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A Comparative Perspective on Settlement and Bargaining in Personal Injury Cases

Published online by Cambridge University Press:  27 December 2018


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Review Essay
Copyright © American Bar Foundation, 1989 

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1 H. Laurence Ross, Settled Out of Court: The Social Process of Insurance Claims Adjustment rev. second ed. (New York: Aldine Publishing Company, 1980) (“Ross, Settled Out of Court”).Google Scholar

2 Douglas E. Rosenthal, Lawyer and Client: Who's in Charge? (New York: Russell Sage Foundation, 1974 (“Rosenthal, Lawyer and Client”).CrossRefGoogle Scholar

3 Donald Harris et al., Compensation and Support for Illness and Injury (Oxford: Clarendon Press, 1984) (“Harris et al., Compensation and Support”).Google Scholar

4 Galanter, Marc, “Why the ‘Haves’ Come out Ahead: Speculations on the Limits of Legal Change,” 13 Law & Soc'y Rev. 347 (1974).Google Scholar

5 There are persons in England who are referred to as” claims adjusters” but they operate independently (i. e., they are not employees of a specific company) and normally act for a number of insurance companies.Google Scholar

6 There is also one noteworthy similarity in the two systems: the absence of an extended series of offers and counteroffers. In the discussion that follows, I will argue that this similarity can be attributed to the effect of financial incentives on the parties.Google Scholar

7 For general discussions of the divided legal profession in England, both its history and current operation, see R. M. Jackson, The Machinery of Justice in England 418–33, 448–56 (7th ed.: Cambridge: Cambridge University Press, 1977) (“Jackson, Machinery”); Brian Abel-Smith & Robert Stevens, In Search of Justice: Law, Society and the Legal System 38–63, 95–165 (London: Allen Lane, Penguin Press, 1968); or Richard L. Abel, The Legal Profession in England and Wales (Oxford: Basil Blackwell, 1988).Google Scholar

8 Practice rules in England prohibit joint practices between barristers and solicitors. In fact, technically every barrister practices as an individual (most solicitors practice in firms consisting of at least two solicitors), though barristers typically share “chambers” and the services of a managing clerk. See John A. Flood, Barristers' Clerks: The Law's Middlemen (Manchester: Manchester University Press, 1983), for a good description of the role of the clerk and for a picture of the interrelationships among barristers in a” chamber.”Google Scholar

9 The barrister's fee is commonly termed the” counsel fee.”Google Scholar

10 The barrister may, however, report the solicitor to the Law Society for disciplinary action; see Jackson, Machinery 430.Google Scholar

11 See Harris et al., Compensation and Support 81 (cited in note 3).Google Scholar

12 See Miller, Richard E. & Sarat, Austin, “Grievances, Claims and Dispures: Assessing the Adversary Culture,” 15 Law & Soc'y Rev. 525 (198081), for a general discussion of results from this survey.Google Scholar

13 The base for this percentage is settled claims. The percentage of claimants using a legal representative was about the same for the three types of injury claims asked about (motor vehicle related, work related, and other). A recent survey in the Canadian province of Ontario found that 33% of those making tort claims as a result of automobile accidents contacted a lawyer, and only 17% of those making claims arising from work injuries consulted a lawyer. See W. A. Bogart & Neil Vidmar, “Problems and Experience with the Ontario Civil Justice System: A Preliminary Report” 50a (prepared for the Conference on Access to Civil Justice of the Ontario Ministry of the Attorney General, Toronto, Ontario, June 1988).Google Scholar

14 Ross, Settled Out of Court 193–98 (cited in note 1).Google Scholar

15 Harris et al., Compensation and Support 51. One problem with the claiming rates reported by Harris et al. is that they do not take into account whether the injured party believed that responsibility for the injury lay entirely with him or herself. Using data from the Royal Commission on Compensation for Personal Injury (the Pearson Commission), which was collected around the same time as the data employed by Harris et al., I computed claiming rates for those that did not place the blame entirely on themselves. For transportrelated injuries, 42% of this group made a claim for compensation; for work-related injuries, the percentage claiming was 38%. While higher than Harris et al.'s figures, these are still much below the comparable claiming rates in the United States (see note 16).Google Scholar

16 Miller & Sarat, 15 Law & Soc'y Rev. 537, report a claiming rate of 86% for all torts in the federal judicial districts that were surveyed in the United States. My further analyses of their data show that the percentages for traffic accident personal injuries is 88% and for work-related injuries is 81%.Google Scholar

17 One recent analyst has argued that insurance company settlement policies in England are structured specifically to create uncertainty for potential claimants; if this is true, it would follow that policies would include efforts to erect barriers such as the need for representation. See Timothy Swanson, “Bargaining with Repeat Player: The Impact of Insurance Company Defendants upon Tort Litigation” (unpublished mimeo, Department of Economics, University College, London, 1988; available as Working Paper WS 1987–88 (10), Law and Economics Workshop, University of Toronto).Google Scholar

18 See Horry v. Tate and Lyle, 2 Lloyd's Rep. 416 (1982); and Beach v. Eames 82 DLR 3d 736 (1978). While there may be some examples of settlements being thrown out by American courts (more specifically, courts may disallow the release that is typically signed when a settlement is finalized), the role of the size of the settlement appears to be a relatively unimportant factor. In a recent Wisconsin case, Liles v. Employers Mutual Insurance of Wausau, 126 Wis. 2d 492 (1985), a settlement was thrown out on the grounds of” mutual mistake of fact.” The court considered the issue of the release being supported by an inadequate consideration, but concluded that this in itself was not grounds for disallowing the release, though it could serve to bolster a claim that there had been a mutual mistake of fact. A low-intensity keyword Lexis search failed to turn up any cases in which a settlement had been thrown our by an American court simply as a result of” inadequate consideration” when the nature of the injuries was fully known. However, some of the cases that were turned up in the search (e. g., Duch v. Giacqunito, 222 N. Y. S. 2d 101 [1961]) suggest that the court was stretching the mutual mistake of fact criterion to cover cases where the settlement was so inadequate that the court did not want it to stand As I will discuss below, one key difference between England and the United States is the relatively high degree of certainty with which cases can be valued. This reflects the fact that damages are set by judges relying upon precedential cases rather than by lay juries, which are extremely unpredictable.Google Scholar

19 In a personal communication, Genn told me of one claims inspector who, when asked whether he would accept a settlement proposed by a claimant's solicitor if the amount involved was greatly below what the case was worth, responded that he would certainly accept the settlement, but that once the result was finalized he would contact the claimant and tell him that he ought to sue his solicitor. I doubt whether a claims inspector would in fact make such a contact, but it does suggest that importance of the protection afforded the insurer by dealing with claimants through solicitors.Google Scholar

20 In fact, the Oxford survey was completed several years before either of the leading cases on the unconscionability issue.Google Scholar

21 In a personal communication, Genn said that while some insurance companies” said that they preferred to deal with solicitors… [none] suggested that there was a policy of refusing to deal with an unrepresented plaintiff”; at least one insurance company reported to Genn that it” encouraged people to fill in a ‘settlement' form to avoid lawyers becoming involved.”Google Scholar

22 As I will discuss in detail below, under the English system of litigation, the defendant is able to obtain full information on special damages from the plaintiff, and so one can only presume that the insurer was aware that “specials” were in the neighborhood of 650 (unless the barrister's estimate was substantially off). Thus, it would appear that the defendant arrived at its own evaluation of the claim, and paid little attention to the specific demand that was made in this case.Google Scholar

23 The survey, which focused on the valuation of case, was conducted by mail. A response rate of 52% was obtained from a sample of 853 attorneys selected from the membership lists of the Wisconsin State Bar Association, the American Trial Lawyers Association (an organization of plaintiff's lawyers), and the Civil Trial Council (an organization of defendant's lawyers). Attorneys were asked to focus on their most recently resolved case (whether settled or tried) that involved a significant amount of money. Approximately 61% of the respondents had represented plaintiffs in the case.Google Scholar

24 This includes a generic personal injury category, plus separate product liability and medical malpractice categories. The percentage for the generic personal injury category was 75% (n=209), for product liability 65% (n=46), and for medical malpractice 76% (n= 17).Google Scholar

25 In business corporate cases, plaintiffs made the first offer in 57 percent of the cases (n=51).Google Scholar

26 See Atiyah, P. S., “Tort Law and the Alternatives: Some Anglo-American Comparisons,” 1987 Duke L. J. 1002 (1987), for a recent discussion of differences in the American and English tort systems.CrossRefGoogle Scholar

27 The one possible exception to this is simple debt collection work for which solicitors are permitted to accept payment on a” commission basis.” There does exist a group of persons, known as claims assessors or loss assessors, who will negotiate a settlement with an insurance company for a client on a percentage fee basis; these “assessors” are generally shunned by members of the legal profession; Jackson, Machinery 541 (cited in note 10), or Law Society, Memorandum on Maintenance and Champerty: Claims Assessors and Contingency Fees (London: Law Society, 1970).Google Scholar

28 This rule that the loser pays the costs of the transaction is formally modified by the system of” payment into court” (i. e., depositing with the court the amount that the defendant is willing to settle for) whereby a defendant who expects to “lose” in the sense of having to make some payment to the plaintiff to shift some of the risks of the costs to the plaintiff if the plaintiff refuses to accept what the defendant believes to be a reasonable settlement. Genn reports that” payment into court” is not generally used in an effective manner in personal injury cases (at 111–113).Google Scholar

29 See Rowe, Thomas D. Jr., “Predicting the Effects of Attorney Fee Shifting,” 47 Law & Contemporary Probs. 139 (1984), which is part of a symposium of articles that considers a variety of issues regarding fee shifting in the American context.CrossRefGoogle Scholar

30 The impact of this “downside” risk has been dramatically illustrated in the ongoing litigation in England over the arthritis drug Opren. The drug's manufacturer, Eli Lilly, has played very tough in the litigation, and many of the members of the class have decided to drop out of the litigation because of a fear of having to share in paying Lilly's estimated 6 million (10 million) legal bill if Lilly won the case (see the Guardian, June 5, 1987, at 19). In interviews I conducted in England in connection with some of my own research, I asked respondents to consider a case in which they had suffered a broken leg in an automobile accident where it would appear that the other driver was entirely at fault. In this hypothetical case, their solicitor had tried unsuccessfully to obtain a satisfactory offer of compensation from the other driver's insurance company and was now asking the client whether to proceed with a formal lawsuit. I suggested that the solicitor described the case as involving the following set of parameters (I have converted the sterling amounts to dollars here): the” going rate” for the injury was 10,000, and there was an 80% chance that if the case came to trial the plaintiff would win (in which case the injured party's solicitor would be paid by the defendant). If the defendant prevailed, the plaintiff could expect to have to pay 1,000 to his own solicitor plus perhaps 2,000 in costs to the defendant. When asked if they would instruct their solicitor to proceed or to drop the case, the tendency was overwhelmingly to drop the matterGoogle Scholar

31 See Rowe, 47 Law & Contemporary Probs. Shavell, Steven, “Suit, Settlement and Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs,” 11 J. Legal Stud. 55 (1982). It is common to see elements of the English system advanced as possible reforms of the civil justice system by those groups that have an interest in discouraging potential claimants. See Insurance Information Institute, The Civil Justice Ctisis (New York: Insurance Information Institute, 1984); Robert H. Malott, “America's Liability Explosion: Can We Afford the Cost” (talk presented to the Northwestern University Law School, Corporate Counsel Institute, October 10, 1985, published and distributed by the FMC Corporation).CrossRefGoogle Scholar

32 This sounds strongly reminiscent of the problem facing the privately paid criminal lawyer as described by Blumberg, Abraham, “The Practice of Law as a Confidence Game,” 1 Law & Soc'y Rev. 15 (1967).CrossRefGoogle Scholar

33 One solicitor I spoke to in England, now working as an employee rather than in private practice, told me that when he was in private practice for a client who was going to have to pursue a case on a privately funded basis and for whom making payments” on account” would create problems, he would normally not request such payments if he felt the case was strong, expecting to be paid at the end of the case by the defendant. When I asked him what happened when the case was unsuccessful, he said that he had never encountered that situation. One must wonder whether he was simply very good at filtering out the weak cases, or, as I note above, whether he was under subtle pressures to accept the first offer that was made.Google Scholar

34 It is interesting to note that in Ontario, where on paper the system of” costs” (i. e., Does the loser pay some or all of the winner's legal fees?) appears to be very similar to that in England, the question of costs in settlement is treated as part of the settlement package, with some litigators believing that it is best to include an explicit “costs” component in the settlement and others feeling that it is best simply to cite a single settlement figure and leave it to the lawyer and the client to resolve the legal fees question.Google Scholar

35 Needless to say, in a fee shifting system, not only is the lawyer reluctant to risk that the client will not be able to pay his fee if the case is unsuccessful, but the client also will be afraid of losing the case and having to pay the other side's legal expenses as well as his own. The combination of the lawyer's concerns leading him to recommend accepting a first or second settlement offer and the client's relief at avoiding the risk of losing altogether creates a powerful incentive to settle. See the discussion of the Opren case, supra note 30.Google Scholar

36 Until recently, eligibility for legal aid to fund the costs of litigation is determined by the Supplementary Benefits Commission (a government agency that handles certain types of social welfare payments); eligibility determination is now made by the Department of Health and Social Security.Google Scholar

37 The logic of this is that the winning party is better able to sustain the loss associated with the legal expense of fighting the case than is the legal aid fund.Google Scholar

38 The inability to recover costs also creates a disincentive to force a case to trial simply to prove that the defendant's view of the case is right.Google Scholar

39 Many unions extend this benefit to cover nonwork-related injuries, such as those arising from traffic accidents, as well.Google Scholar

40 While the cost of this coverage may seem absurdly low at first, one has to keep in mind that in effect the insurance is only for losing, since if the insured person wins the case the other side will pay the fees of his solicitor; there are some additional, minor costs, associated with reviewing cases where ultimately no claim is lodged, but these would probably be relatively minimal.Google Scholar

41 Kritzer, Herbert M., “Fee Arrangements and Negotiation: A Research Note,” 21 Law & Soc'y Rev. 341 (1987).CrossRefGoogle Scholar

42 See Miller, Geoffrey P., “Some Agency Problems in Settlement,” 16 J. Legal Stud. 189 (1987).CrossRefGoogle Scholar

43 I should note that the evidence that” sticking it out” yields better results is less certain. Comments that insurance claims inspectors made to Genn suggest that the tougher plaintiffs' lawyers achieved better results. The only statistical evidence in support of the view that holding out for a better offer in fact yields better offers, as reported by Harris et. al., Compensation and Support 97–101 (cited in note 3). is that in most cases, second offers (and third and fourth offers) are better than the offers that preceded them; however, it is unclear whether better offers were made because earlier offers were refused or early offers were refused because they were too low.Google Scholar

44 See below for a discussion of the economic incentives that might lead a solicitor to avoid dealing with legal aid. I should also note that a number of the solicitors Genn interviewed were concerned about the delays and administrative burdens associated with legally aided cases.Google Scholar

45 This “discount” may be more important in theory than in practice. Conversations I had with a number of actors in the English system suggest that the 10 percent reduction requirement is often ignored. Still, what is important is the possibility of such a reduction rather than the frequency that such a reduction is enforced.Google Scholar

46 What is supposed to happen is that the loser pays the costs to the fund and the fund then pays the winner, even if the costs have been agreed between the parties, and even if they are at a higher rate than the fund might allow (at 92–94).Google Scholar

47 The possibility of solicitors pursuing marginal cases under legal aid is not lost on the authorities who administer the fund; much of the delay associated with legal aid arises because of requirements that cases be evaluated before proceeding at various stages in order to insure that there is a reasonable chance that the legally aided client's position will evencually prevail.Google Scholar

48 The Oxford study, reported by Harris et al., Compensation and Support 110, found that only 11 percent of those accident victims who consulted solicitors about making a claim applied for legal aid. Genn found that the perception of barristers who handled these cases was that privately funded claimants were rare (id), though some of the difference reflects the strong position of union-funded claimants.Google Scholar

49 Genn also suggests that rules affecting the allocation of liability differ between the two countries, particularly the reliance of some American jurisdictions on the defense of contributory negligence, while England relies upon what in the United States is called comparative negligence (at 29–30). While she is no doubt right that at the time of Ross's research the contributory negligence rule was dominant, it no longer is. By 1982, only ten states still relied upon the contributory negligence rule; 40 states had adopted, either by legislative enactment or by court decisions, some form of comparative negligence; see W. Page Keeton, Dan B. Dobbs, Robert E. Keeton, & David G. Owen, Prosser and Keeton on the Law of Torts 471 (St. Paul: West Publishing Co., 1984).Google Scholar

50 Solicitors can become County Court judges (after having served at least as a recorder–a kind of parttime judge who hears certain types of criminal cases), but only barristers can sit on the bench of the High Court. See Jackson, Machinery 460-61 (cited in note 7).Google Scholar

51 David A. M. Kemp, Kemp and Kemp: The Question of Damages in Personal Injury and Fatal Accident Claims (London: Sweet & Maxwell, 1986).Google Scholar

52 For evidence of the high level of uncertainty concerning damages in personal injury cases in the United States, see Rosenthal, Lawyer and Client 204–5 (cited in note 1), or Gerald R. Williams, Legal Negotiation and Settlement 6 (St. Paul: West Publishing Co., 1983).Google Scholar

53 Pound, Roscoe, “The Causes of Popular Dissatisfaction with the Administration of Justice,” 29 ABA Reports 395, 404 (1906).Google Scholar

54 This principle of working in the dark applies even to some aspects of one's own side of the case. The recent film A Fish Called Wanda made much of the fact that a barrister is not even permitted to interview witnesses supporting the side of the case he represents before trial (the exception is the actual client).Google Scholar

55 See Michael Zander, Cases and Materils on the English Legal System 73 (London: Weidenfeld and Nicholson, 1984). See Jeremy G. Epstein, “English and American Discovery: Comparative View,” Nat'l L. J., Nov. 26, 1984, at 15, or id;” English Discovery: Simpler and Cheaper,” Nat'l L. J. Nov. 28, 1988, at 17, for good, nontechnical comparisons of English and American discovery rules. This system would change radically under recent proposals by the Lord Chancellor's Civil Justice Review; see Report of the Review Body on Civil justice Review 41–43 (London: HMSO, 1988).Google Scholar

56 Rowe, 47 Law & Contemporary Probs. (cited in note 29); Shavell, 11 J. Legal Stud. Google Scholar

57 Even experienced professionals in the American system have difficulty agreeing on case valuation; see Rosenthal, Lowyer and Client 104–5 (cited in note 2), or Williams, Legal Negotiation (cited in note 52); see also” What's a Leg Worth? It Depends,” Nat'l L. J., Aug. 1, 1988. at 1.Google Scholar

58 The term that is used in England is “contributory” negligence, but in England this refers to what in the United States is termed “comparative” negligence.Google Scholar

59 In his recent analysis of High Court cases involving payments into court, Swanson (cited in note 17) suggests that insurance companies engender uncertainty by refustng to make offers of settlement in a given proportion of cases.Google Scholar

60 As stated by Thomas Schelling in his essay on bargaining, “an ‘agent’ may be brought in as a principal in his own right, with an incentive structure of his own that differs from his principal's”; The Strategy of Conflict 29 (Cambridge: Harvard University Press, 1960).Google Scholar

61 See also Kritzer, Herbert M., Sarat, Austin, Felstiner, William L. F., & Trubek, David M., “The Impact of Fee Arrangement on Lawyer Effort,” 19 Law & Soc'y Rev. 251 (1985); and Herbert M. Kritzer, 21 Law & Soc'y Rev. (cited in note 41).CrossRefGoogle Scholar

62 Mnookin, Robert H. & Kornhauser, Lewis, “Bargaining in the Shadow of the Law: The Case of Divorce,” 88 Yale L. J. 950 (1979).Google Scholar