Safety products giant 3M agrees to $5.5B settlement in defective earplugs lawsuits

Company knew that combat earplugs sold to US military were faulty

Safety products giant 3M agrees to $5.5B settlement in defective earplugs lawsuits

Safety equipment maker 3M Co. has reached a preliminary agreement to pay over $5.5 billion to put an end to more than 300,000 lawsuits accusing the company of selling faulty combat earplugs to the US military, according to Bloomberg News, which cites sources familiar with the deal.

This settlement would prevent a potentially much larger financial liability that 3M had attempted to manage through a controversial bankruptcy case, which ultimately failed.

The proposed settlement, reported by sources close to the matter, represents about half of the estimated $10 billion that financial analysts had speculated 3M could potentially be held accountable for in relation to allegations that the earplugs did not provide adequate hearing protection for service members.

Market reaction to the news was positive, as 3M shares surged by up to 6.1% during premarket trading on Monday. Carl Tobias, a product liability law professor at the University of Richmond, told the business news publication that it "sounds like 3M negotiated a pretty good deal for itself, given this litigation has been weighing on them for the better part of a decade."

A representative from 3M declined to comment on the ongoing speculation and rumors surrounding the settlement.

Barclays analysts had initially projected the potential liability for 3M to be around $8 billion, while Bloomberg Intelligence estimated it could go as high as $9.5 billion. Although the settlement amount falls on the lower end of these estimates, analysts from Bloomberg Intelligence, Joel Levington and Michael Doto, noted that the resolution could still impact the company's credit ratings due to lingering legal concerns.

The settlement would mark the conclusion of a wave of litigation that has besieged 3M, a company with a massive safety products division. Despite this resolution, 3M still faces a substantial number of lawsuits related to PFAS "forever chemicals," which are projected to incur costs much higher than those associated with the earplug settlement. The company has previously agreed to pay up to $12.5 billion to address contamination of drinking water supplies with PFAS chemicals across the United States.

As part of the tentative agreement, the company will disburse the compensation over a five-year period. Those familiar with the deal have indicated that final approval from 3M's board is still pending.

The resolution came about because of mediation ordered by US District Judge Casey Rodgers, who has overseen the earplug litigation. In May, Judge Rodgers instructed 3M's CEO, Mike Roman, to participate in negotiations. The lawsuits alleged that the combat earplugs were defective over a span of 12 years, starting in 2003.