Litigation Tip: Settlement vs. Trial

Author: David Nied

It has been almost eight years since the Journal of Empirical Legal Studies published “Let’s Not Make A Deal: An Empirical Study of Decision Making in Unsuccessful Settlement Negotiations.” The study compared verdict outcomes with pre-trial settlement negotiations in over 2,000 cases between 2002 and 2005. The results of the study support the conclusion that it usually is better to settle a case than to go to trial. In support of this conclusion, consider the following:

  • Plaintiffs recovered less at trial than they would have recovered by settling in 61% of the cases;
  • Defendants did worse by going to trial rather than settling in 24% of cases;
  • Both sides made the right decision to go to trial in only 15% of the cases (i.e., the verdict was between plaintiff’s last settlement demand and defendant’s last offer);
  • On average, plaintiffs who made the wrong decision to go to trial recovered $43,000 less than the defendant’s last offer;
  • On average, defendants who made the wrong decision to go to trial ended up liable for $1.1 million more than they had offered;
  • Plaintiffs were more likely to make “poor” decisions to go to trial in contingency fee cases; and
  • Defendants were more likely to make “poor” decisions to go to trial where insurance coverage was generally unavailable.

So, although defendants make fewer bad decisions to go to trial, a bad decision is much more expensive on average. Interestingly, the study also found that making the wrong decision to go trial has actually increased over time based on a study of trial outcomes over 40 years through 2004. (You can read more about the study in a New York Times article. You also can purchase a copy of the article at Wiley.)

We do our best to help our clients understand the risks of proceeding to trial. That includes explaining that no two juries are the same and that not all jurors will see a case the same way a client might see it. And, especially for plaintiffs, it includes the likelihood of making the wrong decision. In most cases, it is better to make a deal.

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