The litigation defense community is facing a critical challenge: a growing data deficit that threatens to undermine its negotiating power. This issue is particularly evident in the industry's struggle to define the Best Alternative to a Negotiated Agreement (BATNA) in litigated claim files.
Our Industry Operates the World's Largest Negotiation Network
The insurance litigation defense community operates the most extensive negotiation network anywhere. With more than 30,000 claim professionals assigning approximately one million files annually to about 30,000 defense attorneys, its scale is unmatched.
Negotiation is the lifeblood of the property casualty claims industry. In terms of frequency, it’s undeniably successful– a staggering 97% of all litigated files settle before reaching a verdict. However, frequency isn't the only, or even most important, metric. The industry is tasked with securing "good" settlements, not "overpaid" ones. This is where the challenges begin.
The Elusive "Good" Settlement
Defining a "good" settlement has always been a struggle in the industry. Did we overpay in this settlement? Was that the right number? The difficulty in justifying settlement amounts has led to industry catchphrases like "a good file is a closed file." But this oversimplification masks a deeper issue.
To truly define a good settlement, the likely outcome of a verdict must be quantified. This is because, in our world of litigated claims, a verdict is the ONLY alternative to a negotiated settlement. Drawing the red line, where you opt for trial rather than paying a penny more, is the only thing standing in the way of unbridled escalation of plaintiff demands. A verdict is the only BATNA we have, and knowing your BATNA is the most important thing in any negotiation, no matter what industry you’re in.
The BATNA Dilemma
We have always struggled in the insurance defense industry to predict BATNAs. There has simply been a lack of good data. As a result, the methodology for estimating verdict outcomes hasn't changed significantly in 40 years. The industry relies on a polling process, seeking opinions from seasoned colleagues and experienced defense counsel. Based on this anecdotal input, a determination is made about what "the case is worth at trial.”
The impact of the venue and the specific plaintiff attorney who has the case are then factored in – critical elements in arriving at a BATNA. Unfortunately, this input is largely anecdotal, as well. Color-coded maps might be used to see if the venue is favorable or unfavorable, conservative or liberal. Defense counsel will provide adjectives about the plaintiff attorney, like "scary," "good," or "very competent," all words that frame imprecisely our perception of the attorney risk.
Flaws in the Current Approach
This process is riddled with problems:
1. It's primarily anecdotal, based on reputation and general feelings rather than actual track record and performance data.
2. Recency bias skews perceptions, making dramatic outliers (like recent nuclear verdicts) more memorable while making more common outcomes forgettable.
3. Without concrete data, qualitative descriptions are processed inconsistently. Two "bad" venues might have a 10X difference in median verdict values, and two "scary" plaintiff attorneys could have a 10X delta in their ability to maximize non-economic damages.
The Plaintiff Bar's Technological Leap
Historically, while identifying the BATNA was hard for the defense, it was equally hard for the plaintiff bar. Negotiations were very much like poker games, where neither side could see most of the cards.
But that world is gone. The plaintiff bar has made significant strides. Their investment in technology, AI, and contributory data sharing is nothing short of revolutionary. The amount of venture and private equity money pouring into the personal injury legal tech space is nothing short of staggering.
EvenUp Law is one example. With over 900 personal injury firms using their technology, they're preparing 3,000 demands a month and claiming 30% higher settlement amounts. They are likely to hit unicorn status in the next six months, funded by Silicon Valley’s most respected venture funds. They are just the first of many to follow.
The plaintiff bar now has access to more objective data points and a contributory database, giving them more precise BATNAs. Their shared data includes both verdict data and settlement patterns – sometimes down to specific claim professionals, with dossiers on file handlers and defense attorneys. The playing field is no longer level; they can see far more cards than the defense. And poker is not so much fun when the other players can see more cards.
The Consequences of Inaction
This asymmetry of information is leading to dire consequences. Many litigation executives have almost stopped trying cases, with some trying less than 0.5% of their cases annually. When cases are actually taken to trial, claim and litigation executives commonly say it was because the plaintiff attorney "gave them no choice."
The consequences of removing verdicts as an option is to lose sight of the BATNA. And when the BATNA is lost, we would expect settlement values to rise precipitously. Which, as most insurance executives will attest, they are.
See also: Social Inflation: Decades of Insurance Litigation Abuse
Reclaiming the BATNA
While our industry appropriately bemoans social inflation, nuclear verdicts, and legal system abuse, the defense litigation community is not helpless. We can respond by using, just as the plaintiff bar is doing, data – data that helps us to rediscover the BATNA.
Step one requires shedding long-held beliefs that our decision-making is purely a form of art based on experiences and subjective judgment. The plaintiff bar has no such hang-ups. More data is available than ever before, and we must learn to use it effectively, as the plaintiff bar has done.
Access to filing rates, trial rates, verdict frequency, verdict results, case type experience, historical damage multipliers, venue demographics, and many more data points help to establish fact-related BATNAs. Using this data effectively will maximize our collective ability to curb, control, and minimize the very social inflation that we discuss so often.
Of all the new AI tools available, perhaps the most intriguing quantifies an attorney's ability to maximize non-economic damages with juries. The ability to compare a specific plaintiff attorney's reputation with their actual track record has been eye-opening. Seeing how this data changes defense counsel's perspective on specific plaintiff attorneys has proven even more eye-opening.
See also: The Plaintiff Bar Is Winning in AI
A Call to Action
Silicon Valley has pumped $100 million into EvenUp Law alone, and Lightspeed Venture Partners now lists personal injury law as the largest segment in LegalTech for AI investment. The plaintiff bar is backed by a growing war chest of capital, and the defense is two to three years behind. The litigation defense community can and must get out of the starting gate and find its collective BATNA again. The tools and data are available; they need to be embraced.
Our litigation defense community stands at a crossroads. It can continue with outdated methods and watch its negotiating power erode, or it can embrace a data-driven future that's already here. By reclaiming the BATNA, we don't just level the playing field, we upgrade the industry's core competency – effective negotiation.
