Dateline: August, 2010, Issue 2
Every day attorneys must make decisions to settle a case or take it to trial. These decisions are made with error, and research shows that this error depends on the type of case being litigated (e.g., medical malpractice vs. products liability, presence vs. absence of punitive damages, etc.).
A settlement decision error occurs when a party fails to achieve a more favorable result at trial than could have been achieved by accepting the adverse party's demand or offer. A plaintiff who is offered as much as the verdict or more, and a defendant who could settle for as much as the verdict or less, has erred in rejecting settlement in favor of trial.
Gross and Syverud (1991, 1996) studied settlement decision error rates in 888 cases. Kiser and colleagues (2008) studied settlement decision errors in 2,054 California cases.
Both sets of researchers found that plaintiffs in products liability cases either recovered nothing or less than the defendant's offer in 61% to 69% of the cases (Gross & Syverud, 1991, 1996; Kiser et al., 2008).
High plaintiff settlement error rates were also associated with cases in which contingency fee arrangements are common (e.g., personal injury, medical malpractice). Low plaintiff settlement error rates were associated with cases in which contingency fee arrangements are less common (e.g., contracts, eminent domain) (Kiser et al., 2008).
Plaintiff decision error was highest in cases with low win rates. For example, in Kiser and colleagues' (2008) research, medical malpractice cases had a 81% plaintiff decision error rate to go to trial, with only a 20% win rate at trial. Gross and Syverud (1991, 1996) report that plaintiffs erred in up to 78% of the medical malpractice cases.
On the defense side, high error rates were associated with cases where insurance coverage is generally unavailable (e.g., contracts, fraud), while low error rates were associated with cases in which insurers are more likely to represent defendants (e.g., premises liability, personal injury) (Kiser et al., 2008).
Decision error rates were also affected by the presence of a punitive damages claim. Defendant decision error rates rose from 20% in current damages only cases to 37% in current and punitive damages cases, and from 26% in current and future damages only cases to 46% in current, future, and punitive damages cases (Kiser et al., 2008).
Errors in judgment about accepting settlement or proceeding to trial vary as a function of the type of civil case litigated.
Source Kiser, R. L., Asher, M. A., & McShane, B. B. (2008). Let's not make a deal: An empirical study of decision making in unsuccessful settlement negotiations. Journal of Empirical Legal Studies, 5, pp. 551-591.
Source Gross, S. & Syverud, K. (1991). Getting to No: A study of settlement negotiations and the selection of cases for trial. Michigan Law Review, 90, pp. 319-393.
Source Gross, S. & Syverud, K. (1996). Don't try: Civil jury verdicts in a system geared to settlement. UCLA Law Review, 44, pp. 1-64.