Liebeck sued. The jury did award $2.7m, but the judge clawed it back to $640k. Liebeck likely didnât get that amountâââshe and McDonaldâs reached a confidential settlement under threat of McDonaldâs appealing.
So, the real story isnât: âOld lady spills coffee and gets millions.â
Itâs âMcDonaldâs ignores hundreds of dangerous incidents for years, then maims a customer for life and refuses to pay her medical bills or change its practices to avoid future incidents. A judge says sheâs due a fraction of the jury award, but she doesnât get it because McDonaldâs uses its massive litigation war-chest to force her into a confidential settlement.â
So why did you hear so much about this story? And why was the moral of the story inevitably about how bloodsucking lawyers are victimizing poor lâil multinational corporations like Mickey Dees?
It was propaganda. The âbloodsucking lawyers preying on innocent corporationsâ story is a creation of the business lobby, which has, for decades, argued that it should be immune to legal consequences when it harms or kills the public. The cause of âtort reformâ is, in actuality, a corporate charter of impunity.
It worked. Over the past four decades, corporations have steadily whittled away the publicâs right to civil justice, no matter how egregiously a corporation behaves. The main mechanism for this was the expansion of binding arbitration, a 1920s-era law that initially allowed big companies to agree to have their contractual disputes worked out by a mediator, rather than going to court.
Since the 1980s, a series of Supreme Court decisions have steadily expanded binding arbitration, allowing corporations to add âarbitration waiversâ to their terms of service, employment contracts and other non-negotiated boilerplates. Today, the mere act of removing some shrinkwrap or clicking a link can result in the permanent loss of your right to sue, no matter how badly a company treats you.
Instead, your grievances will be heard by a corporate arbitrator, a pretend judge who is paid by the company that wronged you. Your case must be heard in isolation, and not part of a class action. The proceedings are secret, and even if you win, you donât set a precedent for others who are similarly wronged. Itâs âa justice system just for corporations.â
http://www.onthecommons.org/magazine/we-now-have-a-justice-system-just-for-corporations
American corporations pushed the expansion of binding arbitration waivers as a get-out-of-court-free card, and for many years, it worked. Remember when Wells Fargo forged millions of its customersâ signatures to fraudulently open high-fee accounts in their names? The company argued that because the forged agreements included arbitration waivers, those customers couldnât sue over the fraud:
https://www.thenation.com/article/the-ceo-of-wells-fargo-might-be-in-big-big-trouble/
Everybody got in on the act. If youâre a Pokemon Go player, youâre stuck in binding arbitration:
https://consumerist.com/2016/07/14/pokemon-go-strips-users-of-their-legal-rights-heres-how-to-opt-out/
Same with Airbnb customers:
https://www.airbnb.com/help/article/2908/terms-of-service
Unsurprisingly, Trump loved binding arbitration. One of his first acts as president was to strip nursing home residents of the right to sue, which was great news for the nursing homes that murdered patients by abandoning them to covid:
https://www.consumerreports.org/consumerist/trump-administration-will-allow-nursing-homes-to-strip-residents-of-legal-rights/
(Older voters love the GOP, but it sure as hell doesnât love them back.)
Forced arbitration wasnât just a matter of civil justiceâââit was also a matter of economics. As Lina Khan and Deepak Gupta showed in their 2016 American Constitution Society paper âArbitration As Wealth Transfer,â âForced arbitration clauses are a form of wealth transfer to the richâ:
https://www.acslaw.org/issue_brief/briefs-landing/arbitration-as-wealth-transfer/
But the business leaders who bankrolled the forced arbitration epidemic wereâââcharacteristicallyâââoverconfident. It turns out that arbitration has weaknesses. Itâs possible to do mass arbitrationâââto automate filing arbitration claims by thousands of corporate victims, which triggers hundreds of millions of dollars in arbitration fees, which the company is on the hook for, win or lose.
Uber was one of the first companies to discover this, when thousands of drivers brought arbitration claims at once. Not only would Uber have to pay for arbitrators in each case, but because arbitration decisions do not constitute precedents, it would have to argue each case, over and over again, even if it won. The company surrendered and paid drivers $146m:
https://www.reuters.com/legal/government/uber-sues-aaa-block-100-million-fees-politically-motivated-arbitration-2021-09-20/
This spooked Amazon, which amended its terms of service for Alexa to remove binding arbitration:
https://pluralistic.net/2021/06/02/arbitrary-arbitration/#petard
Law-tech firms like Fairshake created automation systems to enable mass arbitration filings at scale and on a budget:
https://pluralistic.net/2020/04/11/socialized-losses/#justice-restored
Something wonderful and wild started to happen. The companies that had argued for decades that binding arbitration was, well, binding, began to argue that arbitration waivers were unconstitutional, despite the precedents that they, themselves had bankrolled, at enormous expense.
The poster child of arbitration buyerâs remorse is Intuit, a company that has stolen hundreds of millions of dollars in tax-prep fees from the poorest Americans by tricking them into fake âFree Fileâ products using dark patterns on its website.
Intuit is now facing arbitration at scaleâââmore than 100,000 claimsâââand a court has ordered them to hire arbitrators to hear each and every one of them. After all it was Intuitââânot its customersâââwho put the arbitration clauses in its terms of service, claiming that court cases were a bad way to resolve their disputes:
https://pluralistic.net/2020/04/11/socialized-losses/#justice-restored
Which brings me back to McDonaldâs, hot coffee, and juicy stories about giant corporations being abused by the courts.
Have you heard about the Geico STD judgment? A woman caught an STD from her then-boyfriend when they had sex in his car. She won a judgment against him for $5.2m. Geico insures his car. A court has ordered Geico to pay that judgment.
https://www.yahoo.com/news/jackson-county-woman-says-she-222907031.html
But itâs more complicated than that!
Itâs not a court that ordered Geico to pay the judgmentâââitâs an arbitrator. Geico is one of the companies that forces its customers into arbitration. Why would an insurance company want arbitrators to hear cases about its refusal to pay claims, rather than judges?
I mean, duh. Insurance companies have a long, dishonorable tradition of taking your premiums every month, then stranding you when you actually experience an âinsured event,â arguing that the obscure, obfuscating language in their contract doesnât cover your losses.
The real Geico STD story is this: Geico demanded that the case be heard by its arbitrator, who ruled against Geico, because Geicoâs insurance terms did cover this event. Now, Geico is claiming that the arbitration it insisted upon âviolates the companyâs due process rightsâ and that its own arbitration agreement is unenforceable.
The case thatâs being reported on isnât about the $5.2m award for the STD. That happened way back in 2021. The case thatâs in the news this week is a court telling Geico that when it forces its customers into arbitration, it has to abide by the arbitratorâs decision, even in those rare instances in which the arbitrator finds against the company who pays their fees.
But you wouldnât know it from the coverage. All this stuff about arbitration is buried way down in the story. The headline is: $5.2m judgment for a venereal disease!
This is McDonaldâs Hot Coffee 2.0. Someone pitched this story, and the pitch emphasized the poor, downtrodden corporation (Geico is owned by Warren Buffet and has $32b in assets)ââânot the fact that Geico is reaping what it sowed. The real story here is: âCorporation seeks to replace civil justice system with a kangaroo court, and gets kicked by its own kangaroo.â
Incidentally, if you miss Adam Conoverâs âAdam Ruins Everythingâ and you have a Netflix password, check out âThe G-Word,â his incredible new show about regulatory competence and the deadly threats it holds at bay:
https://www.netflix.com/title/81037116
[Image ID: The Adam Ruins Everything title card for âThe Hot Coffee Case.â It is a split panel with Adam Conover on the left at a judgeâs bench, banging a gavel, and a confused Hamburgler on the right, in the witness box. They are separated by the center of the âMâ in the McDonaldâs âGolden Archesâ logo. Superimposed over this separator is the Geico lizard.]