John D. Winer, San Francisco
A. What Is a Settlement?
A settlement occurs when the parties to a claim or a lawsuit agree to resolve their differences with each other and agree to dismiss their claims or lawsuits and release the other parties from liability (i.e., responsibility).
In the simplest case, and most cases are simple, the settlement involves a defendant and/or insurance company paying a plaintiff money in exchange for the plaintiff releasing the defendant from all responsibility for liability arising out of the accident or incident.
B. When Can a Case Settle?
i. Cases can settle at any time.
Cases can settle before litigation, at any time during litigation, before trial, during trial, after trial, before an appeal or after an appeal. In other words, a case can settle at any time.
ii. Settlements before litigation.
a. Settlements before complaints are filed.
Litigation begins when the plaintiff files a civil complaint against one or more defendants. However, many times a case can be settled before the civil complaint is filed.
b. Risks of settling without an attorney.
This can occur with or without the plaintiff retaining an attorney; however, it is generally thought that a plaintiff is at an extreme disadvantage attempting to negotiate a settlement with an insurance company or defense attorney because the plaintiff is at a disadvantage in terms of knowledge and experience in evaluating claims.
Even plaintiffs who think of themselves as good negotiators can fall into the trap of settling their case for much less than its value or agreeing to terms of the settlement in which they give away too many of their rights. This, of course, must be weighed against having to pay a lawyer for representation which payment is generally a contingency fee representing a share of the plaintiff's recovery.
c. Plaintiff should at least consult with an attorney before settling.
It is generally thought to be a good idea for an injured party to at least consult with one or more attorneys to learn of his or her rights and the pluses and minuses of the case before attempting to negotiate a settlement. Most personal injury, malpractice, sex abuse and sexual harassment/discrimination lawyers will offer a plaintiff a free consultation at the beginning of the case.
d. Minor injury cases may not need an attorney for settlement purposes.
In cases involving relatively minor accidents in which the plaintiff has received little or no treatment and has fully recovered from their injury, it may make sense for the plaintiff to settle his or her case. However, even in these minor cases, one should consider consulting with an attorney before entering into negotiations with the defendant or insurance carrier.
e. Pitfalls of settling a case without an attorney.
Some of the pitfalls that a plaintiff can encounter attempting to settle the case without hiring an attorney are:
1. Underevaluating the case.
Settling the case for an amount of money that is much less than the value of the case is a typical mistake made by unrepresented plaintiffs.
2. In a major injury or death case, settling for less than the policy limits, and not discovering other potential defendants.
Settling a case without learning of the true insurance policy limits is another typical mistake of unrepresented plaintiffs. In a case in which a plaintiff has incurred a serious injury, he or she may be under the misunderstanding that the defendant has a small policy limit such as $15,000.
Under California law, the insurance company is not required to reveal its policy limits to a plaintiff before a lawsuit is filed unless the plaintiff requests the amount of the policy limits and the insured consents to the revelation. However, the insurance company is required to seek the insured's consent to reveal the policy limits once plaintiff or plaintiff's attorney requests the information.
Trying to settle a serious injury case without the knowledge of insurance policy limits is like buying a pig in a poke. Further, there may be other sources of insurance which a plaintiff's attorney may turn up during the course of litigation or negotiations which a non-lawyer would b unlikely to find.
3. Unknowingly limiting recovery to the policy limit of one defendant.
Many accident victims wrongly assume that the most they can recover in a claim is the amount of the defendant's insurance policy. This is not true. If the defendant has significant assets, plaintiff is entitled to pursue the claim against the defendant for the full value of the case.
However, in this situation, the plaintiff must first refuse defendant's insurance company's offer of the policy limits. Once plaintiff settles with the insurance company, the plaintiff gives up his/her right to also pursue the case against the defendant.
4. Settling the case before the plaintiff's medical condition is permanent and stationary.
Although everyone is anxious to have their case settled as soon as possible, a mistake that people make, both with and without an attorney, is to settle their case before they know the full extent of their injury.
Once a case is settled, a plaintiff cannot go back and sue the defendant again if it turns out that the injury was more severe than previously thought at the time of settlement.
So, for instance, if someone in a rear-end car accident received treatment for back and neck injuries for several months settled the case, and several weeks later learns of a herniated disc, it is too late to seek compensation for that more severe injury.
5. Missing cases against other defendants.
Acting alone, an injured party may not realize that there are other potential defendants to sue. In serious injury or death cases in which there is a small policy limit, one should always consider an investigation to see if there are any other parties who may be responsible for plaintiff's injury.
Other potential defendants may include another vehicle which was somehow involved in the accident, an employer of the defendant driver if the driver was in the course and scope of his or her employment; a public entity such as a city, county or the State of California for negligent design of a roadway; a potential product liability case against the manufacturer of the vehicles; a potential medical malpractice case against the doctor who treated plaintiff after the accident and many other potential defendants who caused an injury. Good attorneys know how to perform investigations to turn up other defendants.
f. Settling after retaining an attorney before litigation.
1. Most attorneys will have as much incentive as plaintiff to settle early.
Once plaintiff retains an attorney, settlement can still occur before a civil complaint is filed and litigation begins. Most plaintiff attorneys have as much incentive as the plaintiff to have the case settle quickly.
2. Some cases are better suited to early settlement by an attorney.
In cases in which the plaintiff's injury resolves or becomes permanent and stationary relatively soon after the accident/incident, the plaintiff's attorney, depending on the defendant's insurance carrier, will often attempt to settle the case by writing a settlement demand letter outlining plaintiff's theories of liability, causation and damages and asking for an amount of money for settlement. This is particularly true in auto accident and trip/slip and fall cases.
3. Cases not suited for early settlement.
However, there are a number of insurance companies who are known to be unreasonable in not settling cases before litigation, and the plaintiff's attorney may choose to simply file the lawsuit, begin the case and begin negotiating with the defense attorney rather than an insurance adjuster.
4. Once the insurance company turns the claim over to a defense attorney, the settlement dynamic changes.
Once the lawsuit is filed, the defense of the claim is turned over to a defense attorney and the settlement dynamic usually changes. If the insurance company and adjuster are known to be reasonable, then the plaintiff's attorney would usually have a lot of incentive to settle the case prior to litigation.
5. Advantages of prelitigation settlement.
a. Fewer costs.
There will be fewer costs involved in the case and since case costs ultimately come out of the plaintiff's recovery, it is advantageous to plaintiff to at least attempt to settle the case while keeping costs down.
b. Insurance company less likely than defense counsel to notice weakness in plaintiff's case.
If there are problems in the case, an insurance adjuster is less likely to find out what those problems are than a defense attorney will be once formal discovery begins.
c. Plaintiff does not make a credible witness.
If the plaintiff, for whatever reason, does not make a good witness on his or her own behalf, settling before a lawsuit is an opportunity for the plaintiff to obtain a good value for the case before the defense takes the plaintiff's deposition and concludes that she or he does not make a good witness. (Please note, however, that some insurance adjusters insist on meeting the plaintiff for an informal interview or to take a statement before settling the case, even without litigation.)
d. Avoid stress of litigation.
Most plaintiffs do not want to go through the stress of a litigation, so they have more incentive to attempt to settle their case early.
e. Once defense attorneys take over a file, he or she has an incentive to drag the case out.
Defense attorneys, in contrast to plaintiff attorneys, are paid on an hourly basis, so that it is thought that they have an incentive to delay settlement of a case and make a plaintiff jump through a bunch of hoops in formal discovery so that they can run up their bills. They will do this under the guise of "fully" evaluating the plaintiff's claim so that they can advise the insurance adjuster or defendant of their risks before settling the case.
6. Prelitigation settlement is not always advisable.
On the other hand, there are a number of situations in which the plaintiff will be better off waiting until after litigation to settle the case.
7. Situations in which it is advantageous for a plaintiff to file a lawsuit and then try to settle.
a. Unreasonable insurance company.
When an insurance company or insurance adjuster is known to be unreasonable, plaintiff may want to skip early negotiations because they will be a waste of time.
b. Injury has not resolved.
When the plaintiff's injury is not resolved or has not reached a permanent and stationary status before the statute of limitations expires, it is dangerous to try to settle the case. Until the statute of limitation approaches, a complaint should not even be filed until the extent of plaintiff's damages are known.
c. Most complex cases.
In complex cases, litigation would usually be required to sort out the liability and damage factors in a case. It is hard to settle these cases without some discovery and formal settlement mechanism like a mediation.
d. Serious injury or death cases where defendant refuses to reveal the policy limits.
In a serious injury case or death case when the defendant refuses to reveal the insurance policy limits of its insured, it is literally impossible for the plaintiff to settle. Unfortunately, the insurance company does not have to reveal the policy limit until after litigation is filed. Sometimes the policy limit is the first thing that is revealed after a case is filed, and the case can settle at that time.
e. Inaccurate police report against the plaintiff.
In an accident case when the police report is against the plaintiff, but the police officer may be incorrect in his or her conclusions, it will usually take litigation to turn things around.
8. Settlement once litigation begins.
a. After litigation, multiple settlement tools available to attorneys and plaintiffs.
Once litigation begins, the case can settle at any time by the plaintiff's attorney writing a settlement demand letter, by oral negotiations between the plaintiff's and defendant's attorneys based upon authority provided by the clients, an informal settlement meeting between the parties, a mediation, a court ordered settlement conference or by any method by which the parties can agree.
b. Timing of settlement negotiations.
Timing of settlement negotiations is a key strategy consideration. If possible, it usually makes sense for both sides to enter into settlement negotiations before a lot of costs are run up on the case. But there are some cases that need to be actively litigated before the parties will be able to adequately evaluate the value of the claim.
Some cases can be settled after litigation is filed and before there are any depositions. Other cases may settle after the plaintiff's and defendant's depositions are taken. Some cases may require taking the depositions of witnesses before they are ripe for settlement. Some cases may require the production of documents from the defendant, and still others may require completion of expert testimony which generally does not occur until close to the time of trial.
c. Settlement at the courthouse steps.
Although it does not happen as frequently as it used to before the onset of mediation and other popular settlement devices, cases can settle at the "courtroom steps" or, more accurately, in a judge's chamber on the day of trial or even during the trial.
d. Settlement after trial.
Completion of a trial and a verdict by the court or jury does not necessarily mean that settlement negotiations are over. Many cases settle after verdict based on the threat that the verdict will get overturned on appeal. Many appeal courts now have special settlement and mediation proceedings to settle cases while they are on appeal.
e. A case will not settle until all sides are ready to settle.
There is only one thing that is certain in terms of the timing of settlements; that is, a case will not settle until all sides are ready to attempt to resolve their differences.
C. Most Cases Settle.
i. 95% of cases settle.
The good news about settlement is that eventually, almost every case is settled short of trial. Statistically, more than 95% of bodily injury claims are settled before a trial begins.
ii. Financial incentive to avoid trial.
Cases settle because, eventually, both sides are able to evaluate the value of the plaintiff's claim by determining what they believe a jury will do if the case goes to trial and it makes very little sense to go through the emotional and financial expenses of a jury trial if the sides can agree on what a jury is likely to award if the case is tried.
iii. Cases settle to avoid risks.
Further, since assessing what a jury will do in a case is an art and not a science, it makes sense for both sides to avoid the risk of an unexpected or unfavorable result by settling the case. A settlement is fully within the control of the parties. The deliberations and decision of a jury are far outside of the control of a party.
iv. Factors which motivate settlements.
There are many other factors which motivate parties to settle. Those may include:
- Threat of publicity.
- Personal exposure of a defendant for a verdict in excess of insurance policy limits.
- Concern of an insurance company of a potential "bad faith" claim based on their failure to adequately protect their insured.
- Knowledge that if plaintiff receives an exceptional verdict, the defense is likely to appeal.
D. Considerations in Evaluating Cases for Settlement.
i. Many different factors are taken into consideration when evaluating settlements.
There are many, many factors which are utilized when evaluating a case for settlement. The perception that many of the public have that a case settles for three times the medical bills and wage loss cannot be further from accurate. There are cases that settle for millions of dollars in which there are no medical bills or wage loss and there are cases that settle for a few thousand dollars in which there are hundreds of thousands of dollars of medical bills and wage loss. Following are some of the factors that are relevant to evaluating the case for settlement purposes:
The clarity of liability (i.e., fault) in the case is a critical settlement factor.
In a case in which liability is unclear or the plaintiff has a substantial chance of losing, the settlement value of the case has to be reduced significantly to factor in the plaintiff's chances of losing.
Theoretically, if the value of an injury claim is $100,000, but plaintiff only has a 50/50 chance of winning, a $50,000 settlement may be appropriate. However, plaintiffs must always realize that cases against large defendants or in cases in which the defendant is insured, that the plaintiff has a lot more to lose than the defendant. In the example above, if the insurance company turns down a $50,000 demand and the plaintiff wins $100,000, payment of an additional $50,000 will mean very, very little to a large insurance company or corporation. On the other hand, if the plaintiff turns down the insurance company's $50,000 offer and wins nothing at trial, it could create a devastating financial blow in which the plaintiff is unable to pay for his or her bills.
iii. Comparative fault of the plaintiff.
If a plaintiff is found to be partially at fault for causing his or her own injury, then the potential jury award would be reduced on the basis of the percentage of fault. In other words, if a case were to go to trial, and plaintiff were to receive a $100,000 verdict, but was found to be 25% at fault, the plaintiff's verdict would be reduced to $75,000. Thus, when settling a case, plaintiff should reduce his or her expectations of a settlement by the likely finding of percentage of fault that would occur if the case were to be tried.
iv. Likely jury verdict value of the case.
In cases in which insurance policy limits are not an issue, most good attorneys attempt to settle the case based upon what a jury would be likely to award if the case went to trial.
Determining what a jury will award in a given case is more of an art than science; however, reasonable estimates can be made based upon what jurors have awarded in similar cases in similar venues (i.e., locations). Most verdicts are reported in "jury sheets" that lawyers read and utilize when attempting to assess the value of any particular case.
v. Aggravated liability.
In cases in which a jury is likely to get angry at a defendant for misconduct that was something more than negligent, it is known that jurors are likely to "spike" their verdict and award more money for a plaintiff's injury than they would if a defendant's misconduct was merely negligent.
Aggravated liability situations, such as a defendant who was found to be driving drunk or a defendant who intentionally hurts a plaintiff will increase the risk to the defendant of a large jury award and this should be taken into consideration in settlement.
vi. Punitive damage exposure.
If the defendant's misconduct is so bad that there is a risk for punitive damages, i.e., the jury awarding damages specifically to punish the defendant, this should become a major factor in settlement negotiations. A potential award of punitive damages is complicated by the fact that under the law, the insurance company is not allowed to pay an award for punitive damages; however, normally, the defendant, through a personal attorney, attempts to apply pressure on the insurance carrier to pay more in settlement so that the defendant will not be exposed to the punitive damage risk.
vii. The character and credibility of the parties.
A plaintiff's case is worth more if he or she is likeable and believable. It is known that jurors will award more money to people that they like and believe than people whom they dislike and don't believe.
To a lesser extent, this is also true for defendants. A likeable or believable defendant is likely to fare better in a lawsuit than someone with the opposite traits.
viii. The extent of the injury.
Theoretically, the more serious an injury, the greater should be the value of the plaintiff's case.
ix. Objective evidence of injury.
Injuries that can be visualized or that are able to be demonstrated by radiographic evidence such as x-rays, MRIs, CAT scans and/or other scientific tests, will normally result in higher settlements than injuries which depend upon the believability of the plaintiff to prove.
There are many injuries which may have severe consequences for the plaintiff which are not diagnosable by objective tests. This can include severe back problems, headaches and pain anywhere in the body. Experience has shown that jurors are hesitant to award large damages in cases in which there is no objective evidence of injury; thus, the settlement value of any case is increased by objective evidence of injury and decreased by the lack of it.
However, a credible plaintiff can sometimes overcome the lack of objective evidence of an injury and this must also be taken into consideration in the right case.
x. Past and future medical bills of the plaintiff.
As long as a plaintiff can establish that past medical expenses and likely future medical expenses are reasonable and related to their injuries, the bills will be an important consideration in settlement.
However, the defense will generally claim some amount of overtreatment and, thus, some portion of the medical bills should be excluded from settlement consideration. Further, the defense will argue that plaintiff will be unlikely to need or have the claimed future treatment or the future treatment would not be related to the subject incident.
xi. Past wage loss and future wage loss.
Wage loss is another important consideration in evaluating a claim as long as plaintiff can establish that he or she were reasonably off work or will be reasonably off work due to the subject incident. The defense will likely take the position that the amount of the wage loss should be discounted because plaintiff should have been back to work sooner and, in the case of future wage loss, the defense will claim that plaintiff could be doing some type of work which would pay as much or almost as much as the work being done before the incident.
Also, for plaintiffs who are self-employed or do not have a strong consistent earning history before the accident/incident, it can become very difficult to establish a wage loss claim.
xii. Is the injury permanent.
In cases in which plaintiff has a permanent injury and some objective evidence of that injury, there will likely be a higher settlement value because the case will have more jury appeal.
xiii. Venue (where the claim will be tried).
It is beyond question that cases tried in certain locations, particularly urban locations, result in much higher verdicts than cases tried in more rural counties. This is a factor that must be taken into consideration in settlement.
xiv. Policy limits and defendant's assets.
No matter how severe the injury, the plaintiff's ability to recover damages against defendant will be limited by the defendant's policy limits and the personal assets of the defendant.
However, in cases involving motor vehicles, the plaintiff may have his or her own uninsured or underinsured motorist insurance which would provide additional coverage for the plaintiff's injury and allow the plaintiff to receive further compensation in a settlement with his or her own insurance carrier.
xv. Target defendants.
Even though jurors are not supposed to consider the wealth of a defendant or whether or not the defendant is a corporation in their verdict, they are far more likely to make larger awards against large companies than they are against people who they perceive to be middle class or poor. So this becomes another important settlement consideration.
xvi. Reputation and ability of attorneys.
The claims representative or defense attorney will report to the insurance carrier or defendant the ability of the plaintiff's attorney and the likelihood that the attorney will try a case and try it well.
In situations in which the defense believes that the plaintiff's attorney will not be willing to take the case to trial, there is little incentive to offer a significant amount of money in settlement.
On the other hand, if the defense believes that a plaintiff's attorney will not only go to trial, but will receive an optimum verdict, the defense's risk is increased and thus the settlement value of the case is increased.
By the same token, plaintiffs must also take into consideration the reputation and ability of the defense attorney. If the case is against a good defense attorney, plaintiff will likely receive less money from the jury; thus, the settlement value of the case, to some extent, is decreased.
xvii. Expense of litigation.
The expense of litigation should also be considered in settlement. There are some cases which, if worked up properly, could result in the expenses actually being higher or almost the entire amount of an eventual settlement or verdict.
Some insurance companies and corporations are cost conscious and will take into consideration the expense of proceeding in the case versus early settlement.
However, just because a case may cost the defense $200,000 to litigate does not mean that in a case they otherwise evaluate as being worth $25,000, they are going to offer the plaintiff $200,000 in settlement.
Rather, in the above example, it may cause the corporation or insurance company to raise their offer five or ten thousand dollars or to try to settle the case early for $25,000 before expenses are actually incurred. Corporations and insurance companies are loathe to make offers of settlements based on the cost of defense because of a concern that they will be seen as an easy target for plaintiffs.
For instance, it is known that almost any medical malpractice, sexual harassment or employment discrimination case will cost several hundred thousand dollars or more to litigate through trial. Does that mean that anytime anybody files a medical malpractice, sexual harassment or employment discrimination claim that the defense will automatically offer hundreds of thousands of dollars? Of course not. They want to send a clear message to plaintiffs attorneys and potential claimants that they are willing to aggressively defend claims, thus discouraging future claims.
E. Settlement Negotiations.
i. Settlement negotiations usually include bargaining back and forth.
Except in cases in which one side makes a very reasonable statutory offer or demand or cases in which the value of the injury greatly exceeds the policy limit, settlement negotiations generally involve some type of back and forth demands and offers between the plaintiff's attorney and the insurance adjuster or defense attorney.
Usually, plaintiffs begin negotiations by asking for an amount of money somewhat higher than they want, and the defense offers an amount of money lower than they are ultimately willing to pay. However, there is a great deal of strategy involved in this process and different attorneys and claims adjusters have very, very different styles, strategies and skills.
ii. Advantages and disadvantages of demanding close to the bottom line.
For instance, there are some plaintiffs attorneys who will make their settlement demand relatively close to the amount of money they know their client will accept. They hope that over time they will obtain a reputation as an attorney who makes reasonable demands.
The risk of this approach is that no matter how wide and far the attorney's reputation has spread, there will always be new claims adjusters and new corporate attorneys who will assume that the attorney's relatively low demand indicates that the attorney and his or her client would be willing to accept a much lower settlement offer. This can lower the defendant's expectations of the value of the case and force a case to trial when the plaintiff does not move very far from the original demand.
iii. Advantages and disadvantages of high demands.
Other attorneys make their settlement demands much higher than the amount of money that they know that the client will ultimately accept because, one, they believe that the insurance company expects a demand like this or, two, there is always a chance that the defendant or insurance company is evaluating the case higher than the plaintiff is; therefore, why not take a chance at obtaining a higher settlement.
The risk of making a demand too high is that the defendant or the insurance company will think that settlement is hopeless and will either not respond at all or respond with a similarly low offer. Thus, settlement negotiations cannot really get moving.
iv. Some defense attorneys make reasonable offers early in negotiations, others do not.
On the other side of the negotiation table, there are defense attorneys who try very hard to evaluate a case fairly and will make a reasonable offer right at the beginning of negotiations if they can obtain the authority of the defendant or insurance company. This is more likely to occur if the defense attorney has had prior experience with the plaintiff's attorney and knows that his or her offer will be taken seriously and not seen as a mere starting point for negotiations.
Other defense attorneys and insurance carriers prefer to make unrealistically low offers hoping that the plaintiff has undervalued the case and that the plaintiff's attorney will not want to litigate the case aggressively and may try to convince the plaintiff to accept a low offer. Unfortunately this does occur, which is one of the reasons why potential plaintiffs must be careful in their choice of attorney.
v. Demands lowered as offers are raised.
After negotiations begin, there is generally some type of movement involving lower demands and raised offers until the two sides can agree on a settlement. The plaintiff and defendant should be advised of settlement activity in the case and must authorize the ultimate settlement amount (unless there is a no contest insurance policy). However, frequently, a plaintiff will provide his or her attorney with ultimate settlement authority and allow the attorney to negotiate towards that number.
F. Settlement Conferences.
Most cases eventually involve a mandatory settlement conference in front of a judge if they have not been settled earlier in litigation.
The judge will receive settlement conference statements from all the of parties and then, usually in the judge's chambers, attempt to bring the two sides closer to settlement by informing them of what the judge believes are the risks of proceeding to trial.
Some judges take a more aggressive stance regarding settlement and attempt to apply pressure on the parties to settle the case. Some judges will actually put a dollar figure on what they believe the value of the case to be and attempt to have the parties settle for that dollar figure, although the judge has no power to force a settlement.
Other settlement conferences can occur with attorneys appointed by the court acting as settlement judges. These settlement conferences follow the same format as the settlement conferences conducted by a judge.
Mediation has become a popular method for settling cases. It involves a kind of "extended" settlement conference where the parties themselves are more involved in the process and negotiations.
H. Who Has Authority to Settle the Case.
i. The plaintiff and not the attorney has ultimate settlement authority.
Except in the case of minors, a plaintiff always has the right to accept or refuse a settlement. A plaintiff's attorney cannot settle the case without the plaintiff's authority.
ii. In the case of a minor, the settlement must be authorized by the court.
In the case of minors, a guardian is appointed for the purposes of the litigation and the guardian has the authority to settle the case, but only with approval of the court. In any case that settles for more than $5,000, a petition has to be made to the court so that a judge can ensure that the guardian made the appropriate decision in settling the minor's claim.
iii. When there is insurance, defendants may not have a say in settlement unless defendant is a professional.
In most cases in which there is insurance, the defendant does not have to consent to the settlement of a case.
However, there are a number of exceptions to this general principle. First of all, some insurance policies, particularly policies issued to professionals, have consent provisions in them in which the professional defendant can refuse to authorize a settlement or refuse to consent to a settlement for more than a certain amount of money. Some of these insurance policies contain language attempting to pressure the defendant into consenting to a settlement by, for instance, stating that the professional insured will be responsible for all future costs incurred if the plaintiff receives a verdict in excess of the amount of the settlement the professional refuses to consent to or even that the defendant will have to pay any verdict greater than the amount that the insurance company is willing to offer for settlement but for the defendant's refusal to consent. The validity of these provisions is highly questionable.
iv. Healthcare providers can also refuse consent.
Under California law, it is mandated that any insurance policy issued to a health care provider for errors and omissions coverage shall include a provision by which the defendant has to consent to a settlement.
I. When Is a Settlement Enforceable?
Most settlements occur informally outside of a courtroom. However, for a settlement to be enforceable, i.e., so that one of the parties can't back out, it has to be in writing, signed by the parties themselves or "on the record" in a courtroom where a judge obtains the verbal agreement of settlement by all parties.
J. Settlements in Cases in Which the Defendant Has Personal Risk.
In cases in which the defendant has a personal stake in the settlement involving anything other than the non-monetary terms of the settlement (i.e., the terms of the settlement not involving money) can frequently become an important part of the resolution which may involve extensive discussion between the parties and their attorneys. In these situations, there will generally be a payment of money plus significant non-monetary terms.
K. Confidential Settlement.
Confidentiality may be a primary concern for a defendant. In a professional liability case, the professional may be willing to settle for money, but only if it will not affect their reputation. In a sexual harassment or discrimination case, an employer may be willing to pay money for settlement, but will not want other employees learning of the amount of settlement which may give them incentive to bring cases of their own.
A plaintiff never has to accept a confidentiality provision in a settlement; however, that might mean the case will not settle and the plaintiff will be forced to either drop the case or go to trial.
Depending on the case, and the concerns of the defendant, confidentiality can be as simple as the plaintiff not being able to reveal the amount of the settlement, or as blanketed as the plaintiff not being able to speak of what happened to them in the incident to virtually anyone. Exceptions can sometimes be carved out of confidentiality agreements so that a plaintiff can speak to an accountant, psychotherapist, spouse or other regarding what happened to them in the incident or the amount of the settlement.
L. What Can Be Included in Settlement Agreements.
i. Limitless number of non-monetary settlement terms.
There are many, many non-monetary terms in addition to confidentiality that can be included in settlements. Each case will have its unique non-monetary terms.
ii. Mutual release.
A mutual release occurs when the plaintiff asks the defendant to release the plaintiff from any liability for bringing the lawsuit, such as release of claims for malicious prosecution, defamation or abuse of process.
iii. Stay away agreements.
In cases in which one of the parties believes that the other party is stalking or attempting to intimidate them, a settlement can include an agreement which would be similar to a restraining order, prohibiting one party from knowingly coming within a certain distance of the other party or making any kind of contact.
iv. No return to employment agreement.
In employment cases, the employer may seek an agreement that the employee will not go back to work for the defendant.
Frequently, employers will insist that, as part of a settlement of a sexual harassment or discrimination claim, that the employee agree to either leave work or not reapply for a position with the company if he or she is still employed with the defendant.
In these situations, an employer perceives the employee as a potential troublemaker who will either stir up other employees to bring lawsuits or, if returning to work after a settlement, make a claim of being retaliated against by the employer because of the lawsuit or because of the settlement.
v. Agreement to provide favorable letter of reference in an employment case.
An employee can request that defendant provide a favorable letter of reference as part of a settlement of an employment case.
vi. Indemnity provisions.
A defendant in almost any case will insist that the plaintiff agree to protect the defendant from someone to whom the plaintiff owes money stemming from the incident and who might attempt after the settlement to come after the defendant to try to collect money that the plaintiff owes them.
For instance, if the plaintiff has an unpaid treatment bill, the defendant when settling the lawsuit with the plaintiff, will attempt to ensure that the doctor cannot attempt to claim that the defendant was responsible for the bill because it was the defendant's wrongdoing that created the plaintiff's need for treatment.
To protect itself, the defendant will ask that the plaintiff guarantee to "cover" claims by anybody who comes after the defendant after a settlement.
vii. Release of unknown claims.
A defendant will want to buy its peace before paying a significant amount of money for a claim. Thus, defendant will want a general release which will include a release from all claims, both known and unknown, to the plaintiff arising from the accident/incident.
Therefore, if after the case settles the plaintiff discovers that the defendant had committed yet another act of negligence or that the defendant caused an additional injury, the plaintiff may be precluded from bringing a new case arising out of the newly discovered wrongdoing and/or injury.
There is some disagreement under the law as to whether these provisions are enforceable; however, plaintiffs are generally asked to sign them.
It should be noted that a release of "unknown claims" will only be applied to conduct which occurred before the time of the settlement. If after the settlement, the defendant again wrongfully injures the plaintiff, the plaintiff will be entitled to sue them for damages arising out of the new misconduct.
viii. Liquidated damages.
In some cases, particularly cases in which there are confidentiality agreements, the defendant will insist on a liquidated damage clause.
A liquidated damage clause is a term of settlement which states that if there is a breach of the settlement agreement, particularly a confidentiality agreement, plaintiff will automatically owe the defendant X amount of dollars for each breach, if the defendant can prove that the breach occurred.
Liquidated damage clauses can be as low as a few thousand dollars or as high as the plaintiff's entire share of the settlement. Thus, for instance, in a case in which there is a $100,000 liquidated damage clause and a confidentiality agreement, if the defendant can prove that plaintiff told another person about the settlement, he or she will automatically be entitled to collect $100,000 from the plaintiff without having to prove that the defendant's reputation has been damaged or they were otherwise injured.
These clauses are included to put pressure on plaintiffs to keep settlements confidential. However, sometimes the plaintiff wants confidentiality as much as the defendant and can make sure that the confidentiality agreement and liquidated damage clauses are mutual, i.e., apply to both parties.
Almost all settlement agreements include a provision that the plaintiff will dismiss the case against the defendant or, in a situation in which a civil case has not been filed, that the plaintiff will agree not to bring a case arising out of an accident/incident against the defendant.
In cases in which the parties have sued each other in what is known as cross-complaints, the settlement agreement will also include a dismissal of all cross-complaints.
A defendant will never settle a case if personal exposure for a damage award continues.
i. Look out for liens.
A complicating factor in a settlement or trial of any injury case is the existence of liens filed by health care providers who treated the plaintiff after the accident/incident and have been unpaid or liens filed by any entity who has paid all or part of the plaintiff's bills including health insurance companies, auto insurance companies, the State, cities and counties, Medi-Cal and Medicare.
ii. Who has liens?
Health care providers are entitled to payment out of a plaintiff's settlement proceeds if a lien has been created. In addition, plaintiff's auto med pay or private health insurance carrier and government agencies such as Medi-Cal, Medicare and Victim Witness who paid plaintiff's post-accident/incident bills are frequently entitled to recover their money back out of the plaintiff's settlement. Liens are created either by statutes or by prior agreement.
Further, if plaintiff has received worker's compensation benefits as a result of the accident/incident, that insurance carrier will also be entitled to reimbursement.
iii. The punishing effect of liens on plaintiffs.
The law regarding the rights of lien claimants against plaintiff's personal injury settlements has become extraordinarily complex in recent years.
Further, cases have been decided and laws have been passed which have strengthened the rights of the lienholders to seek recovery from a plaintiff's personal injury settlement. This, in combination with the fact that insurance companies are, on a general basis, settling cases for an amount far less than they once did, makes settlement of personal injury cases very difficult because often after the lienholder collects his or her money out of the plaintiff's share of the settlement, there is very little money left for the plaintiff.
iv. Medi-Cal liens.
Medi-Cal has a statutory right for reimbursement of benefits that it pays to victims if there is a third party, i.e., a responsible party whom the plaintiff is suing. Further, in the case of car accidents, Medi-Cal can collect its payments against a plaintiff's uninsured or underinsured motorist case.
Medi-Cal is willing to reduce its lien by 25% to defray attorneys fees and costs. Further, in the case of small settlements, Medi-Cal is willing to limit its recovery to one-half of plaintiff's net proceeds. Thus, for instance, if a plaintiff in a car accident case has $10,000 in medical bills paid by Medi-Cal and settles the case for $20,000, Medi-Cal will reduce its lien 25% to $7,500. However, if after attorneys fees and costs, the plaintiff only nets $10,000 from the settlement, Medi-Cal will reduce its lien to $5,000 (one-half of the settlement proceeds).
v. Victims of violent crime liens.
Crime victims who suffer unreimbursed monetary losses may receive assistance from the State Restitution Fund. These victim of crime payments include medical expenses, mental health counseling expenses and some loss of income.
However, if there is a lawsuit against the perpetrator or a third party, the State has a lien on the plaintiff's recovery.
vi. Attorney's duty to notify the State.
Attorneys in both Medi-Cal and victim of crime cases have a duty to notify the State of the lawsuit. Further, the plaintiff's attorney is not even allowed to disburse a settlement until Medi-Cal or the State is informed of the settlement.
vii. County liens.
A County also has a right to assert a lien in injury cases. Counties do not have to, and are generally unwilling to, reduce their lien by plaintiff's attorneys fees.
A county may compromise, settle or waive all or part of the lien for the convenience of the county or if collection would result in undue hardship to the injured person; however, there have been situations in which counties have sought to collect all of a plaintiff's net settlement recovery.
viii. Liens can destroy the possibility of settlement.
Sometimes the existence of liens makes settling a case for the reasonable amount of money an insurance company may be offering unfeasible since the plaintiff will net little or no money from such a settlement. This sometimes forces cases to trial.
ix. California Children's Services liens.
A State department or county agency that furnished treatment services under the California Children's Services program also has a lien right. It even has a lien right for services to be provided in the future. The court has no authority to reduce this lien amount when approving a minor's claim. Again, the plaintiff's attorney must provide notice to the Children's Services program of a lawsuit and a settlement.
x. Medicare liens.
Medicare, which operates under Federal law, also has an absolute right to assert a lien in a case. However, there is no statutory requirement that the plaintiff notify the Federal government of the suit.
xi. Worker's Compensation liens.
Matters become even more complicated in situations where a worker's compensation carrier has paid benefits to the plaintiff for injuries and time off work caused by the accident.
Employees, except in very rare situations, cannot sue their employer; however, sometimes an employee is injured by the negligence or wrongdoing of somebody other than his employer while working and the plaintiff is entitled to bring both a worker's compensation claim and a civil claim. Worker's compensation is essentially a no-fault system, so that an injured worker will automatically receive medical and disability benefits, but will not receive any payment for general damages, such as pain and suffering.
At the settlement of the plaintiff's case against the third party defendant, the worker's compensation carrier will have filed a lien or actually become a party to the case seeking recovery for payments that they have made to the plaintiff in the worker's comp case.
The worker's comp carriers have no duty to reduce their liens; however, they sometimes take this step to help encourage settlement.
Further, a plaintiff can reduce or defeat a worker's comp lien if the employer's own fault contributed to the incident.
An employee must inform a worker's comp carrier of the third party lawsuit.
xii. Worker's Comp liens and credits.
In situations in which a plaintiff is suing a third party and receiving worker's comp benefits and the employer is not at fault, he or she can receive a double whammy at the time of settlement.
Not only does the employee have to pay the employer back money that the employer paid during the worker's comp case, the employee is also cut off from receiving any more worker's comp benefits arising from the incident until he has received benefits exceeding his net recovery in the third party case. This is called credit and makes settling third party cases in which there is also a worker's comp action extremely complicated and difficult. There are creative methods for dealing with worker's comp liens; however, they require a highly specialized attorney.
N. Structured Settlements.
i. What is a structured settlement?
Frequently, when a settlement involves recovery of a substantial amount of money, it is in plaintiff's best interest to create a "structured settlement" which calls for installment payments over a period of time instead of a single lump sum payment to the plaintiff.
ii. When are structured settlements useful?
These type of settlements are particularly useful in cases involving minors and cases involving people who are not used to handling large amounts of money.
iii. Structured settlements are not mandatory.
A plaintiff never has to accept a structured settlement; they are strictly voluntary.
iv. How structured settlements are created.
In a case where the plaintiff agrees to a structured settlement, the defendant corporation or insurance company for the defendant takes the money that would be paid to the plaintiff in the settlement and purchases some form of an annuity policy for the plaintiff in which payments will be made over time.
In other words, if after reduction of attorneys fees and costs, a plaintiff is to receive $500,000 from a settlement, the plaintiff has the choice of simply taking the $500,000 and do whatever he or she wants with it or the plaintiff can elect to have the insurance company take all or part of that money and purchase an annuity policy.
The annuity policy will be purchased from another insurance company and that insurance company will make payments to the plaintiff over time. So, for instance, in the case of a $500,000 settlement, the plaintiff may elect to keep $200,000 in cash and allow the defendant corporation or insurance carrier to take the remaining $300,000 and invest it in an annuity policy for the plaintiff. The plaintiff, the plaintiff's attorney and an annuity broker work together to come up with a payment schedule which makes sense for the plaintiff's circumstances. Payments can be made on a monthly basis, yearly basis or in lump sums over time.
v. Structured payments over time will pay out more than the lump sum settlement.
Because the annuity company is earning interest on the $300,000 portion of the plaintiff's settlement, payments to the plaintiff over time will end up exceeding $300,000. In fact, in the case of minors in which the annuity company does not have to start making payments right away, by the time the payments are finished and the minor plaintiff enters middle age, total payout on the original $300,000 may be millions of dollars.
vi. Utilizing structured settlements to create a college fund.
Frequently, in the case of minors, a "college fund" is set up for the plaintiff in which he or she is paid a certain amount of money on their 18th, 19th, 20th and 21st birthdays. If plaintiff does not go to college, he or she still gets the money; however, families often find this type of structured settlement useful.
vii. Utilizing structured settlements to replace lost income.
In the case of a plaintiff who is no longer able to work, it frequently makes sense to structure payments over the plaintiff's lifetime, or at least work lifetime, which will in effect replace the lost income.
viii. Plaintiff gets to choose the type of structure as long as the price is right.
The insurance company providing the annuity does not really concern itself with how a structure is created as long as the "present value," i.e., cost of the structure equals the amount of money being paid to it out of the plaintiff's settlement, i.e., in this example, $300,000.
ix. Advantages of structured settlements.
The major advantages of structured settlements are that the payments over time are not taxable whereas interest earned on the personal injury recovery would be taxable (not the recovery itself); the plaintiff will receive a guaranteed return on the investment and an "unsophisticated" plaintiff will not be able to "blow through the money;" and a minor will not all of a sudden come into a lot of money that he or she does not know how to handle when the minor turns 18 so that the parents can exert some control over the money.
x. Disadvantages of structured settlements.
The disadvantages of structured settlements are that the plaintiff loses the opportunity invest the money; if the plaintiff needs a large sum of money to, for instance, buy a house, a structured settlement would not be helpful unless there is enough money left from the unstructured part of the settlement to buy the house; and the structured settlement cannot be changed or revoked, thus if the circumstances of the plaintiff change over time, the plaintiff is out of luck because the structured payments cannot be changed.
O. Piecemeal Settlements in Multi-Defendant Cases.
i. A plaintiff can settle with one defendant at a time.
In cases in which there is more than one defendant, a plaintiff is allowed to settle the case with one defendant and not other(s).
ii. Risks involved in piecemeal settlements.
However, there are certain risks and problems involved when a plaintiff does not settle with all of the defendants at the same time.
For instance, if the case goes to trial, it is almost a certainty that the remaining defendant or defendants will point the blame for the accident/incident on the defendant who has settled. This is called an "empty chair" defense.
Further, under California law since Proposition 51 was passed, the remaining defendants are only responsible for their own share of a plaintiff's verdict for pain and suffering. Thus, if a jury finds against the remaining defendants, but determines that the settling defendant bore a large responsibility for the accident, the plaintiff's pain and suffering award will be cut substantially.
Without the settling defendant there to defend itself, it increases the likelihood that a jury will believe the defense arguments that the settling defendant was mostly responsible for plaintiff's injuries.
iii. Complications in piecemeal settlements.
Further, it becomes a very complex legal process to determine the non-settling defendant's responsibility for plaintiff's economic losses. Under California joint and several liability law, any defendant found at all at fault can be held responsible for all of plaintiff's economic losses.
Further complications arise in determining the type of "set off" or credit the remaining defendant(s) receive based on the amount of money that the settling defendant paid to the plaintiff. In other words, plaintiff is not entitled to a double recovery under the law.
Based on complicated formulas, if plaintiff receives, for example, $100,000 in settlement from one defendant, the other defendants will usually get some type of "credit" for this settlement, and the non-settling defendant(s) will normally be able to subtract at least some portion of the $100,000 settlement from whatever verdict is awarded against the non-settling defendants.
iv. Good faith settlement requirements.
Yet, another complicating factor in piecemeal settlements occurs when the defendants have filed cross-complaints against each other, i.e., the defendants are suing each other claiming that the other defendants are responsible for plaintiff's injury. In situations in which there are cross-complaints, a plaintiff and one defendant can settle only if the other defendants agree or a court finds that the settlement was in "good faith," in other words, fair under the circumstances.
P. Statutory Offers.
i. Plaintiff's and defendant's can each make statutory offers under C.C.P. 998.
Under California Code of Civil Procedure section 998, either side in a lawsuit, i.e., a lawsuit must be filed, can make a written statutory demand or offer on the other side which carries with it serious consequences. C.C.P. 998 offers have to be held open for 30 days, or made more than ten days before the trial to be valid.
ii. Effect of a statutory demand by plaintiff.
When plaintiff makes a C.C.P. 998 offer and the defendant refuses to accept it, the plaintiff becomes entitled to recover all of his or her expert witness expenses and interest on whatever verdict received from the date of the C.C.P. 998 demand if the verdict is in excess of the demand.
For instance, if plaintiff makes a C.C.P. 998 offer to settle the case for $100,000, and the defendant refuses to pay it and then the plaintiff receives a verdict at trial of greater than $100,000, the defense will have to pay interest on the verdict from the date the demand was made and all of plaintiff's expert expenses which can be very substantial in a significant case.
iii. Effect of a statutory offer by defendant.
The defense is also allowed to make C.C.P. 998 offers. If a defendant makes an offer that the plaintiff refuses to accept and the plaintiff fails to receive more than the amount offered at trial, the defendant is entitled to collect all of its expert witness fees and is entitled to collect these fees directly from the amount of plaintiff's verdict.
Thus, for instance, if the defense offers $50,000 in a case and the plaintiff refuses the offer and wins only $40,000, while the defense has spent $20,000 on experts, then the plaintiff's verdict will be reduced from $40,000 to $20,000.
iv. Statutory offers and demands place pressure on parties to settle.
Thus, the statutory offers and demands can place a tremendous amount of pressure on a party to accept the demand or settle the case before trial.
This article was authored by John D. Winer. Winer & McKenna, LLP
specializes in catastrophic physical, psychological injury cases and wrongful death cases. The firm handles a significant number of catastrophic injury, traumatic brain injury, elder abuse, sexual abuse and harassment, post traumatic stress disorder and psychotherapist abuse cases. Please visit JohnWiner.com for more information or for a free online consultation.