“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.
Before getting to the particulars, there’s one more preliminary point I want to make. Sometimes when you approach a negotiation, it can be helpful to develop a formal strategy that is based on principles of game theory, in which you determine your own moves by trying to anticipate how your counterparty is likely to respond. In that way, negotiation can become less of an art and more of a science. But in the scores of negotiations we participate in in any given year, we continue to see there is as much art in the process as there is science. A negotiating strategy for personal injury litigation ends up being shaped by a host of different factors, from an assessment of the personalities involved, insights into the negotiating style of the relevant insurance carriers, as well as a gut assessment of the merits of the underlying case. Ultimately intuition and experience are equally if not more important than the formal rules of game theory in shaping how we work with our clients to approach either the demand or negotiation stage of any particular settlement.
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The Art of the Demand
When it comes to making your settlement demand, there are two key factors to consider: when to make it and how much to make it for. As for the issue of timing, there are some cases in which a plaintiff’s hand can get forced early on in the case. For instance, we’ve seen any number of situations in which a judge, eager to clear his or her docket, will take the occasion of an early status conference to try and pin the parties down to establish a settlement range. Unfortunately that sometimes happens when you have only a junior lawyer handling the appearance or even worse a per diem lawyer who is not familiar with the case. In other instances, our clients may put out a relatively modest settlement proposal at an early stage in the case simply because they are uncertain as to how the case will develop.
Whenever a settlement demand gets floated at an early stage of the case, it can end up having a long-term effect on how the defense sees the case or worse yet the defense may try and lock you in to that earlier demand. So it is always important to condition any early settlement proposal with the clear caveat that it is subject to a time limit and if not accepted by a date certain, withdrawn.
Assuming you’ve managed to avoid having your feet stuck in concrete by an earlier proposal and you’ve had a chance to develop your case to the point of being trial ready, now you can head into mediation with a chance to press the reset button and issue a new settlement demand. Lawyers sometimes feel hesitant about issuing a demand, thinking it may be a sign of weakness, but we generally see there’s a real advantage to taking the initiative since it allows you to frame the negotiation and establish psychological precedence. This is our general experience and it is consistent with what game theory says about any two-sided negotiation – there is often a real first mover advantage.
That of course begs the question of what the right amount for your initial demand should be. This is where the art comes in, as it is basically impossible to offer up hard and fast rules that will apply in every case. Your starting demand must be based on the assumption that in most negotiations there is an inevitable tendency for both sides to play the midpoint game. This means that your initial demand has to be framed based on the assumption that in the ensuing negotiations there will be an inevitable march towards the middle, in each successive round of proposal and counter. So you need to set the initial demand high enough, to leave yourself room to come down in the ensuing rounds of negotiation, but at the same time not set the demand so high as to chill the spirit of negotiation.
An important part of the art of making the right initial demand is assessing the negotiating style of both your adversary and your chosen mediator. These are crucial factors in deciding whether to set your negotiating cushion as low as 40% or as high as 60%, depending on the dynamics that you anticipate in the coming rounds of negotiation. You also need to consider if there are multiple layers of insurance coverage and more than a single adjustor that you’ll be negotiating with, since this will also influence where the floor is likely to be set on the other side of the negotiating table. Of course, along with these factors, your initial demand will be strongly influenced by your assessment of the merits of the facts and law of the case. You also need to thoroughly research all verdicts and settlements on similar cases that have been affirmed at the appellate level to support your demand.
Once you’ve figured out the level for you initial demand, it’s time to get ready for negotiations, which is where will resume our discussion with next week’s blog post.