Friday, March 28, 2008

Ask Not for Whom the Bell Curve Tolls . . .

There are many differences in the way liability insurance carriers and plaintiffs approach settlement of personal injury cases or other civil claims. One of the more significant has to do with the science of statistics: insurance companies rely on it, while injured plaintiffs, by and large, do not.

For statistics to be useful in estimating the value of a given case, the analyst needs to examine the results from many cases. Insurance companies have many cases; plaintiffs do not. Insurance companies look at norms; plaintiffs typically are concerned with only one case – their own.

To find the "norm" for a given type of case, companies will (either consciously or unconsciously) make use of a normal distribution chart, a/k/a "Bell Curve," similar to the one depicted above. They reason that some 68+% of whiplash cases, say, will fall between a mid-range of values clustered about the mean, or average (represented on the chart as the green area between A and B). Of course, those of us who have been at this business awhile know that there is no such thing as an "average" case. Every case is different; every jury is different. And because of these differences, "normal distribution" is largely a fiction.

But insurance companies are in the business of assessing risk – and the fact that they remain in business means that, for the most part, they are pretty good at it. For them, the statistically small risk that a jury in a given case will come in with a figure in excess of B is offset by the equal chance that it will come in with a figure less than A. And with lots of cases in their file drawers, they can bet their money on those odds.

This means that for a plaintiff to persuade the insurance company to pay more than B, he or she will have to convince the claims rep either that the case doesn’t even belong on the same chart – e.g., that the chart deals with apples, while the case under discussion is chocolate bars – or that there are unusual factors present (an extremely sympathetic plaintiff, for example) that move its value toward the right of the chart.

For settlement negotiations in most cases to be productive, however, plaintiffs need to come to grips with the fact that insurance companies are not likely to pay a figure above their idea of the normal range. Keep in mind that the claims rep will have to explain his or her settlement decision to someone up the ladder. Plaintiffs should, therefore, focus their efforts on showing why a case falls more toward the upper limit of the normal range of values, rather than waste time talking about the McDonald’s hot coffee verdict or other unusual "brass ring" cases that made the headlines. They made headlines because they were unusual, and are largely discounted by insurance companies for the same reason.

Welcome to My Web Log

I know, I know – people don’t say "Web Log" anymore. I suppose eventually I will succumb to peer pressure and call this a "Blog," or worse, a "Blawg." But for now, I am going to resist the temptation. It took me a long time to switch from DOS to Windows, too.

My theme for this whatever-you-want-to-call-it will be on resolution of civil litigation cases – those matters where the primary motivation for the participants is money. There is a lot of literature on resolving disputes where bruised egos, shattered relationships and the like are dominant, but I have seen little out there dealing with situations where the main (if not the only) question is "how much?" and the pie tends to look the same at the end of the process as it did at the beginning.

I have been a New Hampshire trial lawyer since 1978 and have served four or five days a year as a voluntary mediator in our state’s superior courts since 1992. Most of the cases I have mediated fall into the category of personal or bodily injury. For more on my mediation philosophy, check out my article "Of Potted Plants and Personal Injury: a Contrarian View of Mediation," which was published in the Fall 2007 issue of New Hampshire Trial Bar News.

In the months to come, I will try to populate this space with posts focusing on the practical aspects of settling civil disputes over money – those which are, or which could be, the subject of lawsuits.
I will be directing my remarks mostly toward lawyers who represent clients in such matters, because they are the ones who bear most of the responsibility for resolving cases before trial. However, there is a growing trend for people to represent themselves in civil litigation, so my aim is to provide information which will serve the needs of pro se litigants as well.

I am looking forward to this venture, and hope that I will be able to contribute to the dialogue in such a fascinating field.