The first thing to consider in entering into a personal injury settlement is to determine what the law permits a claimant to recover for a claim. The law provides that tort victims are entitled to claim the following damages: (1) nature, extent and duration of the injury; (2) pain, discomfort, suffering, disability, disfigurement and anxiety already experienced and reasonably probable to be experienced in the future as a result of the injury; (3) reasonable expenses of necessary medical care, treatment and services rendered and reasonably probable to be incurred in the future; (4) loss of earnings to date and any decrease in earning power or capacity in the future; (5) loss of enjoyment of life, that is, the participation in life’s activities to the quality and extent normally enjoyed before the injury. The law also permits other types of damages that may apply for certain types of fact situations (such as loss of consortium, etc), though these are not generally applicable for most injuries and cases. The case law in Arizona provides for the following (citations excluded): Unlimited recovery for actual damages, expenses for past and prospective medical care, past and prospective pain and suffering, lost earnings and diminished earning capacity; all expenses and for the value of services reasonably made necessary by the harm. Once the right to damages is established, uncertainty as to the amount of damages does not preclude recovery. Pain and suffering are separately compensable damages from “loss of enjoyment of life” which compensates victims for the limitations resulting from the defendant’s negligence or the injured person’s ability to participate in and derive pleasure from the normal activities of daily life. In other words, any injury that the victim can prove is proximately caused by the acts of the wrongdoer.
While these are the types of damages the law permits, the law also requires the victim to prove the damages claimed, which invariably requires evidence from not only the victim but other witnesses such as the victim’s physicians. Even if essentially proved, a jury or arbitrator (depending on the nature of the case) is still the only entity that determines which damages the victim proved and most important- the amount or value of the damages. Thus, the law may permit compensation for alleged damages but only a jury can determine which, if any it will decide to award, and the amount to award. Consequently, understanding what a jury in the relevant jurisdiction may award should be the basis from which to determine a settlement value. Thus, predicting a value a jury may award should set the base-line of the value of the case so as to determine the value of a settlement. This is usually based on a probability measurement (probability meaning more likely than not, or a simple mathematical expression- 51%). A prediction based on jury value is more well known by attorneys practicing in the jurisdiction than any other person. Attorneys determine this number through several means- (1) personal experience through jury trials and mediations; (2) subscriptions to publications that provide jury verdicts that provide summaries of the facts of the cases; (3) shared experiences with other lawyers practicing in the jurisdiction; and (4) seminars and attending other professional organizations and presentations where these issues are debated and discussed. Consequently, attorneys tend to have a more reliable understanding of verdict amounts than their clients and other laypeople. The idea of a magic formula for case value is little more than mythology and at best a simple ill-conceived heuristic that is a source for misplaced faith. While even attorneys can be wildly wrong about the value of a specific verdict, they generally have a better understanding than the general public. Because the amount of a verdict is unknown to all, the best method of assessing a verdict is using a confidence measurement (previously referenced by probability) with a range. Thus, (by example only) an attorney may tell a client that while a verdict of $0 or $100,000 is possible, the probable range of a verdict based on the facts of this particular case is between $10,000 and $18,000.
Once the value of a verdict is forecasted, a settlement must take other considerations into account such as:
- Cost (monetary, time and emotional) to the client of litigating the case through trial;
- The net result of a settlement v. the net result of trial. This consideration incorporates cost and other expenses. For example, a settlement of $10,000 may put the same amount of money in a client’s pocket as a $30,000 jury verdict. Consequently, settling for $10,000 is the same as a jury verdict of $30,000 to the client.
- Risk/Reward. Settlement alleviates risk. Is a settlement better than the potential reward?
- Time. Money in the client’s pocket now is worth more than the same amount in the client’s pocket 2 years from now. This concerns what people refer to as the time value of money. Money now can be invested and earn interest that in 2 years will be worth more than the same amount of money you do not currently possess.
- The value during a settlement is also somewhat dependent on the people settling. For example, a Rolex watch may be “worth” $5,000 on certain sales sites. However, a person going through a divorce may need $1,000 immediately. Thus, for that person, the watch is worth receiving $1,000. In other words, each person’s situation is different and situations constantly change- making settlement values change accordingly.
Settlements, while more common than verdicts, still must have some basis in a verdict. In addition, while the concept of a settlement is generally viewed as a positive outcome, the reality of the word “settlement” is to not get what one desires. A person that wants A agrees to take less than A- hence they settled for less than what they wanted. Thus, the expectation of a settlement is that the person agrees to take less than what they want (and for the wrongdoer- paying more than they prefer to pay).