Key considerations for addressing & resolving a catastrophic insurance case
Identifying and managing a claim that has the potential to become significant requires knowing which factors will contribute to its complexity.
In a litigation landscape marked by ever-increasing severity, handling catastrophic, or potentially catastrophic matters is becoming more of a norm. Jury awards, particularly in situations allowing for punitive damages, can reach into the billions. To achieve optimal resolution, it is essential to recognize when a claim is catastrophic to marshal the correct approach.
But how do you recognize a catastrophic case and, once recognized, how do you manage it? What are the factors that are likely to make a case catastrophic vs. “run of the mill” (if such cases exist)? Further, if a case is truly catastrophic, how do you establish the best pathway to resolution? While some factors that support characterizing a case as catastrophic are rather obvious, others can be more subtle and possibly latent.
Among the more obvious factors are: Multiple parties, severe injuries/damages, product recalls, FDA warnings and high publicity, to name just a few. Others are more subtle, such as political sensitivities, a dilatory effect on business ventures, potential precedential impact, or an impact on shareholders and stock price. Note that any one of these factors alone may not warrant a catastrophic designation, but any combination of them can have a compounding effect. Regardless of the additive effect of these different factors, the potential exposure is likely the heaviest factor and needs to be established early. In other words, whether or not a case is defensible, what is the potential negative impact and what is the likelihood that it will occur?
Analyzing exposure … honestly
Exposure, in its broadest sense, involves a multitude of factors, both objective and subjective. Objective factors may include compensatory damages, punitive awards, a possible loss of investors and a diminution of the company’s stock price. In a more subjective sense, exposure may include a drain on corporate resources through protracted litigation, unfavorable publicity or a negative impact on personal and professional relationships. The impacts of each of these factors may ebb and flow depending upon the nature of a particular case. Regardless of which elements influence the determination of whether a case is catastrophic, one thing is essential in assessing the magnitude of the exposure: Intellectual honesty.
In a litigation scenario, intellectual honesty is the ability to take a clear, dispassionate look at all of the factors that influence a case to determine the true value proposition if the matter were tried and lost, and the true chances of success, should the case be taken to trial. Intellectual honesty enables you to establish what is real vs. what you want to be real.
Often, defense counsel and claims professionals focus on the defensibility of a case, arguing that a case can be won out of concern for looking weak, or telling the client or senior leadership what they want to hear as opposed to what they need to know. Intellectual honesty requires that egos are “checked at the door,” and the evaluation process is done outside the confines of an echo chamber. It compels you to hold your desire to defend the claim at bay while exploring the reality of those factors that could lead to a cataclysmic result. Brutal honesty is essential both in the determination of liability and the consideration and calculation of damages.
To determine whether a case falls within the narrow percentage of cases that will actually go in front of a jury, it is critical to conduct a thorough assessment of the caliber and credibility of your witnesses and the quality of your evidence. Your case will largely rise and fall based on these two factors. A bad witness can snatch defeat from the jaws of victory and that factor simply cannot be ignored. Similarly, a lack of evidence, or weak evidence, needs to be recognized as soon as possible.
It is important to ask yourself — can you improve the witness’s presentation or can you mount credible evidence to defend or prosecute the case? If not, part of an intellectually honest evaluation includes acknowledging that your case has weaknesses. If those weaknesses cannot be bolstered, pressing on and ignoring these concerns rarely results in a positive outcome.
Moving toward optimal resolution
As noted previously, only a small percentage of cases eventually end up in trial. Of the remainder, the majority are resolved through settlement negotiations. However, moving the case toward effective resolution may also require the removal of certain roadblocks that stand in the way. Some of these roadblocks may be beyond your control (e.g., a client who will not consent or an opposing counsel who refuses to negotiate), while others (e.g., fear of sending the wrong message or a lack of preparation) simply need to be managed or addressed.
Fear of sending the wrong message and ego are generally intertwined. On both sides, there is an innate hesitancy to make the first move over concern that it will be perceived as a sign of weakness; or that it will be construed as a sign that your case has no merit. A deliberate determination that a case should be placed in line for settlement is not a sign of weakness, nor is it sending the wrong message. Rather, it’s executing on a plan based upon a thorough evaluation. With rare exception, every case has a certain value to it in terms of settlement. Perhaps the case can be won at trial seven out of 10 times. While this may lower the monetary value proposition of the case, it does not eliminate it.
Similarly, a lack of proper analysis and preparation can dramatically stall the momentum toward resolution. A thorough understanding of the nuances of the case, the evidence that will be presented and the strengths and weaknesses of your position are essential to an honest evaluation of the case as well as the appropriate strategy to deploy when negotiating. In the same vein, a lack of preparation can cause a hesitancy to engage in resolution or, perhaps worse, result in a settlement that is less than desirable.
A successful outcome
While numerous strategies can be employed, depending on the nature of the case, the stage of litigation and the respective liabilities of the parties, one of the keys to a successful outcome in these negotiations is risk. It is essential to negotiate to a point at which there is actual downside risk from not agreeing to the proposed resolution. Demands that are unreasonable and inflated do not establish a downside risk. This is equally true for “low ball” offers with no basis in fact, or which cannot be tied to a rationale base.
The main components to a successful negotiation are:
- Plan and prepare ahead of time. Consider your negotiating strategy and your ultimate value proposition. Manage the expectations of your client and all interested parties. Surprises may be fine at birthday parties, but they are unwelcome in litigation. Keep your client engaged and informed throughout the process. If applicable, consider filing dispositive motions or an offer of judgment to create pressure and risk. Further, consider seeking the appointment of a court-appointed guardian ad litem when warranted.
- Gain and maintain credibility with your opening offer. Don’t get stalled on the demand. An intellectually honest evaluation will provide your value proposition. Stick with it. Have a basis for your opening offer. It is important to develop a game plan and negotiate to your Don’t base your offer on what others are doing.
- Be principled, professional and reasonable. Make concessions when necessary and maintain your position as a “truth-teller.” Failure to do so runs the risk of undermining your credibility with opposing counsel, co-defendants and the mediator.
- Attempt to work with, not against, opposing counsel. When the case involves a catastrophic personal injury, consider retention of a structure broker to make offers that will fund life care plans and future needs.
- Continually follow up. Most cases don’t resolve with a single phone call or even a single day of mediation. Be persistent. If your opponent has made a reasonable request for information, provide it. If there is an outstanding question to be answered, answer it. Through your analysis, you’ve determined that the case should be resolved. Don’t let the opportunity disappear to resolve the case at your value.
Recognizing and resolving a catastrophic case can be challenging. Engaging in an intellectually honest evaluation, establishing a pathway toward resolution and sticking with your evaluation are key components to a successful outcome.
Bill Bower (Bill_Bower@gbtpa.com), J.D., is senior vice president and director of Healthcare, Gallagher Bassett Specialty. He leads and directs all claim functions across GB Healthcare, including overseeing the management of the largest and most complex claims.
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