An Offer to Compromise: Snatching Defeat out of the Jaws of Victory

By: Sam Steinberg, Esq.

The California Code of Civil Procedure contains an often overlooked but very powerful weapon in the arsenal of the litigant’s toolbox that when used properly can turn victory into defeat.

The Code of Civil Procedure, Section 998, is a cost-shifting statute designed to encourages parties to settle prior to trial and provides for penalties for a party that rejects an opportunity to settle and fails to get better result at trial.  Traditionally, California allows for the “prevailing party” to recover all costs. However, CCP Section 998 can shift the burden of incurring costs to the non-prevailing party.

For a plaintiff in a motor vehicle accident case, receiving such an offer from the defense side must be carefully considered and taken very seriously as it can easily turn a solid victory into a sound defeat.

California case law has described the cost-shifting provision of the statute as designed to “punish” the party that fails to accept a potential settlement prior to trial. If an Offer to Compromise is made and rejected and the prevailing party fails to obtain a better result at trial, “then the prevailing party is precluded from recovering its own post-offer costs and must pay its opponent’s post-offer costs, including expert witness fees, if awarded in the court’s discretion.”

Here is how the statute would work in a hypothetical situation: let’s say Driver A is rear ended by an intoxicated Driver B at a stop light on Magnolia Avenue and McKinley Street, in Riverside. Driver B is factually and legally responsible for the accident; in fact, liability is not disputed by Driver B’s attorney.  Driver B’s insurance carrier retains an attorney to defend the lawsuit brought by Driver A, and disputes damages only. Driver B’s attorney subsequently prepares and submits a 998 Offer to Compromise for a total of $50,000. Driver A turns down the Offer to Compromise and proceeds to trial and receives an award for $49,000. Although Driver A is plainly the “prevailing party” he will now be penalized for his failure to accept the settlement offer and Driver A will be obligated to pay for Driver B’s costs, including expert witness fees. Imagine now that the insurance carrier for Driver B expends $38,000 in expert costs (not an uncommon scenario for insurance industry experts). The court, using its discretion, will shift all or some of that burden to Driver A pursuant to C.C.P. 998. After Driver A accounts for medical expenses, attorney fees  and court costs, he may well be in the hole for several thousand dollars.  Although Driver A was the prevailing party, the cost-shifting statute has made him the practical loser.

Plaintiffs in motor vehicle accident cases are particularly vulnerable to this scenario because they are not usually the party to expend a great deal on expert witnesses. The plaintiff’s largest cost tends to be the attorney fees, and the language of the statute makes plain that attorney’s fees are “not costs” for the purposes of cost-shifting.

It’s the defendant (usually via the insurance company appointed defense counsel) that tends to rack up high expert witness costs. The plaintiff will likely rely on his actual treating physicians for support in pursuing his claim. Therefore, in the motor-vehicle accident context, it’s the defendant that will likely make the Offer to Compromise, having the most to gain.

There is no clear cut way to respond to an offer to compromise; each case must be considered along with its own unique facts along with a comparison to the potential recoverable damages. However, what is clear is that any such offer must be carefully analyzed so as to avoid turning a victory into a defeat.

Sam A. Steinberg, Esq.

P: 951-359-1209 x203

E: sam@tsattys.com

W: www.tsattys.com

Sam Steinberg is a partner and co-founder of Thompson Steinberg.  He has extensive experience in all aspects of insurance, insurance coverage, and insurance litigation, vehicular accidents, personal injury, construction defect litigation, and general litigation.  He has a black cat that roams his home freely.

**The information presented here is general in nature and is not intended, nor should be construed, as legal advice for a particular case. This blog posting does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult with your own attorney.**

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