The Florida Bar

Florida Bar Journal

Settlement Offers and Personal Injury: Identifying the Break-Even Offer


Insurance companies collect premiums to offset risk for the e products they sell. The pre-

mium structures that are used are determined by actuaries and are based upon historical data. There is a multitude of available data to help the personal injury attorney assess the reasonableness of an offer of settle-ment. This data can be used to determine actuarially the break-even point for assessing whether the case should be tried before a jury. This is the same methodology that insurance companies employ to set their premium structures. Successful attorneys often negotiate very conservatively, accepting offers well below the break-even point, simply because they have not made an empirical assessment of the break-even point.

Actuaries set premium schedules on the basis of probability of claims, and these probabilities are determined with historical data showing both the likelihood of a claim and the probable exposure of the claim. utilizing this data in order to deter-mine these probabilities, the actuary does not guarantee the amount of any one claim, or whether it will occur. The actuary simply understands probability theory: In the long run, higher than projected claims will be offset by lower than projected claims, balancing everything out to the total projected claims amount. This same principle is used by Las Vegas and state lottery odds-makers, and a long list of other professionals, including the military and NASA. It can be applied to personal injury cases to assist the attorney in deciding when to accept an offer of settlement or whether a jury trial provides the likeli-hood of a greater benefit to the client and attorney.

Economic Factors

• Time is Money

Anyone who earns money on the basis of favorable results understands the importance of the saying “time is money.” Such individuals also understand all the components that figure into the “time is money” equation: 1) Delay means more work for the attorney once the insurance company defense attorney is engaged; 2) delay makes the same money worth less because of the effect of inflation; 3) delay limits the number of new cases that the attorney can handle during the delay period; and 4) delay poses the additional risk that if a jury award does not equal or exceed 75 percent of the insurance offer, the client may be responsible for attorneys’ fees and costs.1 All of these factors have an economic impact of reducing the value of a jury award, and the personal injury attorney often relies upon seat-of-the-pants guesswork to decide when to accept an offer of settlement and what to offer as a counter proposal. Some attorneys know that the time for guesswork has passed, and they now employ jury consultants to eliminate some of that guesswork.

The personal injury attorney can likewise eliminate some of that guesswork.

• The First Step

The first thing that needs to be done is to retain an expert to perform a valuation of the economic loss. This is an essen-tial first step because it is necessary in determining the break-even point for purposes of settlement. It also tells the ad-juster that you are serious about the claim and that you may take the matter to a jury. A well-supported valuation report setting forth the extent of the loss demonstrates your good faith in the negotiation process by showing that there is a legitimate claim. After all, if you are unwilling to invest in this report, how could you possibly convince the adjuster of the value of the case, let alone show that you intend to pursue it in a court of law if faced with an unreasonable offer? Without a competent professional valuation, you have significantly less proof to offer an adjuster on the value of the economic loss. Again, it also demonstrates that you are preparing your case for a jury.

The authors believe that if attorneys used experts more often, they would make more money per case, and would spend less time and effort on cases that proved to be less profitable.2 This would serve the public interest as well. Eventually, use of the expert reports would translate into raising the break-even point for settlement purposes because adjustors would have to reevaluate the low offers they would ordinarily make.3 If the plaintiff’s attorneys rejected settlement offers that were far below the valuation break-even amount, then low insurance company offers would lead to more trials that the insurance companies lost, thereby raising claims costs and improving public respect for personal injury attorneys. It would literally force the insurance companies to take a serious look at the valuation supporting the break-even point, and this would favor everyone’s interest. Instead, the authors believe that many adjustors bet that a case will not go to court because more often than not either the attorney or the client may be unwilling to endure the trial process. A valuation of the break-even settlement can change this attitude because negotiations currently are controlled by guesswork, and the attorney with limited resources cannot afford to guess wrong. This generally forces most settlements at the lower end of their value, and this works to the insurance company’s advantage.

The Second Step

The second step is to have a conference with the actuary following the initial valuation report of the economic loss. The report should delineate the value of the economic loss. But other issues figure into the jury award. Juries often award amounts different than what the report supports. The actuary needs the input of the attorney for advice on what counsel believes the client will likely be awarded in court based upon all of the variables of each particular case ( i.e., skill of the attorney, client as a witness, etc.), including the strength of the proof that can now be provided. The actuary can then use this information to establish a break-even amount.

The break-even amount will consider many things. First, it will factor in the extra time required during the process of litigation. It will factor in the estimated time that will be invested for trial preparation and trial. It also will factor in the anticipated out-of-pocket expert witness’ fees and other related court costs. An early settlement could be earning inter-est upon its receipt, and these lost earnings will continue until the matter is resolved. This might even include an appeal. Finally, a discount must be introduced to provide for the contin-gency that the client is ordered to pay statutory attorneys’ fees if an unfavorable result occurs at trial. Determining the values for this last contingency will be the most complex part of what otherwise can be described as a straightforward and noncomplex valuation.54

Example : Assume that you can easily establish damages in excess of $25,000, which happens to be the policy limit, and that this is a soft tissue injury. Assume further that experience shows that you will spend 30 hours for discovery-related matters once litigation is underway, and another 15 to 20 hours preparing for and representing your client at trial, and that your hourly rate is $200, and that the hourly rate for insurance company counsel is $150, and that the insurance attorney will spend 20 percent more time than you. Also assume that the insurance company has no out-of-pocket expenses for a claim as small as this. Assume that experience shows a 35 percent incidence of plaintiff attorneys failing to receive 75 percent of the insurance company’s offer. Finally, you expect your client to receive an award of $25,000 should you proceed to trial, and you anticipate expenses of $3,500 for expert witness fees and other related expenses, of which 70 percent is recoverable in the event that your client wins, and you expect that the process will take two years. Assume an eight percent rate of interest for the time value of money (related exclusively to a valuation of the break-even amount).

Your break-even offer is $13,479, based upon the above information: $21,433 – $3,001 + $1,365 – $9,5005 – $2993 + $6,175, where $21,433 is the present value of the expected recov-ery; $3,001 is the present value of related court cost expenditures; $1,365 is the present value of the recoverable court related expenses; $9,500 is the value of the 47.5 hours of time that you expect to invest in a case going to trial; $2,993 is the expected loss on attorneys’ fees; and $6,175 is the expected recovery of attorneys’ fees. This means, if you have a half dozen cases like this in a year, you can expect two of them to fall short of the break-even point, and four of them to exceed the break-even point, with the average settling somewhere near the break-even point.

There can now be another side to the negotiation process. Based upon the information provided in the above example, the insurance company’s expected payout is $13,047, plus what your client wins from a jury: $8,500 + $6,175 + $1,365 – $2,993, where $8,500 is the cost of the insurance company attorneys’ fees. This is the amount that they will have to pay on average for attorneys’ fees and related costs. It includes their expected fees, and the average amount of attorneys’ fees that they will have to pay the other side. It also nets that payout with the average amount of recovered attorneys’ fees that they expect to receive when the jury award is less than 75 percent of what the insurance company offered. As the insurance company has an expected payout of $13,047, plus what a jury awards your client, it is plain to see the extent of the plaintiff’s bargaining power that he or she fails to use in the negotiation process. The plaintiff’s attorney can turn those tables by spending more time and money in preparation for trial.

The break-even amount determined by the previous example assumed that there was no issue related to fault and causation, and that you will win if you proceed to court. If winning the case is in doubt, the settlement amount is reduced to far below the probability of winning, multiplied by the break-even amount determined above. Other contingencies then enter into the calculation.

Example 2 : Suppose that there was only a 50 percent chance of a finding of fault or causation in the above example. The above example assumed that empirical data supported a 35 percent chance that your client will have to pay insurance company attorneys’ fees, based upon a jury award of less than 75 percent of the insurance company settlement offer. But when there is only a 50 percent chance of winning, there is only a 32.5 percent6 chance that your client will not have to pay those fees: (50 percent)(100 percent – 35 percent). This changes the above break-even point dramatically, and by much more than 50 percent. In fact, the new break-even point is now well below zero: $10,717 – $3,001 + $683 – $9,500 – $5,771 + $3,088, where each result is positioned in the same place as before, and represents the same contingency as before, modified by the chance of win-ning.

In the modified example, you expect to receive net cash ( i.e. , after all expenses are paid) of $5,716 for 47.5 hours of expected time that you will invest and then you get to keep only a percentage of it. With this set of facts, you would be well advised to encourage your client to accept a small insurance company award, or alternatively require that the client front all of the out-of-pocket expenses.
Example 3 : Modify example 2 to provide a 90 percent chance of winning.

The break-even offer is now $10,028: $19,290 – $3,001 + $1,229 – $9,500 – $3,548 + $5,558. This example was provided to show the sensitivity of the break-even amount to the determina-tion of fault: Simply a 10 percent doubt on the outcome of fault can lower the break-even settlement offer by 25.60 percent. Yet this is a number which is very sensitive to the facts also. The conclusion that one should reach by the three examples provided is that it may not be good business practice to simply rely upon seat-of-the-pants guesswork in assessing personal injury settle-ment offers. A persuasive professional valuation may convince an adjustor to produce an attractive settlement offer where the seat-of-the-pants approach may not.

• Fault as a Valuation Issue

The authors believe that oftentimes fault and causation can be resolved as a valuation issue. Many accident victims have had prior accidents and the insurance companies seek to escape li-ability by blaming the loss on a previous injury. This can be resolved as a valuation issue by valuing the after-the-last-accident loss less the value of the before-the-last-accident loss. This should remove the issues of fault and causation and zero in on the amount attributable to the last accident.

This introduces a problem for determining the break-even offer because the loss is decreased while the valuation expense is doubled. To deal with this problem, you might want to employ ballpark valuation results and only do the two valuations if the case goes to trial. While this middle procedure could possibly increase overall valuation expense, it does so only when you have no choice because of a low insurance company offer.

• Statutory Attorneys’ Fees: Determining the Rate of Incidence

Soft tissue injury awards tend to be small and a much smaller percentage of the supported loss (based upon testimony and written reports) than the more severe injuries. For this reason, data pools from which incidence data can be drawn must separate the soft tissue injury from the more severe injuries.7 Within each category, two distinct subset categories must be created for cases when there is significant doubt about their success. Creating two categories within each category may tend to overexpose the risk of loss of statutory fees, but built-in conservatism is necessary for calculations where the break-even offer is a small percentage of the expected jury award. It would be preferable to create an incidence amount slightly higher than to create unwarranted confidence on an amount which may overstate the break-even offer even by a small amount.

Other natural break points in the data may be determined if they are shown to exist. For example, it may be warranted to divide pools into two or more categories depending upon the extent of exposure. Cases involving high attorneys’ fee awards may naturally change the incidence amounts because high exposure may tend to change the way in which a case is tried. Incidence rates may vary from county to county and even city to rural. Before deciding to separate the subpool into more subpools by category, natural break points must be determined from random break points, which can occur when the pool has insufficient data.

Publications Showing Average Settlements

Ever hear of the self-fulfilling prophecy? It favors the insurance company when the injury attorney looks at raw data and is influenced by it, especially when attorneys do not do the things they need to do to win cases and maximize the settlement offer. It also provides statistics that work against the better attorneys and give a false sense of confidence to the more average attorneys, because composite figures show results which are averaged between both types of attorneys. Composite figures also do not reflect the differences between an attorney who has really invested money and time in a case and one who has not. Composite figures do not impute the strength of the facts of a par-ticular case or the skill of the plaintiff’s attorney in maximizing the award. This is why the valuation process of the break-even point must use your input, as an attorney, in helping you to decide when to settle and when to go to trial. Composite figures do nothing to help you make good business decisions.

Even if the composite figures could be relied upon, which they cannot for the reasons already stated, average awards still tell you nothing about a break-even settlement amount. Accordingly, composite figures tend to provide a great deal of misleading information, if they are relied upon in the decision-making process.


An economic valuation of the loss is an essential first step in the valuation of the break-even offer. It is also essential to the bargaining process because it tells the adjustor that you have a legitimate claim and that you will go to court if that person does not make a reasonable settlement offer.

The attorney’s acquired instinct about what can reasonably be won is important, but it represents only one factor out of several in the determination of the break-even settlement offer. If attorneys allow themselves to be influenced by published composite average awards for particular injuries, then the in-surance companies can use this against them. They can skew offers to well below the average amount on cases that the injury attorney will very likely win, while offering ridiculously low amounts on cases where there may be some small doubt. Yet even the insurance company has to deal with costs that it has to bear defending cases when there is significant doubt about a plaintiff’s victory.

Hopefully, personal injury attorneys will use the valuation of settlement offers as a business tool. doing this and observing that it works over the long run, the personal injury attorney will be able to devote less time and even turn away the undeserving cases (after developing some experience on what a valuation would likely show on a client with similar circumstances). This will even free up money for insurance companies to pay higher amounts on the more worthwhile cases. The public at large is served, and the personal injury attorney earns more money per case. That should be everyone’s goal.

1 See Fla. Stat. §768.79.
2 The authors acknowledge that many personal injury attorneys accept as good will some of the less profitable cases.
3 In Dyes v. Spick , 606 So. 2d 700 (Fla. 1st D.C.A. 1992), the court noted that many cases may have upheld seemingly very low jury awards, but that such awards were made prior to the 1986 statute and were also prior to the itemized verdict statute, Fla. Stat. §768.77 (1989) and the remittitur and additur statute, Fla. Stat. §768.74 (1989), both of which require that awards be reasonably related to the amount of damages proved.
4 The premise behind the break-even offer is that the plaintiff’s attorney is very busy and that such an attorney cannot afford to invest time in too many cases for which he or she is not well compensated. For this reason, the break-even offer of settlement may not be applicable to younger attorneys who may need to attract overhead income.
5 Attorneys’ fees were not discounted on the basis of the time value for money, and this is based upon the assumption that their fees are continually adjusted upward to offset the discount that inflation may have on that future fee.
6 This is merely the result of the way probability works. If by removing the issue of fault, there is no chance that the insurance company offer will exceed 75 percent of a jury award, then an introduction of a 50 percent chance of losing on fault means that there is a 50 percent chance that any insurance company offer will exceed what you will win.
7 It may also be a good idea to use data pools generated solely after 1986 tort reform. tion of the judgment itself.

The problem with federal judgments, as i Lott, is complicated by 28 U.S.C. §1962 which provides that federal judgments shall be liens on property located within a state in the same manner, to the same extent and under the same conditions as state court judgments. Therefore, although under §95.11(2)(a) the life of a federal judgment is only five years, if that judgment becomes a lien within those five years, the lien may remain enforceable beyond the life of the judgment.

In fairness to Mr. Tanner, he does state that the discovery Balfour should have been permitted, “if Balfour’s judgment was properly recorded or if the execution had been delivered [to the Dade County sheriff or U.S. Marshal].” I write merely to rebut the suggestion that §95.11 only applies to new and independent actions and not to actions taken to execute upon or collect a judgment.

Frederic J. DiSpigna

Boca Raton

Author Responds

I must respectfully disagree with Mr. DiSpigna’s analysis of Lott, Young, and 28 U.S.C. §1962 for the reasons stated in the article. Anyone interested in the subject should simply read the cases and statutes and make their own judgment as to whether the article is correct.
None of Mr. DiSpigna’s remarks as to judgment liens were presented to, or decided by, the 11th Circuit in Balfour and 28 U.S.C. §1962 is unequivocal that the liens of the judgments of federal courts sitting in Florida “shall be a lien on the property located in such State in the same manner, to the same extent and under the same conditions as a judgment of a court of general jurisdiction in such State. . . . ” Under F.S. §§55.081 and 55.10 the lien of a Florida circuit court judgment is enforceable for up to 20 years after entry of the judgment.

Michael G. Tanner