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Taking a case to trial in the U.S. can be a nerve-racking endeavor for both the plaintiff and the defendant. Neither side can predict with certainty how a jury of 6 to 12 strangers will rule at the conclusion of a case.
The overwhelming number of civil claims filed are resolved well in advance of trial.1 According to the Annual Reports of the Administrative Office of the U.S. Courts, as discussed in a Duke Law School publication, by 2017 “approximately 1% of all civil cases filed in federal court are resolved by trial.”2 Therefore, the opportunity to settle exists despite what a plaintiff and their attorney may be indicating.
High-low agreements are useful in claims where it is not clear who is going to prevail at the conclusion of the case. When a carrier is facing the risk of an uncertain trial outcome (as opposed to a likely defense verdict or minimal damages), high-low agreements are an effective way of taking some of the uncertainty out of the trial.
It is unlikely that a plaintiff will consider entering into a high-low agreement if the case involves 100% liability against the defendant, undisputed injuries, reasonable medical treatment, and reasonable medical bills because the plaintiff knows they are going to receive a verdict in their favor and there is not much risk for them in taking the case to verdict. However, if the plaintiff is also facing some uncertainly with an anticipated jury award, they may consider a high-low agreement proposed by the defense.
High-low agreements involve the plaintiff and the defendant agreeing upon the maximum (the high) recovery and the minimum (the low) recovery that the plaintiff will receive in the case, regardless of the jury’s decision. For example, a $250,000/$50,000 high-low agreement means $250,000 will be the maximum award and $50,000 will be the minimum award, regardless of the jury’s actual verdict.
If a jury awards the plaintiff a significant verdict, the amount the plaintiff can recover is capped at the high amount of the high-low agreement. If the jury rules in favor of the defense or issues a very small damage award, the plaintiff is still able to recover the low amount of the high-low agreement. If the jury awards an amount in between the agreed upon high and the low amounts, the plaintiff will be able to recover that amount.
Questionable Liability – Claims with questionable liability are great candidates for high-low agreements. If the jury hears different versions from the plaintiff/plaintiff’s expert and the defendant/defense expert of how an accident took place, they may struggle to reach a decision in the case. In these circumstances, a high-low agreement will take some of the sting out of the claim for the plaintiff or the defendant if the jury determines the other side is more believable and rules in their favor.
Questionable Causation – A high-low agreement can also be beneficial in claims with questionable causation. Perhaps the plaintiff is alleging a significant injury from a relatively minor accident and the defense does not believe the forces involved in the accident could have caused the injuries being alleged by the plaintiff. This type of situation might lead the jury to side with the plaintiff, resulting in a sizeable verdict. However, if the jury sides with the defense the outcome could be a much smaller verdict or a defense verdict.
Questionable Damages – There are also many cases in which the plaintiff plans to blackboard a significant amount of questionable damages at trial. This approach may involve past and future medical treatment that the defense experts believe was/is medically unnecessary. It may include past and future medical bills the defense considers inflated. It could also involve past and future wage loss that the defense experts believe are unsupported because the plaintiff can return to work. In each of these situations, if the jury believes the plaintiff and their experts, it could result in a runaway verdict for the plaintiff. However, if the jury agrees with the defense experts the outcome may be a much smaller verdict. The high-low agreement will “cap” the damages within the agreed upon parameters rather than facing the unknowns of a jury.
Appeals – Entering into a high-low agreement also eliminates the possibility of an appeal, including the time, costs, post-judgment interest, and uncertainty associated with that appeal. This is a significant benefit of the high-low agreement that is often overlooked. Once the verdict is rendered, the claim will be concluded.
High-Low Agreement Strategy –Ordinarily, some negotiation is involved in establishing the high and low amounts within the high-low agreement. Not surprisingly, the plaintiff wants to see higher numbers for both the high and low amounts, and the defense would like to see lower numbers for the high and low amounts.
The defense should try to negotiate the best high and low amounts possible under the circumstances. If there is a strong potential for a claim to exceed the policy limits, you should not miss the opportunity to cap the exposure within the policy limits if this is the lowest the plaintiff is willing to take on the high amount. Protecting the policyholder from an excess verdict should be the top priority. A high-low agreement that contains the damages within the policy limit will also insulate the carrier from a bad faith claim.
Binding Arbitration with High-Low in Place – Another option to consider when trying to resolve a claim is a one-day binding arbitration with a high-low agreement in place. This can be used in cases in which the plaintiff and the defense cannot agree on a settlement figure, but neither side wants to incur the time and expense of taking the claim all the way through trial.
High-low agreements allow both parties to have some control of the outcome of the case even when the parties cannot agree on a settlement amount. Entering into a high-low agreement potentially alleviates a good deal of the stress and uncertainly of a jury verdict or arbitration decision for the plaintiff, plaintiff’s counsel, the defendant, defense counsel, the insurance carrier, and the reinsurers.
A high-low agreement should not only be considered prior to trial. We have seen parties enter into high-low agreements after opening statements, during witness testimony, and even after closing arguments. This option should always be considered by the defense/carrier when it is warranted. If the defense/carrier have evaluated the claim correctly, there should be some degree of confidence that the verdict amount will be within the high-low range, or possibly lower, which would result in the lower amount being paid.
Please reach out to your Gen Re Claims representative with any questions regarding high-low agreements.
