How to Put Fear of Insolvency Into a Defendant

For more than fifty six years I have personally seen the fear in the
faces of corporate executives faced with a suit claiming wrongful
conduct and punitive damages. Even those who knew that they had acted
properly and fairly and that the allegations of the suit were totally
spurious, the fear and trembling engendered by a suit seeking punitive
damages is patent.

The defendant who should be leading a charge like General Patton acts
more like Prime Minister Neville Chamberlain. Defendants seem to prefer
to appease a plaintiff rather than litigate good and viable defenses.
Unless counsel advises a 100% chance of total victory – a statement no
trial lawyer will ever make – the defendant does not want to go to trial
and is willing to pay more than it owes to avoid the potential of a
serious punitive damage judgment.

Contrary to common belief the chances of a suit seeking punitive damages
actually obtaining an award of punitive damages is very small.

Defendants often, incorrectly, concentrate on trial verdicts and
overlook that almost all civil litigation matters result in out-of-court
settlements. Verdicts are important but punitive damage verdicts are
more like the tip of the proverbial iceberg than evidence of a trend.
Practical evidence indicates that the small number of trials affect
decisions in the vast majority of lawsuits that do not proceed to trial.

Verdicts are taken as important signals to the litigants. It is
important to first understand the basic dynamics of a lawsuit. Most of
the work in pre-trial litigation is designed to provide the litigants
with enough information to allow them to reach an amicable settlement. A
large punitive damages verdict skews the evidence available to the
litigants and causes plaintiffs to demand more than their cases are
truly worth and defendants to pay more than they should to resolve a
suit seeking punitive damages.

Under basic American litigation practice the plaintiff has the opening
strategic advantage. A plaintiff with a weak case places the defendant
in the position of having to defend himself (and therefore incurring
legal costs), or else the defendant will be liable for the full claim on
a default judgment. Even a defendant facing a suit that has no merit
and no chance of success before a court will often be willing to pay an
amount that is less than his prospective defense costs to settle the
case and “make it go away.” Appeasement of the plaintiff is, to a
corporate defendant, seen to be economically the best solution.

Most often a defendant is willing to pay a settlement up to the amount
of his defense costs in order to avoid having to respond to the
plaintiff's complaint.

The Supreme Court's rulings in State Farm Mutual Automobile Insurance
Co. v. Campbell, 123 S.Ct. 1513, 155 L.Ed.2d 585 (U.S. 2003) limits, by
due process, the multipliers that can be applied when setting punitive
damages.

In addition, the uncertainty posed by the prospect of unlimited punitive
damages, combined with the relative probability of a punitive damage
award if a case goes to jury trial, provide litigants who demand
punitive damages with potent leverage against risk-averse defendants,
like insurance companies or candidates for the presidency, and tip the
balance in settlement bargains in favor of litigants with weak or even
frivolous cases.


Go to the Insurance Claims Library –
http://zalma.com/blog/insurance-claims-library.

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