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?