Question:
I received a settlement offer on my personal injury case. The offer was made pursuant to CCP § 998. I understand this is not just a “usual” settlement offer. What does § 998 offer mean?
Answer:
A 998 offer is an offer made during the litigation process (i.e. after a lawsuit has been filed). 998 offers are not normally made pre-litigation. The California Code of Civil Procedures § 998 provide incentives for parties to accept reasonable offers by punishing parties who don’t.
If you receive a 998 offer and do not accept it, you are in essence moving the case further along in litigation requiring that both sides expend additional time, money and effort to get to trial. If the case goes to trial and a Judge or a jury renders a verdict or award that is less than the amount of a prior 998 offer, the party rejecting a 998 is “punished” by being required to pay the offering party, their court and related costs expended in preparation for trial from the date they made the 998 offer forward. This includes court reporter fees, jury fees, and most importantly the cost of expensive hired experts brought to court at substantial fees, for purposes of giving testimony at trial.
The most common usage of a 998 offer, is by an insurance company to a personal injury claimant shortly before trial. An insurance company will make (through their defense lawyers) a formal offer pursuant to § 998 in a particular amount. The receiving party has 30 days to decide to accept the offer (or by the start of trial if the offer is made closer than 30 days to trial). If the offer is not accepted in 30 days, the offer expires. If the case goes to trial and a verdict lower than the 998 offer is received, the insurance company then seeks a Judgment for the amount of costs they have spent since the date of offer through the date of trial. In general because insurance companies have more significant financial resources than most personal injury claimants, the amount of “costs” awarded to insurance companies in this situation is in the thousands of dollars. Usually to go to trial they will have brought an accident reconstruction expert, plus one or more medical experts, each costing in the several thousands of dollars per day for their time in trial, plus jury fees of several hundred dollars, court reporter fees of $1,000.00 or more, such that a cost award in favor of the insurance company and against an accident victim in this situation can be substantial.
It is within the court’s discretion to order the rejecting party to pay these costs or not, but in general the trial courts will give Judgment to the insurance company where a 998 offer was made, the offer was rejected, and the offer was not bettered by going to trial.
This is in my opinion a very difficult situation since most personal injury victims do not have resources equal to those of insurance companies to fight cases at trial. If all cases were on equal footing, and everyone had say $10,000.00 to spend on expert witnesses, jury fees, court reporter fees, etc., trial results might be different. More often than not however, insurance companies easily outspend plaintiffs at trial which makes getting better verdicts much easier, which makes the threat of not accepting a 998 offer more concerning.
You should note that while insurance companies usually make 998 offers, civil claimants too can make 998 offers. They are not as effective however since in general the “punishment” to insurance companies for not accepting a 998 offer is not of concern to them for the reasons mentioned above – primarily their financial resources clearly outweigh those of the civil claimants. If you have received a 998 offer in your case, and have questions about whether you should or should not accept it, please call our office.
California Code of Civil Procedure §998 states:
998.
(a) The costs allowed under Sections 1031 and 1032 shall be withheld or augmented as provided in this section.
(b) Not less than 10 days prior to commencement of trial or arbitration (as provided in Section 1281 or 1295) of a dispute to be resolved by arbitration, any party may serve an offer in writing upon any other party to the action to allow judgment to be taken or an award to be entered in accordance with the terms and conditions stated at that time.
(1) If the offer is accepted, the offer with proof of acceptance shall be filed and the clerk or the Judge shall enter judgment accordingly In the case of an arbitration, the offer with proof of acceptance shall be filed with the arbitrator or arbitrators who shall promptly render an award accordingly.
(2) If the offer is not accepted prior to trial or arbitration, within 30 days after it is made, whichever occurs first, it shall be deemed withdrawn, and cannot be given in evidence upon the trial or arbitration
(3) For purposes of this subdivision, a trial or arbitration shall be deemed to be actually commended at the beginning of the opening statement of the plaintiff or counsel, and if there is no opening statement, then at the time of the administering of the oath or affirmation to the first witness, or the introduction of any evidence.
(c) (1) If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the plaintiff shall not recover his or her postoffer costs and shall pay the defendant's costs from the time of the offer. In addition, in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the plaintiff to pay a reasonable sum to cover costs of the services of expert witnesses,
who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the defendant.
(2)
(A) In determining whether the plaintiff obtains a more favorable judgment, the court or arbitrator shall exclude the postoffer costs.
(B) It is the intent of the Legislature in enacting subparagraph (A) to supersede the holding in Encinitas Plaza Real v. Knight, 209 Cal. App. 3d 996, that attorney's fees awarded to the prevailing party were not costs for purposes of this section but were part of the
judgment.
(d) If an offer made by a plaintiff is not accepted and the defendant fails to obtain a more favorable judgment or award in any action or proceeding other than an eminent domain action, the court or arbitrator, in its discretion, may require the defendant to pay a reasonable sum to cover costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial or arbitration, or during trial or arbitration, of the case by the plaintiff, in addition to plaintiff's costs.
(e) If an offer made by a defendant is not accepted and the plaintiff fails to obtain a more favorable judgment or award, the costs under this section, from the time of the offer, shall be deducted from any damages awarded in favor of the plaintiff If the costs awarded under this section exceed the amount of the damages awarded to the plaintiff the net amount shall be awarded to the defendant and judgment or award shall be entered accordingly.
(f) Police officers shall be deemed to be expert witnesses for the purposes of this section; plaintiff includes a cross-complainant and defendant includes a cross-defendant
Any judgment or award entered pursuant to this section shall be deemed to be a compromise
settlement.
(g) This chapter does not apply to an offer that is made by a plaintiff in an eminent domain action.
(h) The costs for services of expert witnesses for trial under subdivisions © and (d) shall not exceed those specified in Section 68092.5 of the Government Code.
(I) This section shall not apply to labor arbitrations filed pursuant to memoranda of understanding under the Ralph C. Dills Act (Chapter 10.3 (commencing with Section 3512) of Division 4 of Title 1 of the Government Code). [Amended September 7, 1999 (Bill Number: SB 1161) (Chapter 353).]
Question:
My case has been sent to Judicial Arbitration. What is Judicial Arbitration and how does it differ from commercial arbitration?
Answer:
Judicial Arbitration is a proceeding generally ordered by the court once your case has entered litigation i.e. once your lawsuit has been filed. The normal procedure once a lawsuit has been filed, is for the case to go through a period known as “discovery” (where both sides will carefully examine the claims and defenses of the other by taking depositions, subpoenaing records and documents, interviewing witnesses, arranging for medical examinations or other examinations by technical experts, etc.) After the phase known as “discovery”, the case generally is set for trial. Due to trial back logs over the years, the courts have requested that the parties first send their case to a non-binding arbitration in front of a judicial officer or experienced attorney within the legal system randomly appointed (or selected by the parties by agreement) who would hear a “dress rehearsal” of the case, including witness testimony, reports and documents and other evidence, and who would render an advisory decision in the case. The decision of the arbitrator would not be binding on either party and either party would have the right to go on to trial. The idea of arbitration however would be to encourage the parties to determine the strengths and weaknesses of their cases during arbitration with a view towards reaching a settlement agreement thereafter.
Judicial Arbitration in Orange County used to be mandatory. Due to lack of funding when the county filed bankruptcy however, the mandatory arbitration process shifted to a voluntary arbitration process still available to the parties upon agreement to utilize it and agreement to pay the cost of the arbitration. Judicial arbitration in Orange County (and most Los Angles Counties) is still $150.00, usually shared equally among the number of parties involved. This is a very economical way to get an independent opinion about the strengths and weaknesses of your case. (Judicial arbitration while not binding, can be made binding by the parties, by separate written agreement, sometimes referred to as a “stipulation.”)
Commercial Arbitration is a type of arbitration outside of the judicial or litigation system. A lawsuit need not have been filed to utilize commercial arbitration. Commercial arbitration generally includes an arbitrator available to the party at a fee for his or her service.
Commercial arbitrators are usually retired court Judges, or skilled and experienced attorneys making themselves available to the general public. Their resumes and fee schedules are generally available to the general public and anyone wishing to use their services. Most commercial arbitration services charge a fee of $75.00 to $200.00 for administrative set up, plus a charge for the arbitrator’s services at $200.00 to $500.00 per hour for each hour of arbitration or mediation. Some services provide “package deals” where for a small case, a flat fee is charged for a maximum number of hours. Some also provide half day or full day package rates.
What is “binding” arbitration?
The most efficient use of commercial arbitration is where the arbitration is binding. This means that while commercial arbitration is more expensive than judicial arbitration, if it is binding it will be the “end of the road.” For an arbitration to be binding, all parties must agree that they will be bound by whatever the arbitrator says. Generally there is no right to appeal the arbitrator’s decision to any higher court. Usually this is a term of the agreement (or stipulation) by which the parties agree to use the services of the commercial arbitrator. (Judicial arbitrations can also be made binding.)
In some cases commercial arbitration can be made more beneficial to the parties by more detailed agreements to use commercial arbitration which include “minimums” or “maximums” (“floors” or “ceilings”)(or “mini”/ maxi”.)
A “floor” or a “ceiling” generally provides that no matter what the arbitrator decides, the parties have made a “side agreement” that one party can receive no more or no less than a specified amount. For example, where an automobile accident case is valued somewhere between $5,000.00 and $15,000.00, to encourage the use of binding arbitration, the insurance company might agree that they will go to binding arbitration so long as they are never required to pay any more than $12,000.00 no matter what the arbitrator awards. In exchange they will guarantee that no matter what the arbitrator awards they will pay a minimum of $5,000.00. This narrows the risk of both parties – the injured party is guaranteed a specified recovery which they are not otherwise guaranteed in litigation (i.e. they could get $0.00 in litigation) and in exchange for the guarantee they agree to put a “cap” or “ceiling” on the amount of their recovery. Thus if the arbitrator awards $13,000.00 in this situation, the insurance carrier never pays more than $12,000.00. If the arbitrator awards $3,000.00, the insurance carrier must pay at least $5,000.00. In most instances, with a “normal” case, a good floor and ceiling arrangement will produce a result somewhere in between. A floor and a ceiling is simply designed to prevent a runaway decision in either party’s favor.
Because commercial arbitrations produce a result more quickly, less expensively than trial, with greater convenience to all parties in terms of scheduling (usually they take a few hours versus several weeks in trial), and because the dates are usually more firm than a trial date, etc., commercial arbitration is advantageous to most civil litigants. In my experience, insurance companies however do not necessarily prefer commercial arbitration, since they are of benefit to the claimant and in general they avoid such action. In general their goal is to make the course of action as difficult as possible such that the attorney or the claimant will give up more easily and settle more cheaply.
Question:
What is the difference between Mediation and Arbitration? What are the different types of Mediation and Arbitration formats?
Answer:
Standard Mediation:
In mediation, a neutral third-party assists the disputing parties in reaching a mutually acceptable settlement, offer after negotiation has reached a stalemate or after another dispute resolution process has failed to result in agreement. Mediation is defined most simply as facilitated negotiation. The mediator usually avoids stating an opinion as the probable outcome but may do so after significant discussion has occurred. Unlike litigation and arbitration, mediation does not involve a decision maker and no formal proofs or arguments are required.
Mediation/Arbitration:
In mediation/arbitration, the mediator becomes an arbitrator and renders a binding decision either following or proceeding the mediation process. This format blends elements of negotiation, mediation and arbitration. This process encourages the parties to create their own best settlement under the threat of having one imposed by an arbitrator. This procedures assures the parties there will be a resolution to their dispute. There are two types:
Final Offer Mediation/Arbitration:
First, a mediation procedure occurs for a certain time period. Following the mediation portion of the process, the parties make final offers of settlement, sealed or unsealed. The discretion of the neutral is limited to the final offers given. The neutral chooses one or the other, and nothing in between, as the final settlement figure for the case. The selection of the neutral is binding on the parties. The parties maximize their control over the final settlement figure.
Arbitration/Mediation:
This procedure has the neutral act first as an arbitrator then as a mediator after an arbitration decision has been reached but not revealed. The arbitrator reveals the arbitration results only if there is no settlement agreement reached in a subsequent mediation conducted over a certain period of time. The arbitration award is binding on the parties but is not published and is discarded if a settlement was reached.
Non-Binding Arbitration:
In non-binding arbitration generally, a neutral third party hears arguments from the parties and renders a decision. In non-binding arbitration, the parties are not bound to the arbitrator’s decision. Non-binding arbitration can be seen as a neutral evaluation. The purpose is to facilitate negotiations by allowing the parties to test the strength of their cases and to obtain an opinion as to the likely outcome before negotiating themselves further.
Binding Arbitration:
In binding arbitration, the neutral’s decision is binding on the parties. Binding arbitrations can be initiated by the parties to a dispute, or triggered by an arbitration clause under the contract from which the dispute arises. Like litigation, binding arbitration is an adversarial, adjudicative process designed to resolve specific issues submitted by the parties. Yet arbitration differs significantly from litigation. There is flexibility, it does not require a strict conformity with rules of evidence and procedure. The proceeding is conducted in a private rather than a public forum. Only limited discovery is generally conducted and arbitration rules usually give the arbitrator the power to rule on discovery requests and disputes.
Disputants choose binding arbitration over litigation in order to have more control over the process than litigation provides. Indeed, Arbitration is often more final than trial because the rights to appeal from arbitration are usually limited.
Binding Arbitration (Floor/Ceiling):
Another form of arbitration is floor-ceiling arbitration. In this process the parties negotiate before the arbitration, setting parameters for the arbitrator. They may agree that the arbitrator will decide only the issue of liability: if the defendant is found liable, it will pay a predetermined sum to the plaintiff; if no liability is found, the defendant will pay a predetermined lesser sum to the plaintiff.
Alternatively, the parties may permit the arbitrator to deliver a verdict on liability and damages, while agreeing in advance on minimum and maximum sums. The arbitrator is not forced to choose between two sums but the parties are guaranteed that whatever the arbitrator’s decision, neither party will be liable for a figure outside the agreed to range.
Binding Arbitration “Baseball” also known as Final Offer:
Each party makes an offer, sealed or unsealed, for a particular sum. The arbitrator must then, after submission of evidence at the hearing, choose between the two figures submitted. The arbitrator is essentially asked to decide which seems to him to be more appropriate based upon the evidence heard at the arbitration. The arbitrator does not have the authority to modify the figures submitted or select another figure. This choice encourages the parties to select as reasonable a figure as possible.
Final offer arbitration sets up different dynamics than floor/ceiling arbitration. In floor/ceiling arbitration, the parties have an incentive to negotiate a range that leaves room for them to “win”. Thus, the plaintiff may want to increase the high end of the bracket. The defendant is driven in the opposite direction. In final offer arbitration, the parties should state reasonable figures, for fear that a grossly inflated or deflated figure will not be selected as a reasonable award.