Thursday, November 26, 2009

Bombs, Wild Cards, the Boogeyman and Other Things That Go “Bump” in the Night

Liability insurance carriers normally have a huge bargaining advantage in personal injury negotiations as compared to personal injury plaintiffs. The reason? Carriers have lots of cases; plaintiffs have just one. Carriers, i.e., can usually afford to lose. Plaintiffs often cannot. Put another way, Plaintiffs typically need to be paid more than carriers need to pay.

Insurance companies are in the risk business, so taking chances is their bread and butter. Of course, all risk is relative. Where the case at hand is fairly routine — a rear-ender whiplash case, e.g. — the company is likely to have a lot of data to back their analysis. In such cases, the risk of an adverse result to the company can be calculated fairly accurately, intensifying its advantage over a lone plaintiff.

The company’s advantage lessens, however, the more unusual the facts are. The more unknowns in a case, the less sure of their ground the company representatives are. Their normal advantage is based on statistics and the laws of probability. Statistics are more reliable as predictors when the applicable database is large, and less reliable when the database is small. Thus, it is normally to a plaintiff’s advantage to structure his or her case so that it falls outside the routine as much as possible.

Explosive facts take a case even more out of the routine. The carriers’ ability to calculate risk is far more difficult with facts that have a high potential for angering members of the jury. A manufacturer’s failure to spend a few bucks to correct a dangerous product design, for example, is particularly hard to price. In cases involving sexual assault against minors, statistics likewise don’t provide a lot of help to a defendant. Even relatively routine cases can quickly turn into problems for insurance companies if some of the defense witnesses tend to be arrogant, are caught lying, altering records, etc.

A word of caution, however. Smoking guns can be two-way streets.* It is possible to be so successful in uncovering or developing egregious facts that the carrier becomes justified in denying coverage. Liability coverage will be excluded, for example, if the defendant’s actions triggered the typical intentional act exclusion.

* How’s that for mixing metaphors?

Thursday, November 19, 2009

Underestimating Your Opponents

"There are not Indians enough in the country to whip the Seventh Cavalry!" George Armstrong Custer

Custer made the above-quoted statement eight years before the Battle of the Little Bighorn. The photo at the left illustrates the perils of such bravado.

For trial lawyers, it’s easy to get caught up in the adrenaline rush that usually occurs shortly before trial. The witnesses have been lined up, the trial team has marshaled all the facts and legal arguments, and the lawyers are eager to bring all of their months of effort to fruition. "We are, by God, ready! Bring on the trial!"

Confidence in one’s abilities is, of course, as necessary a trait in trial lawyers as it is in surgeons. Just as patients don’t hire surgeons who faint at the sight of blood, neither do clients have confidence in lawyers who shy away from the courtroom.

But too much confidence can overcome good sense. Leaving settlement discussions to the last minute can cause even the best and most cautious lawyer to overestimate the strength of his or her case and to underestimate the strength of the opponent’s case. This is one of the reasons — in addition to saving costs of trial prep — why serious settlement discussions should be planned for a time well in advance of trial.

From the beginning of a case, the lawyers should be planning for resolution in addition to trial. Discovery should be programmed in advance so that enough information to make settlement negotiations meaningful is expected to be known months before the combatants immerse themselves in final preparation.

But even with the best planning, things have a way of coming out differently than originally anticipated. If it is impossible to mediate a case until the eve of trial, the parties should consider engaging the services of separate settlement counsel to conduct the negotiations. It is usually much easier for such counsel to see things objectively than it is for trial counsel, a/k/a, the people who are more likely to be saying: "Bring on the Indians!"

Thursday, November 12, 2009

Maginot Lines in the Sand

The French Maginot Line, a series of impressive fortifications running from Switzerland to Belgium, was conceived in the 1920s and built in the 30s as a defense against possible German invasion. The concept was seen as an improvement over the trench warfare which typified so much of the military experience during World War I from 1914 to 1918. The fortification plan was not thrown together in a slap-dash manner; rather, it was well thought-out by some of the more experienced military minds in France. Nonetheless, with the benefit of hindsight, we all know now that the plan completely failed to deter the German Wehrmacht, which had abandoned such obsolete forms of warfare in favor of a mobile, armor-based attack strategy.

In defense of the French planners, much of the work on the Line was done before Hitler’s massive rearmament during the mid to late 1930s; however, even after it should have been obvious that reliance on the Maginot line was obsolete, the French failed to modify their strategic planning. The Wehrmacht bypassed the Maginot Line, swept through Belgium (again),* and forced France to seek terms about a month later.

The lesson in all this for tort litigators is to avoid becoming too "entrenched" in one’s own plans and calculations, regardless of how well thought-out they may have been. It’s OK — in fact, highly desirable — to come to mediation having strategized about how much you want to get (or spend) to settle your case. But do not draw your line in the sand so deeply that you fail to appreciate risks that become apparent during the mediation. You may miss an opportunity to achieve a settlement that, while not exactly measuring up to your expectations, is nonetheless reasonable.

As I pointed out a few weeks ago, nobody can predict with any precision what is going to happen after a jury starts its deliberations. See "Jury Prognostication," posted October 15, 2009. Rather than basing your side’s "bottom line" on what you believe a jury is likely to award, think of it instead as an amount for which the case ought to settle now. There is a big difference between the two approaches: the first requires a prediction about what 12 strangers are likely to do at some time hence; the second, a prediction about what the people across the table are likely to do now — perhaps based on their fear of what a jury may do at some time hence.

If your original prediction about what it will take to settle is proved wrong at the mediation, it is unwise to walk away from the negotiations without first pausing to rethink your original analysis. Nine times out of ten, if the parties are close — but not close enough — it is best for everybody to take a deep breath, compromise a little more, and get the deal done.

* The Luftwaffe simply flew over the Line.

Thursday, November 5, 2009

A Mediator’s Prayer

Lord, grant me the imagination to think outside the box and the wisdom to keep from going off the rails. For the one fosters innovative solutions, while the other leads to train wrecks.

One of the benefits of experience — a/k/a learning from your mistakes — is that it helps you to tell the difference between the two. And one of the things I have learned from experience over the years is that new and "improved" approaches are not always appreciated. Stepping out of familiar territory into the unknown is generally perceived to be risky. People engaged in mediation who are charged with protecting other people’s money (e.g., attorneys and claims reps) are generally reluctant to do risky things with it. After all, they are usually trying to settle a case to avoid risk, not incur more!

For most lawyers, negotiating about money is familiar territory. In tort mediations it’s not always only about the money, but it usually is mostly about the money. Insurance claims reps are primarily interested in: (a) paying the plaintiff something (not too much, please); (b) stopping defense costs; and (c) closing the file. Plaintiffs’ attorneys are interested in: (a) getting a fair price for the case; (b) keeping time and expenses down; and (c) closing the file.

Injured plaintiffs look at things somewhat differently. They are, to be sure, interested in the same things as their attorneys, but they also desire a modicum of justice from the process. And it is this difference where the ability to think outside the box may be most useful. Depending on the strength of the desire for justice — which the liability carrier isn’t usually focused on — pure money negotiations may or may not be enough.

But if the negotiation is clearly one for "just money," too much emphasis on outside-the-box thinking may be counterproductive. If the mediator (perhaps out of boredom) tries to get too innovative, the participants may resent it as a distraction. Rather than moving the parties toward settlement, the mediator who gets too fancy risks discouraging everybody and causing the negotiation to end without a settlement.

On the other hand, when the parties have gone as far as they can go with money negotiations, that is when imagination can and should come into play. If there is a gap between "last and best offers," the mediator and the parties, rather than saying, "well, that’s it, then," packing up and going home, ought to explore things further, looking for ways to maximize value to one side, while minimizing costs to the other. Will a formal and public apology (as opposed to only vaguely expressed remorse) supply value to the plaintiff without costing the defense anything substantial? Will a structured settlement meet some of the plaintiff’s financial needs, while keeping the defense outlay within the budgeted parameters?* Will funding a health insurance policy allay the plaintiff’s fears of being without adequate medical care in the future?

Done right and at the right time, a little out-of-the box thinking can help achieve a settlement, while avoiding the "Casey Jones" syndrome.

* Consider the example in "Show Me the Money!" posted July 18, 2008.