High – Low Agreements Can Reduce The Risk At Trial

High-Low agreements are an interesting option in cases that reach trial. The plaintiff and defendant can reach an agreement to fully settle the case, but not for one set amount as is usual. Instead, the parties agree to a range of settlement - a high amount no more than which the defendant will have to pay and a low amount no less than which the plaintiff will receive – regardless of what verdict the jury returns. That’s right – the case proceeds through the end of trial despite the deal. Juries are not advised of the existence of a high-low agreement, much less the amounts.

By way of example, the parties may agree to a high of $600,000 and a low of $100,000. If the jury returns a million dollar verdict, the defendant pays the plaintiff the high - $600,000. If the jury returns a no cause verdict, the defendant pays the plaintiff $100,000. If the jury returns a $500,000 verdict, the defendant pays the plaintiff $500,000 since it was neither above the high nor below the low.

The high-low amounts are negotiated by the parties. The range may be agreed upon at the start of trial, during the plaintiff's case in chief, while the defense is putting on their case, during closing arguments, or even as we have done before, while the jury is out deliberating.

The amount of the high and low obviously varies from case to case and reflects the strength of each party's case and how risk averse each party is. After several years of litigating a case, a plaintiff may want to be assured of recovering at least some money. In exchange, the plaintiff will have to agree to forego any hope of the "big hit." The defendant may be induced to pay a sum certain even in a case where the liability is questionable to avoid the prospect of a huge verdict. Insurers may be interested in the option to avoid the possibility of a bad faith claim by their insured if the jury verdict exceeds the policy limits.

If the plaintiff is seeking a significant sum for the high, the plaintiff will usually have to offer a significantly small number for the low to induce the defendant to agree to the high-low. The defendant may not agree to a very large high, preferring to cap exposure at a more reasonable amount. However, in that situation, the defendant will have to offer more money on the low end in order to induce an agreement.

Some lawyers eschew high-low agreements, preferring to reach a traditional settlement at one figure. That type of resolution is immediate - no matter how far into the trial it is, if a traditional settlement is reached, the jury is thanked and dismissed. The plaintiff's lawyer returns to the office to work on other cases. The defense lawyer does the same. The clients avoid the expense of more days of trial. A traditional settlement obviates the need for an appeal and offers cost certainty.

A high-low agreement can offer some of those same benefits, but an appeal is still possible if certain contingencies are not anticipated and dealt with in the written agreement between the parties. If the agreement does not provide for the right to an appeal, the attorneys may play fast and loose at trial and do something that taints the verdict, such as making inappropriate comments during the opening or closing statement to the jury. Maintaining rights of appeal, even if limited, can encourage all parties to maintain decorum during trial. It cuts against the finality of the device, one of its primary values.

One of the things that attorneys must anticipate is the jury finding comparative negligence on part of the plaintiff. In our example above, with a high of $600,000 and a low of $100,000, if the jury finds damages of $150,000 but 50% liability on the plaintiff, what amount does the plaintiff receive? Plaintiff may argue for the $150,000. The more logical view may be that the jury intended the plaintiff to receive just $75,000 (50% of $150,000) so plaintiff will receive the negotiated low of $100,000. The possibility of comparative negligence and its effect on the high-low should be spelled out in the written high-low agreement.

The high-low agreement should deal with what happens in the event the trial is not finished, as with a mistrial. Both parties will have to pay significant sums of money to experts not to mention invest numerous hours of attorney time to prepare for and conduct another full trial.

This firm has used high-low agreements in the past when the circumstances benefited our clients. What has also happened at times is that the negotiations leading into a high-low agreement can continue to a final, single-figure settlement. Once the parties start talking, sometimes they don’t stop. New Jersey courts recognize high-low agreements and that the jury is not advised when such high-low agreements exist behind the scenes.

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