Offers of Compromise

In a quarterly newsletter put out last year, I detailed the reasons why a personal injury case can take so long to resolve. The takeaway from the article was that there can be multiple causes for a case’s lengthy lifespan, and one explanation may be delay tactics on the part of the insurance company. One of the few tools that a plaintiff can employ to try to expedite a case when the defense is dragging its feet is the offer of compromise, or “OC”.

An offer of compromise is a document that is filed in court after a lawsuit has commenced. Essentially, the plaintiff states that they will agree to settle the case for “X” amount of money, and can choose any sum they want in setting that amount. If the defendant accepts within 30 days of the filing of the OC, then the case against that defendant is settled for the amount specified in the OC. If not, the offer has expired, and the plaintiff is no longer bound to settle for the amount set forth in the OC.

Offers of compromise are helpful because they can put pressure on the defense to make a fair settlement offer once the OC is filed. This is because if an OC is not accepted, and then the plaintiff obtains a verdict in excess of the amount offered, the defense has to pay the verdict amount plus interest dating back to the date the lawsuit was commenced. Furthermore, if a reasonable OC is not accepted, the defense may risk a bad faith claim from its insured should there be an excess verdict.

I find that offers of compromise are most helpful in resolving a case where there is a limited amount of insurance coverage. For instance, if a defendant has $25,000 in insurance coverage, and the plaintiff has a claim that is arguably worth more than that amount, the defense is incentivized to accept the OC for the $25,000 rather than risk the potential consequences of an excess verdict. When employed strategically, offers of compromise can speed up a case and hold insurers to account.