All settlements require claims professionals and retained counsel to make an offer, many times multiple offers. A well-thought-out and constructed offer could cut down on additional litigation expenses if it brings the parties to a meaningful settlement discussion. On the other hand, an offer without consideration for certain factors could throw the whole case. Thus, there is truly an art to making the perfect offer. Below I outline a few of the who, what, when, and hows of making strong, well-crafted offers.
So what is an “offer” exactly? In legal terms, an offer can be defined as a manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it, as per Restatement Second of Contracts § 24. An offer is an essential element to a contract. For our purposes here, we are specifically discussing an offer to compromise (or to settle) a claim for monetary damages.
Although claims professionals would love to get claims wrapped up as quickly as possible, we all know that negotiations can be a long drawn out process. The first thing to think about is when will you make your offer. In larger cases, you will want supporting documentation or discovery in order to properly evaluate the claim before making your first offer. While it is certainly preferred to have a demand, it is not always necessary. Making the opening bid as opposed to waiting for a demand may indicate that the insurance company is serious about moving the case along. Sometimes a conservative opening offer will get the opposing counsel to look at the file and get serious about what the case is actually worth. I personally would rather start with a strong realistic number that I know we will have to pay in order to get the case moving as opposed to waiting forever and a day to get a demand from opposing counsel.
Another consideration is how quickly to respond to demands. When we know the next offer is within your authority it can be tempting to respond as soon as the demand or counter-demand is received. In many instances this can give the parties some momentum, a feeling that we are making progress on negotiations. However, at some point it might be best to sit on the demand to give the appearance that some extra evaluation went into this offer. Timing of the offer should be evaluated on a case-by-case basis.
One thing is for sure, it is never wise to bet against oneself. I will do everything I can (send a release with the proposed amount, threaten additional discovery, lay out the strengths and weaknesses of the case) to reiterate a prior offer, but I will not bet against myself. Is it really “negotiating” if the opposing counsel will not respond with a hard dollar figure? It’s a no-win situation when you have to increase your offer without an idea of where the opposing counsel is valuing the case.
While the norm might be for assigned defense counsel to handle negotiations and make the offer(s), there is an increasing trend for claims professionals to negotiate directly with the opposing counsel. Thus, another important factor in the perfect offer is who will actually make the offer.
Simply put, insurance companies see potential savings on litigation expenses if the adjuster handles the negotiations. If adjusters are actually going to be the ones making the offers it is wise to consult with the handling defense counsel so that there is strategic alignment. If adjusters are to be handling the negotiations, they should be especially mindful of all of the considerations discussed herein. Opposing counsel may not be keen on the idea of litigating a case with defense counsel only to negotiate with someone who is seemingly an outsider to the case and/or venue. Unfortunately, with adjusters handling the negotiations opposing counsel may see an opportunity to “slip one over” or play hardball in a way that they could not do so with a fellow member of their local bar association. If adjusters are making the offers, they should be especially attuned to any state-specific form requirements. On the other hand, there are certainly times when it is best for the assigned attorney to handle negotiations. Cases with multiple parties, significant liens, and specific arguments might be best suited for the assigned defense counsel.
How to make an offer is all about the details. Whether to make an oral or written offer is a case-by-case basis. If making an oral offer, it might be wise to indicate to the opposing counsel that you are going to follow up with a written confirmation of the offer and then do so. Regardless, strong offers include more than just an amount. When making an offer you will want to include the specifics of the offer, i.e., whether it is inclusive of liens, costs, and fees. You will want to say what the offer is in exchange for, i.e., a release of the insured, and or insurance company and dismissal of the case. The most experienced negotiators would probably advise that when making an offer you want to state your position to shed some insight on how you got to your offer. What are you taking into account to get to your offer or how have you discredited the opposing counsel’s positions? Without specifics in your offer, you are opening yourself up to a total derailment of your case. Unfortunately, I have seen too many examples of opposing counsel agreeing to an offer and then coming back and saying, “Well that wasn’t in your offer.” The details of the offer must be communicated early and often in the negotiation process.
Finally, what some might say is the most important part, how much should the offer be? Again this one is dependent on the facts of the case and comes with years of experience. The right amount will simply take into account all of the factors in your evaluation. If you have been evaluating the claim throughout its life then the opening offer or final settlement amount should be of no surprise. Where payment is owed payment is due. You want to make a strong enough offer that you will not keep the other side from completely walking away from negotiations, yet you don’t want to offer your highest authority range either. Determining the next offer is a test of strategy and forethinking of the end game. If you made an opening offer of $100,000, it may not be wise to go straight to $200,000, sometimes smaller increments do the trick. That is, unless you know that the $200,000 will settle the case. One consideration is whether the amount of your offer will be a whole number (i.e., $25,000 or $75,000) versus a number that gives the impression that the offer took into account specific costs (i.e., $25,345.78 or $71,862.39). When offering a number like the latter, it will indicate to the opposing party that you really did consider all of those medical bills or estimates. Such a number might be easier for an opposing counsel to sell or explain to their client. However, at the end of the day, it often comes down to the simpler version of a straightforward whole number. With good communication from all parties and a well-evaluated claim, finding the right amount to offer will come naturally.
I wish you the best of luck during your next negotiations and may your future offers be ones that cannot be refused.