This article is the second installment in our series on best practices for complex mass tort settlement program administration.

Large mass tort settlements can involve thousands of claimants and billions of dollars in total funds. Despite the immense scale and complexity of evaluating claims in these large programs, independent oversight, including sophisticated audit and quality assurance procedures, is often neither required nor sufficiently implemented.

Defining Claim Adjudication

The primary purpose of a settlement program is to distribute funds equitably among claimants. Before awards are determined, claimant information is collected and evaluated to assess eligibility, severity of harm, and other factors material to each award decision. This process is known as claim adjudication and is central to balancing the equitable treatment of similarly situated claimants with timely and cost-effective administration. Depending on the complexity and scale of the settlement, claim adjudication may be performed by a single claims administration firm or distributed across multiple specialized vendors.

A well-functioning claim adjudication process serves the interests of all parties. Defendants gain assurance that settlement funds are allocated to the intended claimant population, mitigating both reputational and legal risk. Eligible claimants and their counsel benefit from the exclusion of unmeritorious submissions, thereby maximizing the recovery available for legitimate claims.

Settlement Oversight Landscape

Large settlement programs often include provisions for financial statement audits, but these audits do not typically target claims adjudication procedures. In addition, many CPA firms performing these audits often lack professionals with specialized expertise in complex claim workflows. Because there is no uniform oversight standard across mass tort settlement programs, audit and compliance obligations instead arise from a patchwork of different overlapping sources:

1. Tax and Financial Audit: IRC § 468B¹ – Where parties elect to establish a Qualified Settlement Fund (QSF), the IRS requires administrators to prepare and file periodic tax returns. Financial audits are often implemented to satisfy this filing requirement, with a focus on proper accounting, interest allocations, and asset segregation. These audits are focused on financial metrics to detect the misappropriation of funds using standardized accounting procedures. They are not designed to evaluate the claims adjudication process and typically do not test whether individual claim determinations comply with the settlement's governing criteria.

2. Claims Administrator Quality Assurance Measures – Claims administration firms routinely incorporate proprietary fraud detection capabilities and claim-level quality assurance protocols into their standard operations. While these internal measures can meaningfully improve adjudication outcomes, they are executed by the administrator themselves rather than an independent third party. This lack of independence can undermine the objectivity of the process and limit the rigor of oversight.

3. Court-Supervised Oversight – Settlement programs operating under judicial supervision typically require periodic reporting and, in some instances, the appointment of a Special Master with audit and oversight responsibilities. For larger programs, specific audit provisions may be included within the governing settlement agreement, though their scope varies considerably. Some programs mandate claim-level reporting while others require only high-level financial accounting to the court. Notable examples of large programs with court-mandated oversight provisions include the Settlement Facility–Dow Corning Trust (SF-DCT)², the VW Diesel Emissions Settlement³, and the Deepwater Horizon Economic Claims Center (DHECC)⁴.

While each source provides some value, gaps in claim adjudication oversight can surface and endanger the equitable allocation of settlement funds to eligible individual claimants.

Claims Adjudication Process Challenges

Even the most carefully designed adjudication processes must be modified throughout the lifecycle of a settlement program. Once collected, cleaned, and normalized, claimant data frequently presents unanticipated circumstances that require unforeseen procedural adjustments. In the most complex settlements, claim categories can range from property damage and business interruption to physical injury and wrongful death. The adjudication process often requires parallel workstreams, each with specialized valuation methodologies and substantive data requirements.

Subject matter experts and technical professionals responsible for claims adjudication and settlement administration must collaborate continuously. As programs mature, experts work alongside claims system developers to enhance system capabilities and ensure accurate reporting. In a program’s early stages, the volume and velocity of data make seamless knowledge-sharing between these two groups critical, particularly when procedural updates originate outside the claims system and must subsequently be integrated into it. In settlements with complex exposure requirements and layered adjudication rules, gaps in that knowledge transfer inevitably produce processing errors and valuation inconsistencies. These issues can delay claimant award offers, stall fund distributions, and increase the risk of improper payments.

Quality Assurance Best Practices

Settlement programs commonly integrate quality assurance steps into the adjudication process. These measures are typically concentrated on high-value, high-complexity, or otherwise elevated-risk claims, with their scope determined at the discretion of the program administrator, Special Master, or other program leadership. Often, reviews are performed on a subset of claims selected through statistical or judgmental sampling. The most effective quality assurance frameworks, however, supplement these targeted reviews with a database-driven analysis across the entire claimant population to identify anomalous claims and adjudication outliers. Evaluating data in the aggregate, rather than solely on a claim-by-claim basis, yields insights that sampling alone cannot surface.

For example, a cluster of claimants sharing a common physical address or contact information may signal suspicious filing activity. Similarly, analyzing year-over-year fluctuations in asserted revenues for business claims can flag suspiciously rounded percentages, which may indicate manipulation of underlying financial data.

At the core of any effective quality assurance program is a comprehensive, well-structured claimant dataset that can be systematically queried to identify claim outcomes that deviate from established adjudication rules.

AI Opportunities and Risks

Recent advances in AI present both significant opportunity and meaningful risk for claim adjudication. The rapid adoption of AI-enabled tools without adequate human-in-the-loop oversight introduces the potential for model hallucinations and misinterpretations of claimant data, both of which can compromise the integrity of award determinations. The sensitivity of the underlying data compounds this concern. Many large settlement programs ingest medical records and other sensitive personally identifiable information, making robust data governance critical. Still, AI offers an immediate opportunity to drive efficiency gains within claim adjudication audit functions.

When leveraged by experienced professionals, AI can substantially reduce the labor required to normalize disparate, unstructured claimant data into a coherent, queryable database. Beyond data preparation, AI can streamline queries designed to identify omissions, errors, and anomalies warranting further review. Because audit procedures function to flag claims for human review rather than rendering final determinations, the risks and consequences of AI hallucination are materially lower in an oversight capacity. 

Conclusion

The administration of large mass tort settlement programs demands rigorous oversight of the claim adjudication process. Because no universal standard governs how that oversight is designed or implemented, the most effective programs combine structured audit functions with data-intensive, claim-level validation. Together, these measures help to confirm that adjudication outcomes are consistent, accurate, and aligned with the governing settlement criteria. Emerging AI-enabled tools offer a compelling opportunity to advance these functions, reducing the cost of oversight while preserving the human judgment that sound adjudication requires. Establishing a robust oversight framework from the outset, rather than as an afterthought, is among the most important decisions courts, settling parties, and program administrators can make.

References

[1] 26 U.S.C. § 468B, Designated Settlement Funds, https://www.govinfo.gov/content/pkg/USCODE-2024-title26/pdf/USCODE-2024-title26-subtitleA-chap1-subchapE-partII-subpartC-sec468B.pdf

[2] Settlement Facility Agreement, Dow Corning Corporation (Revised), §§ 5.04, https://www.mied.uscourts.gov/PDFFIles/SettlementFacilityAgmtFinal52604.pdf

[3] Volkswagen Clean Diesel Marketing, Sales Practices, and Products Liability Litigation, Consumer Class Action Settlement Agreement and Release (Amended), MDL No. 2672, Rec. Doc. 1685 (N.D. Cal. July 26, 2016), §§ 5.2, 5.4 (Claims Supervisor), https://www.vwcourtsettlement.com/en/docs/PSC/Approved%20Class%20Action%20Settlement%20Agreement.pdf

[4] Deepwater Horizon Economic and Property Damages Settlement Agreement, MDL No. 2179, Rec. Doc. 6430-1 (E.D. La. May 3, 2012), §§ 4.3.2, 4.3.4, 4.3.10, 4.4.7 (court supervision and Claims Administrator oversight); Order Appointing Louis J. Freeh as Special Master, MDL No. 2179, Rec. Doc. 10564 (E.D. La. July 2, 2013) (independent fraud investigation mandate), https://www.laed.uscourts.gov/sites/default/files/OilSpill/Orders/7022013Order(SpMstrFreeh).pdf