Insurance companies and their lawyers tend to evaluate the value of claims better than plaintiffs’ counsel

Eighty to 92 percent of all cases settle before trial. A recent study by Kiser, “… An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations”, Journal of Empirical Legal Studies, Volume 5, Issue 3, 551‑591, September 2008, compares settlement offers to trial results in 2,054 cases that went to trial from 2002 to 2005 in the United States. The study indicates that plaintiffs go to trial more often than they should, and that defence counsel, generally are better at evaluating claims than plaintiffs.  However, when the defendants make an error in evaluating a claim, they tend to be significant.

A party is defined as erring in going to trial if the settlement offer that the other side made was greater than the amount awarded at the trial. In 61 percent of the cases that went to trial, the plaintiffs erred in going to trial by receiving less than what the defendants offered prior to trial. In 24 percent of the cases, the defendants erred in going to trial, as the plaintiffs received more than what they offered to settle the case prior to trial. In 15 percent of the cases, both sides made the right decision by going to trial; the plaintiff received more than the defendant offered prior to trial, but the defendant paid less than what the plaintiff demanded before trial.

When the plaintiffs make the wrong decision, on average it costs them about $43,000, that is, the award on average was $43,000 less than what they expected. Plaintiff decision‑making is particularly poor in medical malpractice cases where the decision error for plaintiffs was 81 percent. Parties were better off in going to trial only 4.1 percent of the time in medical malpractice cases. With respect to other personal injury cases, both parties were better off going to trial 20.5 percent of the time, the defendant was better off going to trial 53.2 percent of the time, and the plaintiff was better off going to trial 26.3 percent of the time. Although the defendants made a wrong decision less often, when they were wrong, they paid out on average $1.1 million more than their offer for a wrong decision.

Kiser also looked at the effect of forum on the plaintiff and defendant errors in going to trial. Jury trials had a significant impact on a plaintiff’s ability to correctly predict whether to proceed to trial. Sixty‑four percent of plaintiffs rejected a settlement offer to their detriment in jury trials, whereas defendants only made an error in proceeding to trial by jury 22 percent of the time. Bench trials did not significantly alter either party’s ability to predict outcome. Interestingly, counsel experience also did not play a factor in a party’s ability to properly elect to settle or proceed to trial.

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