September 20, 2008
Feinman on Litigation Incentives and Insurers in Large Tort Cases
Jay Feinman (Rutgers-Camden) has posted on SSRN Incentives for Litigation or Settlement in Large Tort Cases: Responding to Insurance Company Intransigence. Here is the abstract:
The purposes of this article are to describe some ways in which the practices of insurance companies in settlement negotiations and the decision to settle or litigate in large tort cases disserve the objectives of tort law and to suggest genuine tort reforms to better align the dynamics with the objectives. Part I of the article describes models of the dynamics of settlement and litigation. Part II reports and explains a substantial gap between the predictions about settlement in the literature and the practice of settlement in large tort cases. In general, this can be described as a failure to appreciate the full consequences of insurance companies' strategic behavior in bargaining. In fact, there are a very significant number of large cases, probably an increasing number in the last few years, in which liability is relatively clear and it is also clear that the victim's damages are substantial, yet the insurance company refuses to make an offer to settle the case, makes a disproportionately low offer that it refuses to raise, or makes an offer only very late in the process. Part III explores existing measures and reforms to respond to this behavior. These include an expanded good faith duty owed by the defendant's insurance company to the insured, application of Unfair Claims Settlement Practices Acts, a common law action for bad faith against the insurance company by the tort victim, prejudgment interest and offer of judgment rules, intentional infliction of emotional distress, and the wrongful litigation torts.
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