Better To Settle Than Sue?

A study published by Cornell Law School last fall attracted some interest in the press.  The study surveyed over 2000 cases in which money damages were sued for in California between 2002 and 2005, and determined that 61% of plaintiffs and 24% of defendants obtained an award at trial that was the same as or worse than the result that could have been achieved by accepting the other side’s pre-trial settlement proposal.  

The study was published in the Journal of Empirical Legal Studies.

The study also found that the average cost of a decision error for plaintiffs was US $43,000, and for defendants was US $1.1 million.  The cost of defendant decision errors increased at a much higher rate over time, than the average cost of plaintiff decision errors.

What lessons to draw from this US study which might apply in Canada?  Well, certainly in Newfoundland and Labrador we do not have the wildcard factor of civil jury trials.  We are also not as aggressively litigious as the US, although the aggressiveness of United States litigation has been overstated.  The study found a settlement rate of between 80 and 95% in US litigation.  

In Ontario, the settlement rate is 97%.  I think it is even higher in Newfoundland and Labrador. 

One interesting finding which our accident and injury clients should remember is that the study found that parties who receive settlement offers of a formal nature under rules of court, which shift heavy cost burdens to the other side if the settlement offer is refused and the judgment is not as favorable, were more likely to take aggressive settlement positions.  In other words, the recipient of a formal offer to settle tends to “dig in”, increasing the risk of making a decision error.

The decision error rate for plaintiffs who refused formal offers to settle was 83%, compared to 61% for plaintiffs not subject to formal offers to settle with attendant penalties and costs.  

The study’s conclusion about formal offers to settle was that although the rules intend such offers to encourage settlement by imposing increased potential costs for failure to settle, such offers “may actually induce risk-taking by the parties and may provoke the gambling mentality that they are intended to curb.”

The teaching point for accident and injury clients and their lawyers is that we should not be drawn into an overly aggressive litigation stance by the feeling of challenge and insult which often is created by a defendant who draws a  line in the sand with a formal offer to settle.