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At the mediation, the parties are unable to reach a settlement. At the end of the mediation, the plaintiff has lowered her demand to $200,000 and the defendant has raised her offer to $100,000 but they are still $100,000 apart. On the day following the mediation, the defendant sends an offer of personal injury judgment to the plaintiff offering to pay $110,000. The plaintiff then has 10 days in which to accept the offer, reject the offer or do nothing, in which case the offer is automatically rejected.
The plaintiff does not respond and the 10 day timeframe in which to accept closes on September 1. The parties then go to trial and, on December 1 the jury gives the plaintiff $90,000. Because that $90,000 verdict is less than the $110,000 offered by the defendant in the offer of personal injury judgment, the plaintiff will not get the full $90,000. She will have to pay the defendant’s costs that were incurred from September 1, the day the offer closed, until December 1, the day of the verdict. If the verdict had been greater than $110,000, then the offer of personal injury judgment would be inapplicable and the plaintiff would not have to pay the defendant’s costs because the offer of personal injury judgment only kicks in when the verdict is less than (or in some jurisdictions and the federal system, equal to) the offer of personal injury judgment.
One thing that varies by jurisdiction and that is often the subject of complex court battles is the definition of “costs.” Which costs have to be paid if the verdict is less than the offer of personal injury judgment?
The rules frequently say that the plaintiff must pay the defendant’s costs, but does not spell out exactly what costs are included. The applicability of some costs are less disputed than others. For example, some of the costs that commonly are included and that the plaintiff must pay if incurred by the defendant after the offer of personal injury judgment closes include jury fees, other court fees, deposition expenses, expert fees and expenses, hotel rooms for out of town counsel and experts, copying costs and other clerical costs.
The most hotly disputed question is usually whether personal injury attorney fees are considered a “cost.”
Obviously, the biggest expense for a defendant in the litigation process is personal injury attorney fees. Defense injury lawyers do not work for contingency fees. They normally charge an hourly fee which is almost always well over $100 per hour. Thus, in the interim between the closing of an offer of personal injury judgment and the verdict at trial, the defendant could easily rack up many thousands or even tens of thousands of dollars in personal injury attorney fees. Thus, plaintiffs’ personal injury personal injury attorneys argue vehemently to not include personal injury attorney fees as “costs” and defense personal injury personal injury attorneys argue equally vehemently that they should be included as costs.
The theory behind offers of personal injury judgment is that they encourage settlements and reduce the number of trials that “clog up” the courts. The idea is that a plaintiff will be more realistic in estimating what a jury will give them when considering settlement offers if they risk the possibility of having to pay a considerable amount of money for the defendant’s costs if they estimate the jury’s result poorly or unrealistically.
However, in many states and in the federal system only a defendant can make an offer of personal injury judgment. As such, while there is a pressure on the plaintiff to settle or face paying costs, there is no corresponding pressure on the defendant. The defendant can make an unreasonably low offer of personal injury judgment, thereby putting pressure on the plaintiff to accept it without suffering any possible repercussions if the verdict is more, even much more, than what is offered. (In a few states, bad faith laws allow the plaintiff to get costs and personal injury attorney fees if the verdict is significantly higher than the offer; but in most states this is not available.)
This one-sided application of the rules is viewed by many, including me, as blatantly unfair to plaintiffs.
What makes offers of personal injury judgment particularly unfair is that juries are so unpredictable. There might be an car accident case where 100 injury lawyers would agree that the case has a value of between $100,000 and $200,000. However, those injury lawyers would also agree that juries are so unpredictable that there is no way to feel comfortable that the jury will give an amount in that range. Thus, if the defendant offers $50,000 to settle the case, the plaintiff has to consider accepting it, even though it is unreasonably low or face the threat of paying the defendant’s costs.
Furthermore, one of the reasons that juries are so unpredictable is that insurance and big business interest groups have spent many years and millions of dollars on advertising to convince the general population (from which juries are picked) that the courts are clogged up with frivolous lawsuits. They use billboards, radio advertisements, television advertisements, brochure mailings and other media to spread the message. Because of this, even a plaintiff with a legitimate case has a much more difficult time convincing a jury that their damages are real because the jury comes into the case on the lookout for frivolous cases and otherwise generally cynical toward civil cases.