Managing Litigation Risk & Decision-Errors: Mediators Working Inside the Culture of Litigation

By: Jeff Trueman, IAM Distinguished Fellow 
Email: jt@jefftrueman.com

More than ten years have passed since Randall Kiser and his colleagues documented how often and at what cost attorneys obtain a result worse than what could have been achieved by accepting their opponents’ pre-trial settlement proposal. Generally speaking, Kiser found that plaintiffs’ attorneys obtained a worse result at trial than they could have received at settlement almost 60% of the time at a cost of about $40,000 per error. Kiser found that the defense did worse at trial in about 25% of cases at a cost of approximately $1.1 million per error.

Since most cases settle, can we assume attorneys are making better risk-management decisions on whether to adjudicate or settle? Perhaps. But there’s more than money at stake. Some lawyers define success in ways that differ from Kiser’s economic criteria. A number of attorneys who make “bad” decisions according to Kiser’s research would try those cases again. They define success in terms of executing their clients’ objectives and earning client loyalty. Furthermore, some lawyers feel that they can be, and perhaps should be, responsible for the decisions of other people (such as judges and juries). They believe their actions can determine the outcome of a case. Similarly, many clients believe that their story will persuade other people. 

Defendant institutions such as insurance companies and for-profit companies are “portfolio players” who track outcome data. They know that certain case-types produce results that are fairly predictable. Lawyers employed by insurance companies, who do not bill for their time, may be willing to incur higher levels of risk by empowering plaintiffs to make decisions whether or not to settle – “It’s up to the plaintiff to take our last offer or we’ll try the case.” When they lose, defense lawyers take an appeal or the carrier simply pays the judgment and moves on. 

Insurance companies may litigate for reasons not readily apparent to outsiders. Payment of any amount to settle may be highly scrutinized when a liability defense can be asserted. Often, a great deal of internal pressure exists within an insurance company to maintain the status quo of how risk is managed. An underwriting department may be overly invested in exclusionary language and therefore not want the claims department to settle. Case reports from lawyers who may be risk averse filter their way up to company leaders who may be risk-seeking and view “questionable” outcomes as “winnable” outcomes. This raises an interesting dichotomy between the ways in which jury verdicts are viewed. While individuals look to juries as potential sources of accountability, some institutions view them as sources to be blamed or as “cover” when corporate politics or an executive’s ego take priority.

Perhaps one of the greatest inefficiencies reflected in litigation culture is the late timing of settlement decisions. Many lawyers test each other’s resolve under the belief that the best settlement numbers come only under the pressure of an impending trial date. To be fair, economic value can be created by preparing cases for litigation. For example, carriers increase offers at predictable times during the run-up to trial: when the defendant is served; after the plaintiff is deposed (assuming he or she performs well); after dispositive defense motions are denied; and when experts are disclosed or retained. More often than not, many attorneys wait until very close to trial before moving off their bargaining positions. By that time, significant amounts of time and money are invested in an adjudicative process that will – in all likelihood – not be utilized.

Perhaps these dynamics give context to Kiser’s findings and, as a result, challenge mediators to consider any number of reasons why the parties may want to assume more risk than seems rational. Many mediators believe their assessment of risk is more realistic than that of the parties or counsel. Perhaps mediators should acknowledge their own biases. Sometimes lawyers have an unshakable confidence in their case that no mediation technique can alter.

Understanding the culture of litigation and the role that lawyers play as legal advocates is critically important when mediating litigated disputes. Like any great work of art where the space untouched by the artist is just as important as the creation, the mediator might consider what not to address. For example, mediators might avoid overt efforts to sell “better” decision-making to the participants. Instead, in this author’s view, well-known techniques that reframe the conflict dynamic through the use of good questions, reflective listening, and process choices that respond to the needs of the parties will create the space for good decision-making. Settlement is not guaranteed, but it occurs much of the time. Moreover, a productive mediation session that generates a positive result may be the leading indicator of repeat business for the mediator!

© 2018 Jeff Trueman

Please note that each IAM Blog posting represents the view of its individual author, but not necessarily others associated with IAM. IAM Blog Editor-in-Chief Keith L. Seat may be contacted at kseat@keithseat.com.