How to Put Fear of Insolvency Into a DefendantFor more than fifty six years I have personally seen the fear in the faces of corporate executives faced with a suit claiming wrongful conduct and punitive damages. Even those who knew that they had acted properly and fairly and that the allegations of the suit were totally spurious, the fear and trembling engendered by a suit seeking punitive damages is patent.The defendant who should be leading a charge like General Patton acts more like Prime Minister Neville Chamberlain. Defendants seem to prefer to appease a plaintiff rather than litigate good and viable defenses. Unless counsel advises a 100% chance of total victory – a statement no trial lawyer will ever make – the defendant does not want to go to trial and is willing to pay more than it owes to avoid the potential of a serious punitive damage judgment.Contrary to common belief the chances of a suit seeking punitive damages actually obtaining an award of punitive damages is very small.Defendants often, incorrectly, concentrate on trial verdicts and overlook that almost all civil litigation matters result in out-of-court settlements. Verdicts are important but punitive damage verdicts are more like the tip of the proverbial iceberg than evidence of a trend. Practical evidence indicates that the small number of trials affect decisions in the vast majority of lawsuits that do not proceed to trial.Verdicts are taken as important signals to the litigants. It is important to first understand the basic dynamics of a lawsuit. Most of the work in pre-trial litigation is designed to provide the litigants with enough information to allow them to reach an amicable settlement. A large punitive damages verdict skews the evidence available to the litigants and causes plaintiffs to demand more than their cases are truly worth and defendants to pay more than they should to resolve a suit seeking punitive damages.Under basic American litigation practice the plaintiff has the opening strategic advantage. A plaintiff with a weak case places the defendant in the position of having to defend himself (and therefore incurring legal costs), or else the defendant will be liable for the full claim on a default judgment. Even a defendant facing a suit that has no merit and no chance of success before a court will often be willing to pay an amount that is less than his prospective defense costs to settle the case and “make it go away.” Appeasement of the plaintiff is, to a corporate defendant, seen to be economically the best solution.Most often a defendant is willing to pay a settlement up to the amount of his defense costs in order to avoid having to respond to the plaintiff's complaint.The Supreme Court's rulings in State Farm Mutual Automobile Insurance Co. v. Campbell, 123 S.Ct. 1513, 155 L.Ed.2d 585 (U.S. 2003) limits, by due process, the multipliers that can be applied when setting punitive damages.In addition, the uncertainty posed by the prospect of unlimited punitive damages, combined with the relative probability of a punitive damage award if a case goes to jury trial, provide litigants who demand punitive damages with potent leverage against risk-averse defendants, like insurance companies or candidates for the presidency, and tip the balance in settlement bargains in favor of litigants with weak or even frivolous cases. Go to the Insurance Claims Library – http://zalma.com/blog/insurance-claims-library.

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