America’s one of the largest multinational conglomerates, 3M shares rose 5% on the Dow Jones Industrial Average amid reports that it is very close to finalizing a $5.5 billion settlement over earplugs claims, which it delivered to the US military.
Bloomberg first reported that 3M might reach a settlement with the plaintiff’s lawyers to resolve more than 300,000 lawsuits levied on it for supplying defective military combat earplugs to the American military, which failed to protect them from hearing loss.
The earplug lawsuit is reportedly the largest in US history, with more than 300,000 cases filed. Military veterans allege that the earplugs produced by 3M and its subsidiary company failed to protect them from hearing loss.
The settlement is reported to be substantially less than $10 billion to $15 billion, as estimated by some analysts. Negotiations are ongoing, and the settlement amount hasn’t been finalized yet. Moreover, 3M’s board of directors has yet to vote.
The Background of Lawsuits
In 2016 Moldex Metric, Inc, a competitor of 3M filed a lawsuit against the company, claiming that 3M knew that the quality of CAEv2 earplugs it supplied to the government between 2003 and 2015 did not meet the standards required for the ear protection as per military guidelines.
3M initially agreed to pay the US government $9.1 million in 2018 to resolve the allegations levied against the company. However, this was followed by hundreds of thousands of individual complaints filed by US military veterans. They claimed that the hearing loss they experienced during that era was due to the defective earplugs provided by 3M.
3M immediately applied for the government-contractor defense, which protects government suppliers and contractors if equipment made under the contract was found to be defective.
However, the courts rejected 3M’s appeal as the company had no written agreement with the government over the earplugs. This followed another failed attempt made by 3M to protect itself from the claims by filing the bankruptcy of its subsidiary, Aearo, which the court rejected.
Surprising Facts
The US Department of Veterans Affairs is said to be the country’s largest employer of hearing disorder specialists and audiologists. The department reports that hearing loss is the largest service-related impairment among veterans, and nearly 1.3 million of them were receiving compensation for that till 2020.
The department also reports that these numbers inflated between 2001 and 2015 from 1.6 cases per 1,000 to 6.8 cases per 1,000 members. This is another reason for believing that the earplugs supplied by 3M were defective and were not up to the mark.
Burnt was taken by 3M
3M has been feeling the heat of this case as it reported an expense of $466 million in attorney’s fees till January. Moreover, this could mark the largest-ever lawsuit settlement by 3M, overtaking the current largest, where 3M agreed to pay a $10.3 billion settlement over claims of dangerous chemicals used in its manufacturing facilities that contaminated water systems.
3M also agreed to pay a little above $6.5 million on Friday to resolve the charges levied by the Securities and Exchange Commission (SEC), alleging it bribed Chinese officials into buying its projects against overseas travel.
Though, 3M shares are on the rise following the settlement reports. 3M’s share prices have declined massively by 17.5% till the closing on Friday, despite a rally of 22% during June and July.
Heading into September, 3M shares are the worst performing on the Dow Jones Industrial Average in 2023. They had also hit their 52-weeks low in June at $92.38, which is the lowest level since late 2012.