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Negotiating “Policy Limits” Matters in Personal Injury Mediation

June 4, 2015

Negotiation is never easy.  And, mediation always brings every negotiation technique into very, very sharp focus.

In every arms-length negotiation, the ultimate measuring stick for where negotiations begin, trend and end are the same: a practical time and money comparison of resolution now with the most likely outcome at a future trial.  See, “Rule One:  Know Your Alternative(s) Should Mediation Be Unsuccessful”, December 19, 2010

However, in  a personal injury claim wherein the claimant reasonably believes their ultimate judge/jury verdict will “always” be of greater economic value than the total available limits of any defendant’s insurance, the entire methodology of usual negotiation changes.

Knowing this difference from “normal and usual’ negotiation, particularly at mediation, at the least, should reduce the angst for one side or the other, or both.

Particularly if your well-chosen mediator assists both sides in understanding the necessary differences.

Frankly, there are really only two paths for any Claimant (or their attorney) to negotiate any personal injury claim:  1)  using the normal ultimate verdict value method or 2) using known policy limits as a guideline, start to finish* (See below).

Any claimant’s counsel’s choice, however, will be dictated by the circumstances of their claim.

Choice 1:  If the defendant-insured is reasonably subject to collection of a judgment  “well” in excess of the policy limits (and the rigors, uncertainties and expense of  trial are of no issue) than feel free to ignore the foreseeable protests (and threats) of the defendant’s insurance representative (and the insurance-provided defense counsel) and their assertions of the impossibility of any negotiation in excess of the demonstrated policy limits and negotiate your case using the usual, ultimate reasonable verdict value method.  Presumptively, any limitation of any defendant’s insurance coverage in these circumstances is the problem ONLY for the defendant!

Choice 2:  If the defendant-insured is NOT reasonably subject to collection of any excess judgment, save everyone (including your Mediator) some time and angst and open your claimant-demand/offer negotiations AT the known policy limits**.  Your only real change in technique is the immediate reduction in the size and numbers of your incremental negotiations to your end-point.  But, then also make sure your Mediator expressly conveys this “choice” of practical negotiation to the defendant solely as a generous (and reasonable) concession of reality, not because of the merit of the claim.

Those are the two clear, easy and obvious choices.   However, most matters are not so clear:

1)   What if the value of the ultimate judgment is not truly “well-in-excess” (i.e. maybe just a bit over)?  or,

2)  What if the future alleged excess judgment is not really a “sure thing” at all?   or,

3)  What if the future judgment, although unquestionably significantly over the known policy limits if won,  is (objectively) highly questionable as to a successful outcome?***

My advice:  Go to Choice 2.  Insurers, remember, are professional risk-takers (that is why they are in the business); no Claimant is.  Don’t waste (much***) time attempting to negotiate over the policy limits.

***Note:  In some circumstances, beginning one of these kinds of mediation with Choice 1,  the traditional ultimate verdict value method, can be of some initial usefulness to express future upside risk to the defendant.  However, after making the point of the “possible’ future value, quickly switching to the reality of policy limits negotiations, likely still must be ultimately elected (by using your mediator as your guide) to avoid wasting valuable resolution opportunities.

In moving, realistically and early, to where your only real opportunity of voluntary resolution exists is the immediate show of the credibility any claimant will ultimately need to succeed.

And, how to end the negotiation with a policy limits issue?

*Sadly, your ending/final offer to resolve such policy limit matters will also be dictated only by the facts and law of each case.

Some claimants counsel will steadfastly demand and finally obtain the full policy limits.  In grossly under-insured matters, this probably is fair to all.  Predictably, however, such a maximum resolution will come only with much time, patience, angst and perseverance.  And, pay-back?

Most that are settled, however, will be those whose counsel advocate and permit a discount off of the policy limits as determined by the ultimate judgment value and risks of trial.  And, frankly, the decision made by client or counsel that obtaining any more will simply “cost” equally more.

Again, this is where your Mediator can assist all in fairly and objectively considering the respective opposition’s points.  See, “A Role of the Mediator?: Assisting Participants to be Ready to Mediate”,  July 23, 2100.

Those that are not settled**, at the least, by this choice of  the policy limits negotiation method, will have created/completed the first critical step for any extra-contractual dollars then sought post-verdict!

Personally, I believe, in the end, everyone gains by allowing a “practical” discount upon the policy limits.  And, particularly where the mediation is early and much remains to be done.  (When ALL policy limit cases SHOULD be mediated.  See, “Timing the Scheduling of Your Mediation”, January 28, 2012)

But, what would you expect?  I am a mediator.  I believe in reasonable, prepared and informed compromise.  I also believe that every voluntary resolution requires both sides to gain more from resolution than with trial.

This mediation negotiation suggestion will not be acceptable to all.  Once again, it is intended to simply alert those of you who wish to be fully prepared for your next policy limits mediation by contemplating these clear and limited choices well in advance.

Let me know if it helps.

Dan, from Tavares, Florida.




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