Feb 01 2013
Notes from a Plaintiff’s Attorney: High-low agreements – what they are and how to make them work for you
By Dr. JD, a plaintiff’s attorney, practicing in the Northeast
High-low agreements are a unique type of settlement mechanism. Unlike settlements that avoid trials, these are settlements that are contingent on the result of a trial.
High-low agreements are pre-verdict arrangements that set an alternate payment framework that the verdict will trigger.
Under a high-low agreement the plaintiff and the defendant negotiate:
(1) A “high” – a maximum amount that the defendant will pay if the verdict is for the plaintiff, even if the actual verdict is higher than that pre-set amount.
(2) A “low” – a minimum amount that the defendant will pay the plaintiff if the jury’s verdict is for the defendant or is for the plaintiff but below that pre-set amount.
For example, both sides can agree to a settlement that pays a maximum of the policy limit of $1 million to the plaintiff if the plaintiff prevails at verdict and $300,000 to the plaintiff if the verdict either favors the defendant or is for the plaintiff but is for less than $300,000.
What this means:
the jury could award over $60 million but the actual non-appealable pay-out to the plaintiff would be the policy limit of $1 million. It also means that a jury could find for the defendant but the defendant would still have to pay the plaintiff $300,000.
These agreements offer benefits to both sides. The plaintiff gets a protective “floor” that assures them that essential costs such as medical expenses and the costs of litigation itself will be covered even if they actually lose at trial.
These agreements also carry substantial potential benefit for the defendant doctor:
(i) These agreements create a protective “ceiling”.
This can be very significant for a defendant doctor who does not want to risk his personal assets in a jury verdict. In such cases, his concern is that a jury verdict might be far higher than policy limits. But, the doctor also believes he is right on the facts of the case. He wants his day in court, but not at the risk of bankruptcy.
A high-low agreement prevents this problem in the case of a very large plaintiff’s verdict.
(ii) These agreements offer the possibly of avoiding a ridiculously high Data Bank-reportable verdict. It also decreases the risk for the defendant doctor of even being entered into the Data Bank.
Generally, payments made by insurer to satisfy a malpractice claim against a physician are reportable.
This means that a settlement with or a verdict for the plaintiff is reportable. A verdict for the defendant is not reportable since no liability was found and therefore nothing was paid.
With a high-low agreement, none of that is actually changed even though a payment is made despite the defendant having won the case. That is because the jury did not actually assign any liability to the defendant doctor and so the payment to the plaintiff is not in satisfaction of a medical malpractice claim. Instead, payment is being made under an independent contract between the defendant doctor’s insurer and the plaintiff.
A very high settlement or verdict can also trigger disciplinary action by the doctor’s state medical board.
Therefore, a high-low agreement gives a defendant doctor faced with the possibility of a very high reportable verdict or settlement a way to avoid the risk of having that giant sum on his record if he loses while also facing no risk of reporting if he has to pay despite winning.
High-low agreements are therefore best seen as “insurance” that both sides mutually embrace to prevent their own worst-case scenarios. Both sides accept some potential loss against a far greater risk at the hands of unpredictable jurors.
These agreements can be signed any time prior to the verdict. They are usually not revealed to the jury during trial. They are often not revealed to the judge during the trial either, to prevent a skewing of events in the trial.
Both sides in the litigation believe that they can prevail if the trial is conducted properly but both sides realize the need for a practical financial hedge.
Let’s now look at several practical issues to consider when using a high-low agreement in your own case.
The first is its actual potential benefit to you.
High-low agreements make sense if your defense is either weak or very abstruse or the plaintiff is very sympathetic while you have failed to establish rapport with the jury. In other words, if you think you might lose for any number of reasons- and the damages against you will be a large number.
If you and your attorney have decided that a high-low agreement is a worthwhile approach, the next step is to set it up properly:
(i) Remember that the high-low agreement is not part of the public record
It is important to treat the agreement as the enforceable contract that it is and to commit it to writing. A handshake between the attorneys is not worth the paper it is not printed on after the jury actually reveals its decision and one side realizes just how well it has actually done and wants to back out of the agreement.
(ii) Draft carefully and cover contingencies
For example, how will a deadlocked jury or a mistrial factor in? What about if a post-trial motion to ask the court to set the verdict aside is made or a new trial is granted after a motion? These contingencies should be directly addressed.
The agreement should also set out whether taxed costs, interest, and other sanctions are waived. The agreerment should specify how attorneys’ fees and costs of litigation are to be handled.
Finally, if you are in a jurisdiction where (a) collateral sources like medical insurance reimbursement is directly deducted from the verdict, or (b) has a cap on damages, you should make sure that the agreement addresses these issues. If it is silent a court will assume that they were not meant to apply and you will not be able to avail yourself of them as set-offs on what you have to pay.
It is most prudent to do wait until all testimony is completed and, ideally, until both sides have delivered their closing statements. In other words, as both sides get a feel for how the trial is going, they can begin to discuss options and even draft an agreement, but no binding agreement should be actually signed until the trial has significantly run its course.
(iv) The role of the judge
While the general rule is that these agreements can be entered into without prior approval of the judge, cases involving minors and adult incompetents, where settlements will always be subject to judicial review, should be handled under judicial supervision from the start. The agreement of the parents or guardian alone is not enough.
At a minimum, a judge will review the agreement to make sure that the plaintiff’s interests are adequately protected. The judge may also choose to name a guardian ad litem to advocate for the plaintiff.
Since these agreements are of significant value to defendants in high-value pediatric injury cases, this point cannot be over-emphasized because if the agreement is found to be deficient by the judge, a large verdict the defendant doctor was hoping to avoid may be reinstated.
(v) The operational specifics of the agreement
- Set a date by which payment must be made.
- Include a stipulation to seal the court file and deal with any confidentiality and non-disparagement issues.
(vi) A merger clause
This says that the contract is the complete and finalized agreement between you and the plaintiff.
Since a high-low agreement precludes appeal by either side the necessity for this clause is obvious.
In summary: A high-low agreement can be of significant value to a defendant physician whose potential liability exceeds his policy limits. These should be drafted with care so as to be enforceable.
Medical Justice’s thoughts: High-low agreements make the most sense when the potential damages are high, but, the standard of care / causation arguments are on your side. The classic case is neonatal brain injury. No doubt the life care plan for a brain injured infant will be high, well beyond policy limits. And a sympathetic jury will want to see the family taken care of. But, if your care was pristine, and you want your day in court, this is the best way to get that option without betting the house. The high-low amount will oscillate between $250k and $1M. So, even if the jury foreman reads the number $60 million, you will be financially protected.
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