How are out-of-court settlement $ sums arrived at?

Does the plaintiff propose an insanely high sum, the defendant propose an insanely low sum, and the two sides just work towards the middle from there?

What about an in-court damages award? Is it more or less a crapshoot, completely unpredictable as to what the judge or jury may award?

The two parties agree to a settlement. Where they start is irrelevant. Either party can make the first offer.

In court, the plaintiff needs to prove the defendant’s liability and prove damages. I wouldn’t call prevailing on the merits a crapshoot but some cases are stronger than others. Sometimes liability is easy to prove and sometimes it’s hard. The same holds for damages. Each side’s decision to settle is affected by a range of factors, including possible jury awards, the cost of litigation, the likelihood of prevailing, publicity risks, the parties’ tolerance for risk, and their thirst for justice.

My friend is in settlement discussions for an injury she suffered. There is no dispute about liability. My friend estimates her damages at somewhere between $55,000 and $75,000. The defendant offered her $35,000. Having made that offer, the defendant will now file an offer of judgment. Basically, if my friend does not take defendant’s offer, she must prevail in court and show that her damages exceed $35,000 or she may be liable for part of the defendant’s litigation costs from this time forward. This is affecting her willingness to continue pursuing the suit. Not all states have such a procedure.

To be honest, it’s like making sausage. You might not want to know. IANAL, but I’ve been involved in over 30 civil cases as an expert witness or investigator.

First rule: The attorneys want to get paid. Even if a plaintiff in a workman’s comp case is proven to be faking his disability, there is usually some settlement amount sufficient to make sure his attorneys get paid. It may not cover all their fees and expenses, but they usually won’t recommend that their client settle for nothing. Why not take a chance in court?

Second rule: The amount is usually arrived at following the discovery and deposition phases. Both sides make big claims about what their witnesses and experts will say, then the deposition gives the opposing side an idea of how good a witness the expert will make. Everybody puffs up his/her chest and makes a big deal about how great a case they have.

Eventually, one or both parties blink. “OK, we’ll take the guaranteed offer of $2.5M instead of the $4.3M we were claiming.”

There are lots of fancy terms that are used, including “demand,” but this is what it boils down to. To a great extent, it’s like two male gorillas pounding their chests and charging at each other to assert dominance.

That’s how I see it as a ride-along.

There is no one way to arrive at a settlement. I will describe the method I used as an attorney to advise my clients (workers’ compensation insurance companies and/or adjusting agencies for self-insured employers) on the value of what was called a “compromise and release” in California (a “total settlement” of all claims in the case, with some interesting California-only exceptions):

I calculated the expected value of the case, based upon the known evidence, my estimation of the chances of “winning” or “losing” on the various issues, and the probable cost of each possible outcome (relatively easily done in the workers’ compensation case because the possible awards are statutory and depend upon the language used by the doctors examining the claimant). Once I had that expected value, I would advise the client of that value, remind them of the associated costs of continuing to trial (added exams, possibly added weeks of temporary disability indemnity payments, any other expert witness fees, and, of course, the not inconsiderable cost of my services prepping for trial), and then suggest a reasonable settlement limit that we should not be willing to go above (since, of course, we were trying to limit the amount paid). Then I would get some authorization from the client to make an offer.

Now, some people love to “barter” when it comes to settlements. They don’t think they’ve done their job if they cannot claim to have raised/lowered the initial offer/demand. I, on the other hand, hate feeling like I’m a merchant in a bazaar, haggling over some rug. So I preferred to get the authority to make an offer that was not far off what we thought the expected value of the case was, and then stick to that offer regardless of what counter-demand the claimant’s attorney made. The only valid reason to change the offer was if the attorney demonstrated that my calculations were incorrect in some way. I got known for the fact that this was my strategy, and after some initial resistance to in on the part of the claimant attorneys, I actually found them preferring it, because they knew that they could advise their client with certainty about the likelihood of obtaining a higher negotiated amount.

However, of course, what I offered was dependent upon what the client authorized. Some adjusters hated that strategy (for much the same reason as the attorneys did). So they would dribble out the settlement money in slow agony. A settlement conference could result in multiple phone calls to the adjuster just to get the authority to increase the settlement offer by some pittance, only to have the other side reduce the demand by the same pittance. I hated when that happened; in my opinion the injured worker generally got fed up with that sort of situation and eventually dug their heels in at a much higher level. And what really stunk is that the adjuster would inevitably cave and give in at that higher level when presented with the option of actually losing the case at trial. :rolleyes:

I forget the specific numbers for US civil litigation, but a substantial majority of cases settle before verdict. A common saying is that the only reason a case goes to verdict, is if one of the parties was grossly incorrect in assessing the merits of their case and the costs of litigation.

Related issue: in law school, I took a Negotiations class. 6 or so assignments had teams of 2 students against another team in various situations. Such as 1 side represented management, and the other represented the union. Or a team owner versus an athlete. Each side had a list of “goals” which would represent their “success.” Neither side knew what was most important to the other side.

Here’s the part I found interesting. Assume that through negotiations you had maximized EVERYTHING that was on your list, but still retained some things you could give to the other side, AT NO COST TO YOU. The question was asked of the 32 students, whether in such a situation you would give the additional benefits to the other side. I was THE ONLY ONE OUT OF 32, who said, “Of course you would.” EVERY SINGLE OTHER STUDENT said that maximizing their client’s interests meant, not only obtaining everything your client wanted, but also screwing over the other party as much as possible. :rolleyes:

Gave me a clue as to some of the mindset of (many? most?) future lawyers at the time.

Right…they see “adversarial” all the way. Such is litigation…

It seems to be not too much different over here in the UK. I made a personal injury claim after being injured at work - it was not contested. After my losses were calculated, there remained the compensation. The insurance Co made a low offer which we rejected. they made a raised offer which my solicitor seemed inclined to accept. I looked at their draft letter and re-wrote it in much stronger terms, emphasising the long term effects, and the insurers made a much better offer which I accepted.

Since the lawyers are working for a fee on not a percentage, I got the impression that my case was being dealt with by an intern, and that they were not too bothered about getting the best (for me) result. I did write to the head of the practice but only got an anodyne letter back.