Opening Demands And Offers In Personal Injury Mediations

The Value of a Credible Opening Position.

Opening demands and offers set the tone for mediation and often affect the outcome. Here are some suggestions for improving your chances of a favorable settlement.

Plaintiff's Opening Demand 

The opening demand should be no greater than the full value of your claim if you were to win at trial on absolutely everything. From there, you can negotiate down if there are any weaknesses in your case that would jeopardize a favorable jury verdict or when the costs of continued litigation are likely to exceed what you can afford.

Risks vary from case to case. Your concessions during negotiation will depend on the facts of your particular case and the law(s) applicable to it. In some situations, you will have to lower your demand dramatically; in others, you can hold firm. If you really face little risk at trial, there is no reason to discount your case beyond your client’s desire to settle and move on, although the one certainty of trials is uncertainty. 

Using a simple calculation to formulate your demand, such as doubling the full value of your claim, may seem like a reasonable approach, but there are some drawbacks: 

1. You won’t be able to justify that demand.

   If you are asked to provide the basis for your demand, you must be able to do so. Starting out with an absurdly high demand “to leave room to negotiate” is not a plausible justification.

2. You will lose credibility.

   If you start with a demand that is higher than the maximum amount you could possibly be awarded at trial, the defense team may conclude that you are not a competent evaluator. When you later address another issue (your chances of winning on causation, for example), the defense has likely already determined that you are an exaggerator with an unrealistic view of your case. If you want to maintain credibility with the defense, try saying something like this: "I believe the full value of my case if I win on everything is $250,000. Of course, I may not win on everything, so let's talk." 

3. You will telegraph your target.

   If you always ask for three times what you want, word will spread. Soon enough, your demand for $300,000 will be interpreted as a demand for $100,000. Your negotiations should be based on the specific facts of your case, not a predictable calculation that can easily be recognized by the defense.

4. You will invite similarly unrealistic offers.

   If you've ever been to a mediation, you know the routine: The plaintiff asks for the moon, and the defense offers $250. When challenged, the defense says, "Of course our offer is low. We'll get realistic, but only when plaintiff returns from the stratosphere."¹ The plaintiff then becomes outraged at such an insulting offer and, in response, drops their demand by $250. The defense ups their offer to $500. Everyone arrived at the mediation hopeful and optimistic, but now the mood is gloomy and sullen, and resentment is building. Time has been wasted and trust has diminished. By contrast, a realistic opening demand usually engenders a reasonable opening offer. This saves time and builds momentum toward resolution.

5. There is no upside to an unrealistic demand.

   Anchoring, which is starting high to shift the range of negotiations upward, works well when a valuation is not easily calculable. Insurers, though, have immense databases of cases and results. Accurately or otherwise, your claim has already been evaluated, perhaps by a distant claims committee, and any additional authority will likely be modest. Your unrealistically high demand is not likely to shift the insurer's evaluation; in fact, it may move the needle in the wrong direction (see No. 2 above). As many mediators will tell you, the goal is to push the insurer to its top dollar and then decide whether to settle or go to trial. There is no risk that you are leaving money on the table by starting with a rational demand; the insurer was never going to pay two or three times your own estimate of your best possible result at trial. 

Defendant's Opening Offer

Some of the rules regarding a plaintiff's opening demand apply to a defendant's opening offer. A reasonable opening offer sets the tone for a productive mediation by building trust, optimism and momentum. A ridiculously low offer will usually result in little or no movement from the plaintiff. Spending hours just to get into a realistic settlement range wastes time and money.

In some ways, though, the defendant’s strategy must be different. As a practical matter, the defense cannot start with its best possible outcome at trial. An opening offer of “We will pay nothing and you will reimburse us for all of our costs and expert fees” might work in the movies,² but not in real life.

1. Put some money on the table and justify your calculation.

   As with plaintiff’s demand, you must be able to explain the reasoning behind your offer: “We think the case is worth $100,000, and we think we have an 80% chance of winning on causation. Plus, a comparative negligence finding is likely. Therefore, our opening offer is $20,000.” Any plausible explanation is fine, but saying “The plaintiff’s demand is too high, so our offer is very low” sounds shallow and petty.

Of course, you don’t have to offer anything at all, but then why did you agree to mediation?

2. Nobody will make you split the difference between the opening demand and the opening offer.

   As negotiations wear on, parties naturally become focused on the midpoint between their positions. Invariably, when the numbers get close, someone is going to suggest that the parties split the difference. It’s theoretically possible that the opening demand and the first offer are so close that the parties laugh, split the difference and go home. But this almost never happens. Make a reasonable opening offer and worry later about the midpoint.

3. Make your offer before the mediation.

   Commonly, an insured defendant won't make an offer until mediation. Instead, they may serve a brief that says, in effect, "We didn't do anything wrong, and plaintiff wasn't hurt, so we owe nothing. But we will participate in good faith." This is ineffective. Most personal injury plaintiffs are not experienced litigators and need time to grasp the realities of litigation. Early offers encourage plaintiffs to discuss and consider realistic settlement ranges in advance of the hearing, which in turn leads to more productive (and efficient) negotiations.

Despite disagreeing on the merits, most mediation participants have a common goal: achieving a mutually satisfactory resolution that avoids the costs and risks of continued litigation. To increase the odds of reaching this goal, start with reasonable, defensible and timely opening demands and offers. 

Footnotes

1. Technically, the moon is far above the stratosphere, but most lawyers are not meteorologists and tend to use atmospheric terms inaccurately.

2. Michael Corleone in The Godfather Part II makes a dramatic point by declaring during negotiations with a corrupt politician, “My offer is this: nothing.” But in real life, a more conciliatory approach is necessary. Also, Michael Corleone died isolated and unhappy after most of his family was killed by gang violence. Find a better role model.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.