Smoothing the ups and downs of litigation

 High/low agreement can be valuable tool at trial or negotiations

By Barbara L. Jones
The Daily Record Newswire

MINNEAPOLIS — The see-saw of negotiations and, even worse, imagining the up and down of jury deliberations can frighten the most experienced trial lawyer or insurance adjuster. The more vulnerable the client, the greater the fear.

The high/low agreement is one of the tools available to help everybody calm down.

Black’s Law Dictionary defines a high/low agreement as a contract in which a defendant agrees to pay a plaintiff a minimum recovery (the low) in return for the plaintiff’s agreement to accept the maximum amount (the high) regardless of the outcome of trial. It can be used in settlement negotiations, at arbitration or at trial. It is usually accompanied by an agreement not to appeal, a huge factor because the plaintiffs usually want closure — and a quick payout.

“They can be comforting to the client and the lawyer,” said Mark Streed, president of the Minnesota Association for Justice.

He recalled one case where it was really comforting. There were high damages, iffy liability and two defendants, one of which was a commercial truck driver and the other of which was an uninsured “yahoo,” said Streed. The parties reached a high/low of $250,000 to $1 million. The jury found the truck driver 20 percent at fault, which under old joint and several liability law, meant the driver’s insurer was responsible for 100 percent of the $850,000 verdict.

Attorney Fred Brimseth, whose practice includes a lot of Federal Employee’s Liability Act cases against railroads, told Minnesota Lawyer that high/low agreements have been great for plaintiffs. It helps if the defense attorney is worried, he said. At a Washington trial involving a traumatic brain injury, he needled the defense attorney a little bit, talking about how well his case was going in.

“That got them thinking along those lines,” Brimseth said, and they agreed to a $2 million/$6 million high/low. The jury came back at $6 million.

“I knew I was going to get a nice verdict. I thought $6 million was where it would come in,” Bremseth. The verdict was final, with no right to appeal.

Minneapolis attorney Susan Holden most recently used a high/low in an automobile accident case where there was insufficient insurance coverage and proving the damages would have been tough. She negotiated a high/low that provided that if she won on liability the insurer would pay the limits, and if she lost, they’d still pay the low.

“It’s a great tool that is used frequently,” Holden said. Sometimes is it used to protect the insured from any liability over the insurance limits and sometimes to protect the plaintiff from a defense verdict.

Defendant’s costs a factor

The defendant may agree to or seek a high/low because cases are becoming so expensive to litigate, said Duluth attorney Robert Falsani. In an email to Minnesota Lawyer, he wrote, “Usage of high low agreement arbitration, in low end cases, seems to be increasing. For an insurer, taking the deposition of an examining doctor often costs $3,000 for a witness fee and $1,000 for court reporter/videographer and a second charge to play the video. Even a routine case results in a three-day trial with substantial lawyer prep time expense as well.

“Thus, the 2013 cost of defense of a very routine matter often ranges between $10,000 to $15,000. Transferring the case to a high low arbitration allows the insurer to actually save money when they win. The insurer receives the added bonus of protecting the insured from an excess verdict and protecting themselves from a bad faith mess in the case of a runaway verdict.”

Falsani said that, based on his personal experience, “In every case the arbitration came in higher than the last insurer offer and lower than my last demand. In every case mediation had failed. But, the arbitrators settled the case.’ Lawyer arbitrators tend to reach middle-of-the-road results. No one giggles and no one cries.”

Falsani doesn’t do high/lows during a jury trial, although many lawyers do. “If I am going to the time and expense of jury verdict, unless the case involved tremendous risk, I would not want to limit the possibility of a ‘home run’ recovery,” he wrote.

A possible wrinkle

The underinsured carrier may be a wrinkle in the smooth agreement between plaintiff and defendant. The UIM carrier wants to preserve its right to go after the tortfeasor, at least in the rare occasions that the tortfeasor has funds. The notice should give the UIM carrier a reasonable time to make a case for intervention, said Tammy Reno, co-chair of the motor vehicle accident committee of the Minnesota Defense Lawyers Association. Having said that, Reno added, “I am opposed to the idea that arbitration awards should be binding on the UIM carrier since it would take away the UIM carrier’s right to a jury trial. It should not be allowed.”

At the same time, the plaintiffs want to bind the UIM carrier if the arbitration award exceeds the policy limits.

“The basic drafting approach to this goal has been to provide that after the award, the claimant has the right to place the UIM carrier on notice, depending on the result,” explained Waite Park attorney Michael Bradshaw in an article published by the Minnesota Association for Justice. But that approach didn’t always protect the insured from the underinsurer’s claim for subrogation, he said.

Solutions have evolved through the cases of Schmidt v. Clothier, American Family v. Bauman, Butzer v. Allstate, and Malmin v. Minnesota Mutual. The UIM carrier may intervene in the case by substituting its draft for the liability carrier’s draft in order to preserve its right of subrogation against the tortfeasor, explained Bryant. If proper notice is given, Bryant argues, “then any collateral attack on the award by the UIM carrier will fly in the face of the strong public policy that favors settlements and the equitable, final disposition of claims.”

Lange v. Strong, a case along these lines, is pending before the Court of Appeals, by attorneys James Vander Linden and Scott Wilson.

“In that case defense counsel and I agreed to submit the case to binding arbitration. He wanted to call the agreement to arbitrate a ‘Best Settlement’ agreement. I basically told him that I don’t care what you call the agreement, it just needs to be clear that my client will be able to bind the UIM carrier to the outcome of the arbitration under the Butzer case,” Vander Linden told Minnesota Lawyer in an email.

The UIM carrier asked the court to rule that it was not bound by the arbitration award, claiming that the agreement to arbitrate was an agreement to effectuate a settlement and not to determine the outcome of the case, Vander Linden. The issue is the distinction between “concluding” a case and “settling” a case, Vander Linden told Minnesota Lawyer. If the high/low agreement is not for the purpose of “concluding” the case, then the UIM carrier arguably would not be bound.

The UIM carrier appealed to the Court of Appeals but the appeal was dismissed. The UIM carrier is now attempting to be part of the Strong appeal by filing a “respondent’s” brief that does not respond to the appellants brief but rather argues why the UIM should prevail on the appeal that was dismissed, Vander Linden said. He will move the Court of Appeals to strike the UIM carrier’s brief.

Not without risks

It can be a risky strategy to have a high/low where there is more than one defendant, said Minneapolis lawyer Fred Pritzker. If the defendant isn’t let out of the case, there is less incentive for the defendant to deal. But if the settling defendant stays in the case the judge may have to inform the jury of the settlement, and that may affect the verdict against the other defendants.

“[High/lows] are in the tool box of every good litigator but I don’t pull it out that much,” Pritzker said.

Attorney Tom Conlin agreed that the high/lows can be risky, but “there are risks and benefits to every decision a trial lawyer makes. A guaranteed outcome is good if the low can be high enough. You can always lose on liability or you can miscalculate damages.”

The key is an informed client, Conlin said. “Approach it very carefully and make sure the client is aware of what he or she is giving away.”