Lawyers and claims professionals must make long-range strategic decisions early on in litigation. At the start of the case, clients, claims professionals, and attorneys must consider and decide what the likely best ultimate outcome is and prepare a strategy as to how to handle the life of the case to achieve that goal.
With limited information, stakeholders must determine whether the known damages and liabilities merit pursuit of a quick settlement at a premium cost or if they should play the long game. If the latter option is chosen, the stakeholders need to decide whether there is an option to pursue arbitration and, if so, if the known facts indicate that an arbiter will likely provide a better result than a jury. Stakeholders must consider whether, in playing the long game, their clients are best suited to an actual trial to verdict, or whether a better course of action is significant motion practice to drive down damages and alleged liability as much as possible so that a very discounted settlement can be reached while avoiding the uncertainties and costs of trial.
This article discusses the pros and cons of each option and highlights those variables that precipitate the need to pivot from one end-game strategy to another. Keeping in mind the best interests of—and obligations to—the client, this article serves to provide insights on what we really want when preparing an end-game strategy.
Initial Considerations
In truth, very few construction-defect cases go through trial to verdict. However, at first, it is incredibly difficult to predict whether a newly received case will fall into that category. Trial preparation drives a case from inception regardless of whether it will ultimately be settled or tried, and ensuring that a case is prepared for trial is critical.
Plaintiff’s attorneys have the advantage of being able to largely prepare for trial before filing their case. Savvy plaintiff’s lawyers do not file a complaint without securing experts ready to testify as to liability and damages and identifying the likely key defendants they will pursue.
Defense attorneys do not have that luxury. Depending on the party represented, a case may have been in discovery for years before a particular subcontractor is impleaded and provided the information in discovery sufficient to develop a resolution strategy—all while the other parties and the plaintiff continue to build their cases. Faced with this Sisyphean task, it can be tempting for claims professions to simply pay “take it or leave it” top-dollar demands not rationally related to the alleged damages even when the trusted attorney assigned the case believes that the long game may be the winning strategy. So let us consider the various factors, analyze the options, and determine what you really want.
Foremost is the issue of client exposure. If the initial analysis points toward the potential for very high exposure with great law but not so great facts, pursuing a long game and rejecting inflated settlement demands may be the best bet. At first blush, one may think she wants to follow the path of least resistance: just pay an irrational demand, eliminate any possibility of risk, and stem the cost of attorney’s fees. But consider this: It is true you eliminate risk, but every case has some level of risk, and if your attorney has detailed knowledge of the jurisdiction and the other attorneys involved, you may be overlooking an opportunity to eliminate some (or all) of the risk if you do not commit to the long game and allow the attorney to pursue thoughtful motion practice. Yes, it will take more time to eliminate the file and you will likely incur more attorney’s fees, but if the value of case can be substantially reduced through good lawyering, such that a policy-limits demand case settles a year later for $100,000, you have achieved a much more economically successful outcome.
Considering Arbitration
Another consideration is the opportunity for arbitration rather than risking a jury. In the American jurisprudence system, juries have long been hailed as a gold standard for judgment: A man or woman is judged by his or her peers. But in increasingly complex construction litigation cases, asking 12 people who may have little to no experience in construction to spend two weeks learning about the implications of reverse flashing at a nailing fin may not bring about the best result. In the case described above, where the law favors the defense but the facts are not pretty, why not consider arbitration, if it is available?
Even when the majority of claims and damages have been eliminated through smart lawyers, in circuit court defendants may still fall prey to an inability of the jury to overlook ugly facts in favor of good law. In arbitration, this is much less likely. With seasoned construction attorneys serving as arbiters, there is no need to spend a substantial portion of the case educating the arbiter on construction law. They already have the expertise needed to understand the liability and damages as applied to the law and will likely see through red herrings that might otherwise distract or confuse the jury.
Moreover, after years of believing that arbitration is more expensive than civil litigation, many are finding that is not entirely true. Yes, an expensive multi-person panel using high-dollar arbiters can certainly be expensive and should probably be saved for extremely complex cases. But with the COVID-19 backlog plaguing the courts, attorneys are finding themselves stuck in cases that pre-date the pandemic and have no end in sight. Might it not be less expensive to pursue and resolve a case in arbitration within a year rather than spend three or more years trapped in judicial purgatory? Indeed, after this past CLM Construction Conference, it seems like the conversation among stakeholders is that arbitration may become the new construction norm in a few short years.
Setting a Standard
It is an unfortunate truth that, in small state construction bars, carriers or claims professionals develop reputations as to how they maneuver in litigation in the same way that the attorneys litigating the cases do. In those small states, carriers and claims professionals that consistently succumb to early irrational demands may find themselves pigeonholed as “good payors” by the local plaintiffs’ construction bar. That kind of reputation in a small jurisdiction may impact untold future cases wherein the stakeholders may find themselves held hostage to unreasonable demands even in cases with very low damages and great defenses. In sum, while a quick settlement under these facts may be tempting at the outset, in the long-term it will probably not get you the result you really want.
Conversely, in a small single-family residence case where a client may have had a small scope of work, the strategy depends on a variety of factors. These include structure of the case, the size of the demand, the likely lifespan of the case, and the reality that a quick settlement for costs may be substantially lower than a likely litigation budget. Before committing to that strategy, though, there are other factors to consider. For example, a single-family home in a production-scale neighborhood, rather than a one-off custom property, is a wildly different case.
Even if there are no other cases filed at the moment, one must give real thought to whether the case may mushroom exponentially. In a matter with only one claim, it may make sense to pay a large settlement to extricate a small subcontractor in one case and avoid years of litigation costs rather than fight the numbers down to something more reasonable. It is quite another situation to have set a floor by paying over value in a neighborhood with hundreds of potential claims.
However, if that possibility seems less likely than not, a quick settlement subject to confidentiality is a viable option. But beware, if the neighbors learned of the litigation and later observe ongoing expensive repairs, the confidentiality agreement will not matter. Further, if the original plaintiff’s attorney manages to sign other neighbors, confidentially will not matter; counsel already knows what was paid.
If, after considering these factors, the risk does not outweigh the reward, and there are legitimate defenses to pursue, it may be in the client’s best interest to leverage the potential for dispositive motion practice to drive down settlement value while there is an opportunity to do so, or even nip the potential for any future claims in the bud by trying or arbitrating the case. If one plaintiff’s attorney sees that arguments against your client will fail at trial, he may not sue your client again.
Additional Considerations
Having considered the vagaries of venue and the potential for setting a standard in future matters, it is also important to take a step back and simply analyze how the facts may look to a jury. Trial strategy is easier to develop with a clear story to tell. For example, in the case where an eight-year-old residence where the general contractor does not have the project file anymore, it is hard to know what a jury will do. With minimal documentation of the project and only an inkling of testimony tying the client to the project, the jury’s minds are left to wonder. It is hard to predict what they will do, but it is even harder to win dispositive motions when the record is not clear. Conversely, there are cases with clear-cut evidence and a cohesive theory and theme that make trial more predictable.
Additional-insured demands can also have a significant impact on how large residential construction cases are valued by claims professionals and attorneys. Depending on the state and its anti-indemnity statute, a carrier may find itself weighing not just the balance of the cost of litigating or settling the underlying client’s case, but also the long-term costs it may bear defending the additional insured over the long term. A serious additional-insured analysis will need to be completed and a carrier may find itself in a declaratory judgment action.
In states that have both indemnity and post-trial/post-settlement contribution statutes, settlement can be very challenging. If a party refuses to release your party in settlement negotiations, it may be nearly impossible to secure a clean, neat settlement of the entire case. At that point, one needs to consider whether it is more cost effective to “buy your peace” with the primary claimants and risk a subsequent contribution claim if and when the potential claimant decides to file for contribution post settlement.
There are, of course, untold additional considerations to weigh when considering settlement versus trial. Issues such as the client’s preferences are crucial considerations. Further, the identity and experience of the plaintiff’s attorney is always a critical component. Issues of joint and several liability can significantly increase your trial exposure and should be analyzed every step of the way. Likewise, set-off statutes, empty chair arguments, and apportionment will always need to be incorporated into a settlement versus trial analysis. Finally, there is the risk of potential for attorney’s fees and costs that may be implicated and damage your client at trial if there is a plaintiff’s verdict.
Every case begins with an analysis of liability and a preliminary decision as to whether to quickly resolve the matter or play the long game. There is no magic formula; the above analysis is simply a starting point for attorneys and claims professionals to consider at inception—and you may need to re-evaluate several times during the life of the case. Claims professionals and law firms have sophisticated metrics on hand that streamline the decision tree, but there is no substitute for the attorney who spends every day with the case and has years of experience.