Florida’s Proposal for Settlement Rule: It’s still “David vs Goliath”

September 3, 2010

In an apparent desire to promote settlements in civil cases, the Florida Legislature created the “Proposal for Settlement ” rule pursuant to Florida Statute 768.79 and Florida Rule of Civil Procedure 1.442. In a nutshell, the rule provides both the plaintiff and defendant the opportunity to extend a pretrial settlement offer to the opposing party which, if rejected can expose the “losing” party to liability for the prevailing party’s attorney’s fees and costs if certain provisions are triggered by the ultimate jury verdict at trial.

I put the “losing” party in parentheses, because, under the right ( or wrong, depending on the point of view) circumstances, even if the plaintiff is awarded damages at trial, the rule can still mandate the awarding of fees and costs to the defense – a disastrous outcome for the vast majority of plaintiffs.

The rule works like this: if a defendant files a written proposal for settlement which is not accepted by the plaintiff within 30 days, should the case thereafter proceed to trial and the jury award the plaintiff at least 25% less than the offer, the trial court must require the plaintiff to pay the defendant’s attorney’s fees and costs. This amount is either deducted from the actual damages award, or if the fees and costs are greater than the award, the court must enter a personal judgment against the plaintiff for the deficiency.

By example, say the defendant serves an offer of settlement upon the plaintiff for $40,000. If that offer is rejected and the jury finds in favor of the plaintiff but awards less than $30,000 in damages, the plaintiff is on the hook for the defendant’s fees and costs which might easily exceed $30,000. Personal bankruptcies have resulted from this unfortunate outcome.

On the other side of the coin, where the defendant rejects the plaintiff’s pretrial offer of settlement and the jury subsequently awards damages to the plaintiff in an amount at least 25% greater than the offer, the defendant must pay the plaintiff’s fees and costs.

Sounds fair and reasonable, right?? Let’s change the name of the “defendant” to State Farm, Allstate, The Hartford or any other insurance company with hundreds of millions of dollars in available assets. Let’s call the plaintiff Mr. Jones, a self employed plumber with a wife, 3 children and a mortgage. Mr. Jones has been injured in an auto accident caused entirely by the inattentive driving of Mrs. Smith, a 72 yr old retiree insured by Allstate.

While Allstate acknowledges liability for Mrs. Smith’s poor driving, it hires numerous paid experts who are prepared to testify that Mr. Jones’ injuries are not as bad as his doctors’ believe and may have been caused as a result of his many years working as a plumber. State Farm extends an offer of settlement for $20,000.00, an amount which barely covers Mr. Jones’ outstanding medical bills, but not his expected future bills and lost income.

Mr. Jones does not accept the offer and proceeds to trial. At trial, the jury is never informed that Allstate is footing the bill for both Mrs. Smith’s attorneys and paid experts, but merely see poor Mrs. Smith sitting with her attorney at the defense table. Upon deliberation, the jury believes the Mr. Jones has been injured, but feeling sorry for Mrs Smith, they compromise and only award Mr. Jones $14,000 as reasonable medical bills, believing that Mr. Jones will be grateful to have at least the majority of his bills paid. Wrong.

In proceeding to trial, Allstate has probably expended $50,000.00 or more, rather than using a fraction of that amount to reach a pretrial settlement with Mr. Jones and avoid trial. While Mr. Jones can ask the Judge to increase the jury award to reflect the evidence he presented at trial, that remedy is rarely granted. More likely, the court will award Allstate $50,000 – of which $14,000 will come from the jury award and the additional $36,000 as a personal judgment against Mr. Jones.

While the opposite scenario in which the plaintiff prevails and is awarded fees and costs to be paid by the insurance company can and does occur, the resulting economic consequences to the insurer are meaningless when measured alongside the financial ruin awaiting Mr. Jones. If an insurer is forced to pay costs from time to time, it is viewed merely as a cost of doing business to be reflected in the balance sheet or passed along to the stockholders.

The rules in Florida aimed towards promoting pretrial settlements incorrectly assume a level financial playing field shared by the opposing parties. This assumption is unfortunately more often than not untrue. While the Biblical “David” was able to slay the giant “Goliath” , under Florida law, modern day “Davids” are all too often armed with an empty slingshot.