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Don't Overplay Your Hand: Plaintiffs Frequently Make the Wrong Choice

By Michael Myers

This summer the New York Times published an article about the choices made by individuals whether to settle their personal injury lawsuits and the typical outcome at trial following these decisions. The article indicated that typically individuals overestimated their likelihood of success at trial and end up doing worse financially as a result of trying the case than they would had they settled it.

The article goes on to discuss choices made by insurance companies and large corporations. Unlike the decision made by most individuals, entities with significant litigation experience typically make better choices and end up doing better at trial than they would have had they settled their cases.

The contrast between the decisions made by individuals and major corporate entities comes as little surprise. The choices made by individuals are more likely to be emotional and are almost uniformly based on information that is inferior (based on both on quantity and quality) to their adversary’s.

The reasons for this information gap between litigants are both simple and complex. It’s apparent that insurance companies, for example, are able to make actuarial decisions based on the outcomes hundreds of thousands of cases whereas even experienced counsel for individuals ends up making anecdotal assessments based on their handling of hundreds or thousands of cases as opposed to hundreds of thousands of cases on the part of the opposing insurance company. But beyond this quantity of reasons, there is also a qualitative heuristic that comes into play.

Individuals underestimate the likelihood of the probable happening (for example, smokers underestimate their likelihood of contracting lung cancer) and overestimate the possibility of the improbable happening (winning the lottery or being killed in a train accident).

In the context of personal injury cases injured people (oftentimes with the help of neighbors, relatives or sensationalistic news stories) overestimate the likelihood of not just winning but also winning a significant verdict and underestimate the odds that the opposing insurance company has accurately assessed the case.

There are obviously situations where too little money is offered and the case should be tried. We’ve blogged numerous times about recovering judgments that are 10, 20 and even 30 times the best offer made by the insurance company. But these are exceptions rather than the rule.

There are definitely times where it makes sense to go to trial. But in most cases it doesn’t make sense to go to trial and it does make sense to accurately assesses both the odds of prevailing at trial and the likely outcome at trial. In addition, the cost of going to trial must be factored into the calculus in order to determine what the injured person is likely to net.

These are my thoughts about the article and analysis of whether the majority of cases should go to trial or not. I would be interested to hear your input as I know quite a few people have views different from mine (particularly the “true believers” in the plaintiffs' bar that think every case should go to trial).

Originally posted at InjuryBoard by Michael Myers

Full post as published by Seattle Personal Injury Lawyer on January 14, 2009 (boomark / email).