This week we return our attention to a topic we have discussed previously on the blog (most recently here). It is a question that comes up for consideration just about every time you prepare a case for mediation: should you bring your client to the mediation?
Many personal injury lawyers we know seem to be in the consistent habit of bringing their clients into mediation. There is also a sizable number who take the contrary view.
There’s an old Oliver Wendell Holmes maxim we remember from law school – great cases like hard cases make for bad law. Not to quibble with the venerable Justice Holmes, but in our experience as settlement consultants, we have found that this observation is not so true, at least when it comes to mediation. Great cases and not so great ones both make for good mediations, at least when measured by that all-important yardstick of positive financial outcomes.
With settlement season now in full swing, this week we are pleased to announce the publication of our new e-book: How to Get the Most out of Mediation. You can click here to download your free copy.
For those of you who are regular readers of our blog, you will find some familiar material here, as we have drawn on a number of articles that first appeared on the blog over the course of this past year. Our goal in putting the e-book together was to distill our experience and insights, gathered over the course of our participation in hundreds of mediations, and to present the material in one convenient place so you would have a practical and handy guide to use as you prepare for your next case settlement.
Key topics covered in the e-book include the following:
• How to identify which cases are ripe for mediation
• How to find the best mediator for your case
• How to make your initial demand
• How to develop a negotiation strategy
• How to maximize settlement value for you and your client
We hope you find the e-book a useful tool in your practice. And if you have a moment, please send us an email and let us know what you think. Feel free to let us know if you have any questions or pointers of your own you’d like to share with our readers, to help make this settlement season more productive for all of us.
In our business as settlement consultants we are keenly aware of the different dynamics that come into play in personal injury litigation and how those dynamics can often help promote a negotiated resolution of the case. As we’ve written before, the various weaknesses you become aware of in the course of developing your case, as either plaintiff or defense counsel, will often create an incentive to prefer negotiation over the courtroom.
But it’s not just perceived weakness in your own position that creates an incentive to settle. Sometimes it’s the strength of your position that gives rise to a dynamic in favor of settlement. And in those situations, experience has shown us that it’s important to play your strong hand wisely (and without showing much willingness to compromise) in order to achieve an optimal negotiated outcome.
So we begin the fourth quarter, which in the litigation world we like to refer to as Settlement Season. Although each year is different, there seems to be a long-standing pattern that insurance carriers tend to push to settle a lot of cases in the last three months of the year.
No doubt part of the reason has to do with the peculiarities of the insurance business. Not that we are experts in the accounting and other arcane business practices of major insurance companies, but our basic understanding is that insurers, like any other company facing contingent liabilities, have to take reserves against their potential litigation exposure. Depending on the way they have established their reserves, this could create a significant incentive to settle claims prior to year-end, at least in cases where a settlement can be struck within the insurer’s target range, thus freeing up some portion of the reserve. From an accounting point of view, freeing up reserves has the effect of generating income for the insurer, which in many cases would have the ancillary benefit of translating into a better year end bonus for those in charge of managing the pool of risk. As in any negotiation, it pays to consider the potential motivations of your adversary before you sit down at the negotiating table.
When it comes to determining and paying damages in a personal injury or medical malpractice lawsuit, it’s important to remember that there are some special rules and statutory provisions that come into play, depending on what state you’re litigating in. Here in New York we most frequently deal with Articles 50-A and 50-B of the CPLR, which set forth the basis for calculating and paying future damage awards. Under these provisions of New York law, which have been in effect since the 1980’s, a judgment for future damages is to be paid out in a series of future periodic payments funded by an annuity purchased by the defendant, as opposed to being converted to present value and paid in a single lump sum.
The determination of future damages usually presents the largest challenge in the courtroom since there are so many practical and economic factors that must be considered, giving rise to the risk that the award will end up being either oversized or insufficient for the plaintiff’s future medical needs. The approach for calculating and paying future damages varies widely from state to state, with some states, such as Georgia, legislating a specific discount rate of 5% that is to be used in reducing the amount of future lost earnings, benefits and household contributions to a present value, compared to states such as Connecticut, which provide no case law or statutory guidance, but merely invites testimony from economists based on whatever discount methodology seems appropriate at that time as a basis for calculation. (Click here if you would like to see a 50 state survey on the basis of calculating future damages prepared by the National Association of Forensic Economics.)
The New York rule, which we are most familiar with, presents something of anomalous approach inasmuch as there is no discounting of future losses whatsoever undertaken by the jury. The calculations used for discounting the award of future damages are quite complicated, together with additional provisions for determining a lump sum portion of the award, as well as adjustment for attorneys fees and litigation expenses, all of which is laid out in the provisions of NY-CPLR Articles 50-A and 50-B. The net result is of this determination is entry of a final judgment pursuant to which the plaintiff is entitled to receive a single lump sum payment consisting of the past damages portion of the award plus the first $250,000 of future damages. The defendant pays this lump sum in cash and then is obligated to buy a structured annuity to fund the remaining portion of the future damages award for the amount above the $250,000 included in the lump sum payment. These annuity payments are intended to cover the future awards for pain & suffering, medical expenses and lost earnings.
Over the years these provisions of New York law have received repeated criticism from both plaintiffs and defendants bar, and there have been continuing calls for further revision or repeal. As Dennis P. Glascott of Goldberg Segalla, and Lisa Diaz-Ordaz , counsel at Liberty Mutual Insurance, wrote in a recent issue of the New York Law Journal: “While the Legislature intended CPLR articles 50-A and 50-B to benefit both plaintiffs and defendants, the end result has been confusion and discontent to all parties, including judges.” The feature of the New York statute that is perhaps most disliked by the plaintiffs’ bar is the provision that requires in most cases that payment of future damage awards are discontinued when a plaintiff dies, rather than having the remainder of the annuity paid out to the plaintiff’s heirs or estate. This strikes us as anomalous and completely out of step with the approach in other jurisdictions, by requiring a plaintiff to forfeit a substantial portion of a damages award simply because the injuries sustained prove to be fatal sooner than anticipated.
In fact, as a matter of practice in New York, very few verdicts are actually paid in accordance with the provisions of CPLR 50-A and 50-B. As commentators have noted, “the paucity of reported cases under Articles 50-A and 50-B indicates that settlements are commonplace, notwithstanding the numerous opportunities these articles present for disagreement.” Thomas F. Gleason, Practice Commentaries to CPLR Article 50-A & Article 50-B (McKinney 2007).
Nonetheless, familiarity with Articles 50-A and 50-B is important to settlement discussions where future damages are involved, because a verdict is generally the best or worst case scenario (depending upon which side), and it is vital to know, at least in general terms, what winning or losing would entail. In our experience, in certain cases, it can be highly advantageous for a plaintiff to come to a mediation armed with a 50-A or 50-B analysis. That’s because in determining a settlement value at mediation, parties will often look at future damages as set out by an expert, and use a present value of those numbers as a basis for settlement value. And in fact, depending on a variety of factors, such as the applicable discount rate, the cost of funding the structured annuity under CPLR Rule 50-A or 50-B can actually be significantly higher than the present value of the future damages. This analysis can thus sometimes help provide a substantial financial incentive to the defendant to settle.
Some day these problematic provisions of New York law may end up being revised or repealed. But in the meanwhile, they remain one more important arrow in the quiver that we can and do use as part of our effort to drive settlement value for plaintiffs and their counsel.
There’s an old Oliver Wendell Holmes maxim we remember from law school – great cases like hard cases make for bad law. Not to quibble with the venerable Justice Holmes, but in our experience as settlement consultants, we have found that this observation is not so true, at least when it comes to mediation. Great cases and not so great ones both make for good mediations, at least when measured by that all-important yardstick of positive financial outcomes.
Of course, whether your case is a strong one or not will shape your strategy and goals as you head into mediation. With a strong case you will be much less inclined to compromise; your settlement range will be much narrower and you will likely insist on adhering closely to what you think of as full value for the claim. To the extent that you are fully confident about the law and facts of the case, though, there are still significant advantages to be realized from participating in mediation, as we have written in a previous blog post. It’s also important to remember, as we previously discussed here, that whenever you mediate a strong case, you must make sure you’re trial ready before mediation, so the defense fully appreciates how prepared you are to crush them at trial.
But let’s face it – not every case in your office is a sure winner. Every trial lawyer takes on matters where investigation and research turn up potential vulnerabilities in the plaintiff’s case – bad facts turn up in discovery; perhaps the defense has taken a surveillance video that shows your client playing touch football despite a claim of chronic back pain; or maybe you’ve learned that your client will be unfit to take the stand due to his prior history as a child abuser. When any such weakness surfaces in the course of developing your case, mediation becomes more attractive as a means to sidestep jury trial while nonetheless providing a means to secure some settlement value for your client.
From the lawyer’s point of view, mediation provides a means to cull some of the weaker cases from your docket so you can focus your firm’s resources on higher value opportunities. This is why we recommend to our clients that they undertake a periodic review of all pending matters, in order to identify those cases, where a material weakness makes going to trial problematic in some way. From the client’s point of view, mediation may provide a shorter route to recovery, albeit one that is smaller but more certain. Oftentimes, this is a tradeoff that clients are ready to make in the interest of putting a sum certain into their pocket now rather than risking a larger upside in front of a jury.
A recent case we were involved in illustrates how mediation provides a good alternate route to recovery as potential difficulties at trial begin to emerge. The plaintiff in this case was a construction worker who had been injured on the job. The case had to be brought in Westchester County – a jurisdiction not generally favorable to plaintiffs. The plaintiff had filed a motion for summary judgment on liability and the defendant had filed a motion to dismiss. Our client assessed the probabilities as a 30% percent chance for winning the motion for summary judgment as against a 35% probability that defense’s motion to dismiss would be granted. In any event the defense only carried $1 million of insurance coverage. Given the limited upside and the various weaknesses in the case, this was easy to identify as a good candidate for mediation. The plaintiff went into mediation with an initial target of $700,000 to $800,000 but ended up settling at $550,000. This made sense because we were able to provide a structured settlement that enhanced the lifetime value of the plaintiff’s recovery, and brought the financial settlement value into an acceptable range.
When mediation works, everyone walks away happy. In this case, the defense was pleased to cap their expense and exposure at a level well below the full amount of the insurance coverage. At the same time, the plaintiff was happy to achieve finality and closure, avoiding the risk of trial, with a recovery enhanced by a structured settlement. By definition that’s a successful outcome.
Last week we wrote about the art of the demand, discussing the various factors that shape how you make an initial demand as you head into mediation. This week we discuss what happens next and the important dynamics that come into play after you make the demand. This is where the art of negotiation becomes all important, as you have to devise your strategy for playing the back and forth process as you try and get to the best possible settlement for your client. It’s not unlike a game of ping pong, where you have to take your best shot while always anticipating your opponent’s next move.
There are some people (and even some lawyers) who don’t like the back and forth of negotiation. They get impatient or consider it to be pointless posturing. But that’s not the case with us. To the extent that it’s important to enjoy what you do in order to be good at your job, then I guess that’s one thing that makes us effective as settlement consultants. Although defense counsel can sometimes be pig-headed and unpleasant to deal with, no matter how many negotiations we participate in over the course of a year, there is always a certain thrill we feel when it’s time to roll up our sleeves in pursuit of a new opportunity to hammer out a case settlement.
Negotiation being as much an art as a science, it’s not possible to provide hard and fast rules about how to be successful in the back and forth of every case. Each negotiation calls for finesse and intuition, as you have to be able to assess the mediator and players on the other side of the table in order to devise the optimal approach in any given situation. That being said, over the course of our careers, as we have faced such a wide array of adversaries, we’ve been able to identify a few general principles that often prove helpful in shaping the approach we end up taking.
“Let us never negotiate out of fear. But let us never fear to negotiate.” – John F. Kennedy
JFK was thinking about diplomacy with the Russians when he uttered his famous phrase about fear and negotiation. But I think his words also hold true for the approach we take to most personal injury mediations. We never want our clients to head into a mediation session showing anything but the utmost confidence in the merits of the underlying legal case. But even assuming the law and facts are on your side, there is almost always something to be gained by trying to negotiate a settlement and thereby avoiding the expense and uncertainty that goes along with a courtroom trial.
Negotiation lies at the heart of any mediation. We actually think of negotiation as a process with two distinct stages. It starts with a demand stage in which one or both parties put their positions on the table. The demand stage establishes the framework for the negotiation stage that immediately follows, in which the parties will go back and forth however many times in order to reach a mutually acceptable settlement. As we see it, each of these stages presents a unique set of challenges and issues to be considered for any given litigation. There is an art to making a demand, and there is an art to negotiation, each of which is worth separate discussion. In the remainder of this week’s blog post, we will turn our attention to the art of the demand and then next week we will follow up with a discussion about the art of negotiation.
When it comes to the settlement phase of personal injury litigation, plaintiffs and their counsel will typically be focused on the bottom line – how close to their settlement demand has the defendant’s offer come? But quite often a proposed personal injury settlement will introduce a host of additional complications, which make it important to evaluate more than just the bottom line number. The most important such complicating factor is determining how your client is going to get medical coverage once the settlement is done.
All in all, there are lots of ways a client may end up forfeiting the right to continue receiving subsidized medical coverage after receiving a large monetary damages award, so analyzing your client’s health care needs post-settlement is a vital part of any personal injury settlement process. Unfortunately, many lawyers fail to pay heed to this issue, as a result of which their clients end up needlessly squandering some of the significant benefits of the eventual settlement.
