Why early settlement is a win-win for all

This post was authored by Michael Sanders and posted to The Eye Opener on May 20th, 2011.

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There is an old adage in the law that cases settle on the courthouse steps. There is a reason for that. When the parties are actually walking into court to try their case, they seem to suddenly recognize that there are significant risks to going to trial, and that there is serious money at stake. When you go to trial, only one side can win. The other side goes home a loser. Faced with such a stark outcome, both sides tend to become more reasonable in their assessment of their case and more willing to talk settlement. After all, despite all the years of experience that trial attorneys amass, no one can ever predict what a jury is going to do in any specific case. As one mediator I know likes to tell the litigants, going to court is like going to Vegas:  you roll the dice and you take your chances. So often times, the closer a case gets to the trial date the more motivated the two sides are to talk settlement. But is there a better way?

A couple of recent cases made me start to think about settlements and how they come about. (If you missed it, Brian Nash wrote an excellent piece on the frustrations of mediation and trying to settle cases). I’ve recently handled two cases that illustrate how settlements work and how two cases can go down dramatically different routes to ultimately get to the same place. Both of these cases are subject to confidentiality agreements so I can’t divulge the names of the parties or the settlement amounts, but they were both seven-figure cases with significant injury.

In the first case, the patient alleged that her doctor failed to timely diagnose stomach cancer over a period of several years. By the time the patient was properly evaluated by another physician, the cancer had progressed to the point that there was virtually no chance of a cure, and the young woman was likely going to die in the next few years. In the second case, the patient alleged that he suffered serious neurological complications (motor and nerve dysfunction in his arms and legs) as a result of post-operative complications that were not treated quickly enough. In both cases, a lawsuit was filed in court.  At that point, the two cases diverged.

Case Example #1 – Getting it done early

In the cancer case, before any depositions had taken place, the defense attorney called and asked if we might be able to talk about resolving the case. That’s always a great call to get as a plaintiff’s lawyer because it means there is a good chance that you will be able to get a nice result for your client, which is always the ultimate goal. Within a matter of weeks, we had reached an agreeable number and the case was over.

Case Example #2 – Grinding it out to the courthouse steps

In the second case, there was no early talk of resolution. The case proceeded through the normal course of litigation, which in the District of Columbia usually means about eighteen months of discovery, depositions, expert meetings, etc. Twenty-five experts were hired to review records and testify. Twenty-seven depositions ended up being taken. The case got all the way up to the Thursday before trial was scheduled to start on the following Monday morning. At that point, the parties finally reached agreement on a number and the case was settled.

Why the difference in approach?

So we have two cases, both with significant injury and both with questionable care. One case settled right away, and one dragged on for almost two years before settling. Is there a simple reason why? Not that I’ve been able to figure out. After years of doing this, I, like every other attorney, get a gut feeling as to what cases are worth, which ones will likely settle, which ones will go to trial. But it’s still a gut feeling; there’s no science involved.

It’s usually a combination of factors – the quality of the medical care, the severity of the injury, the likeability of the plaintiff and the defendant (more important than most people realize), the specific jurisdiction you’re in, etc. On top of these factors you have a myriad of psychological reactions that pop-up in lawsuits and there is no predicting those. Sometimes people get entrenched in fighting for no other reason than to fight. Some people get a number in their head for what a case is worth and don’t want to budge. So even though I can’t sit here and explain why certain cases settle early and some settle late, I do want to talk about the value of early settlements to all sides.

Common Sense and good economics say “get it done early”

It is easy to see why early resolution of cases benefits everyone, and it comes down to the costs of litigation. In today’s world, it can easily cost $75,000 to $100,000 (if not more in many instances) just in expenses to take a case to trial; it can easily be much higher in complex cases. (I know of one attorney who spent $300,000 on a case that he took to trial; he lost the case). These expenses consist primarily of expert fees paid to doctors to review records and testify. Expert doctors routinely charge at least $400 per hour and oftentimes more for their time. For trial testimony, doctors usually charge around $5,000 per day (some substantially more). If it runs into two days, that’s $10,000 just for one witness. It’s not unusual to spend tens of thousands of dollars for expert fees alone.

On top of that there is the cost of court reporters for each deposition, copying charges, obtaining medical records, long-distance calls, travel expenses, etc. Going through litigation is an expensive undertaking, and the longer the case goes on the more expensive it is. On the plaintiff side, all of those expenses are usually advanced by the attorney (in jurisdictions where this is permitted), but they all get paid back by the client at the end of the case (assuming the plaintiff wins; if there is no recovery, the plaintiff’s attorney “eats” those costs). So every dollar spent on litigation comes straight out of the client’s portion of the recovery.

On the defense side, insurers and self-insured institutions (like hospitals) have those same expenses, but on top of that, they also have to pay legal fees to their attorneys. Defense attorneys charge by the hour for everything they do on a file from reviewing records to meeting with clients to talking to experts to taking depositions. The complexity of medical negligence cases means long hours of work on each file, generating substantial legal fees. Those fees get paid to the defense lawyer whether the case is won, lost or settled at the last minute. The longer the litigation lasts, the higher the legal fees.

Of course it always costs money to investigate a case. There is no avoiding that.  Records need to be obtained and reviewed. Experts need to be retained for an initial opinion. But instead of spending $75,000 or $100,000 (or more) on a case, it may cost only several thousand dollars to work-up a case to get it ready to file – that is, to be in a position where early resolution can be discussed with the defendant. If a case can be settled early on, all of those thousands of dollars that would have gone to litigation costs go straight to the client. That is a huge benefit to the client.

The defendant benefits too. No hospital or insurance company wants to spend money needlessly. Early resolution means that the defendant doesn’t have to spend tens of thousands of dollars in expenses and tens of thousands more in legal fees. The only way it makes sense to spend that money is if, at the end of the day, the “defendant” (read insurer/hospital) believes it can either win the case or settle it for less down the road. But here’s the thing – a case can usually settle early on for less than the case would be worth had the case gotten closer to trial. This isn’t always true, of course, but as a general rule, a good case does not become less valuable over time.

Plaintiffs’ attorneys don’t undersell their cases to get an early settlement, but in practical terms, attorneys and clients are usually willing to consider some discount because they know that an early settlement is to their mutual benefit.The plaintiff gets a guaranteed financial payment now rather than waiting eighteen months for a trial and then a possible appeal that may drag the case out another two years. In that circumstance, the plaintiff is usually willing to take a little less money now because it is certain. It’s the age-old question: would you rather have X amount of money now, or wait eighteen months for the chance of getting more? For most plaintiffs, it’s an easy answer. Also the defense can pay less on a case than it would have ended up paying anyway and save thousands in expenses and legal fees by doing so. It’s a win-win for all parties.

Just do the math!

The big secret with early settlements (and which can sometimes be difficult to explain to a client) is that even though an early settlement might be for less than what a jury might award, the client can actually put more money in his or her pocket with a lower settlement amount. Again, we’re back to the issue of litigation costs. If a firm spends $10,000 to investigate a case and get it ready to file rather than $100,000 to take a case to trial, that is an extra $90,000 that goes straight to the client. Also, some law firms will have a contingent fee agreement in which the fee is higher (usually from 1/3 to 40%) when the case goes to trial, which serves to compensate for the additional time,  risk and expense of going to trial. When you consider the higher legal fees and the increased costs of litigation that have to be paid back, it can actually take a substantially larger jury verdict to put the same amount of money in the client’s pocket as he or she would get with a smaller early resolution.

Some cases may just need to be tried

I don’t mean to imply that every case that gets filed should be settled early. Far from it. Some lawyers undoubtedly file cases that are simply without merit and should be defended vigorously. Other cases – while they may be defensible – fall into a middle category where the care may not be the best but the plaintiff has problems with his/her case too. Some cases can be difficult to evaluate without further investigation and discovery to gauge the strength of the case. In those cases, it is entirely appropriate to proceed with litigation – even on a somewhat limited scale through discovery. No doubt there are instances where insurance companies do need to protect the interest of their doctors, and sometimes that means vigorously defending a case all the way through trial.

Some cases, however, – the cases where the medical care is truly egregious and the damages are clear – need to be looked at early on to see if the two sides can be reasonable and find some middle ground. If a case is going to ultimately settle (and believe me, experienced attorneys and claims adjusters can usually identify those cases early on), it makes sense to talk sooner rather than later. It requires compromise on everyone’s part, but the value to both sides is so great that it makes sense to talk early and get it done.

What has been your experience?

I’d be curious to know the experience of our readers. Has anyone been involved in a lawsuit that settled? Did it resolve early on or did it stretch out for years? Do you think the time involved had any impact on the amount of the settlement? Any tips or tricks you might suggest? Let’s hear from you – maybe we can all learn how to get these cases resolved earlier and stop wasting time, resources and money.

You may also want to read these related posts:

Frequently Asked Questions (FAQ’s)

A View from the Shady Side – The Defense Perspective

Every bad outcome does NOT a malpractice case make! Some practical advice

 

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One Response to “Why early settlement is a win-win for all”

  1. TracyNo Gravatar says:

    In addition to wasting time and money, the plaintiffs have to endure years of dealing with an often painful, heartbreaking moment in their life. You can’t put a price on that. Resolving a case early helps them put the event behind them (to a certain extent).

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