Fight or Flight?

Navigating the decision to litigate in product liability claims.

September 23, 2013 Photo

In product liability litigation, insurers and policyholders often come to a fork in the road. Do we settle or do we go to trial? In truth, the dialogue between insurer and manufacturer may less resemble a poetic musing than an old married couple in a car, lost and quarreling over the best route to reach their destination. For product liability insurers and insureds, there is a mutual destination: a closed file.

How to get there, though? Do they reach that result through the courtroom or by settlement? That fateful decision might make the difference between rolling the dice at trial and getting hammered by a jury. Or it can produce a large claims settlement that leaves litigants with the gnawing feeling that they paid a claim they could have successfully defended. There is no GPS for claims resolution that tells insurers or policyholders to choose one path versus another. Instead, the decision to defend or settle likely turns on these factors.

Case Exposure. Both the insurer and the product manufacturer agonize over the stakes. What is the worst-case scenario? What is the claim’s compromise settlement value? The lower this number, the less agonizing the decision to go to trial. The higher the number, the more caution about rolling the dice at trial.

An insurer may see its maximum exposure as its policy limit. A product manufacturer, however, realizes that its exposure has no “cap” and may exceed the insurance policy limit. In such cases, the product manufacturer may demand that its insurer exhaust all efforts to settle.

Defense Costs. All parties fret over legal fees incurred to defend product liability suits. Insurers typically will not spend two dollars to save one. For instance, if it will cost $50,000 to successfully defend a claim of contested liability that could resolve for $25,000, insurers may settle. Litigating “to prove a point” holds little interest for adjusters, although exceptions always exist. Legal defense fees factor into insurers expense ratios. In turn, expense ratios drive combined ratios. Ratings agencies like A.M. Best scrutinize combined ratios; the resulting “grades” affect a carrier’s ability to attract business.

Damages. The severity and extent of the plaintiff’s damages also steer cases toward settlement or trial. It matters greatly whether a plaintiff’s alleged damages are soft tissue injuries or horrific burns. Fatalities or the emotional tug of “bad baby” cases can engender such juror sympathy that technical arguments over liability and product defect become moot. Jurors’ eyes glaze over after hearing conflicting experts testify about defects. There remains the piteous sight of a severely injured plaintiff or a heart-wrenching tale of a loved one who died.

Venue. Both the insured and insurer want to know how attorneys view the court from a pro-defendant or pro-plaintiff standpoint. Certain venues are renowned as “tort hell-holes.” Others are more pro-defendant. This depends on jury pool composition, trends in local court awards, demographics, judge leanings, local laws, and other factors. A favorable jurisdiction will not strengthen a weak case, but it can weaken an otherwise strong case. It’s best to know before marching into trial. The more questionable the jurisdiction, the more the insurer and defendant may favor settlement over trial.

Caliber of Counsel. If you head into court, are you with the right partner? Does opposing counsel tend to settle cases and rarely go to trial? Some attorneys are, by contrast, skilled advocates who are effective in commanding jurors’ attention and winning large verdicts. It helps to know which end of the lawyer spectrum you are facing. This is not to say that the defense surrenders if opposing counsel is a heavyweight. It is one factor, among many, to weigh on the scale of “settle” versus “try to verdict.” Further, what is your confidence level in your own defense counsel? Product manufacturers and insurers must candidly mull over this question, too.

Strength of Liability Defenses. Both the insured and insurer will weigh the strength of their liability defense. What are the odds that the plaintiff can prove a product defect and prove that the defect caused the plaintiff’s injuries? If a plaintiff can prove defective design, manufacturing, or warning—or some combination of the three—the odds are greater that the insurer and insured will settle. If, however, the insured and insurer agree that the product is defensible or that a defect did not cause the plaintiff’s damages, the odds are greater that they will try the case.

A common quandary, though, is that insureds and insurers often view the same facts through different prisms, especially in terms of the strength of the defense. Product manufacturers understandably identify with their products. A claim that alleges a defect is not just a legal challenge; it can be an emotional issue, too. Someone is attacking their “baby.” Insureds often want their day in court to defend and exonerate their products. They are bullish on the odds of successful defense because they believe in their product and their ability to “sell” the product’s safety to jurors. They have a distinct perspective on product claims defense, which we will now explore.

Five Corporate Perspectives on Claims Defense

“Inside” claims specialists in corporations often start out in their role assuming that claims decisions are all about dollars and cents. To do a good job, you contain costs, keep claimants happy, and seek win-win resolutions.

Reality often proves different. Very little in product liability litigation in corporate America has to do with dollars and cents. Internal politics, vendor obligations, witness moods, shareholder responsibilities, business ramifications, precedence, and regulatory baggage are all corporate considerations when deciding to fight or flee a product liability lawsuit. Here are five key factors to consider when working with corporate decision-makers on product liability claims.

Multiple Internal Constituencies. When handling claims within a corporation, you don’t answer to just one boss; there seemingly is a cast of thousands. From senior leadership to shareholders, from marketing to engineering, everyone has a point of view on whether to settle or try a case. Often, opinions waver as trial draws nearer. Those who crow “Not a penny for tribute!” are often the first to recant when they are called to give a deposition or testify in court because standing one’s ground is easier to do from a distance. It is a delicate balance weighing the views of multiple constituencies against the realities of the product lawsuit.

Marketplace Perceptions. Do you want to be the company that settles everything? Does the company overlook the big picture by fighting everything, even cases of clear liability? You owe it to shareholders, employees, management, and claimants to consider each case individually—even if that means you eat alone in the company cafeteria!

Business Ramifications. Settling often propels firms down a slippery slope. For example, many companies provide vendor endorsements to customers, but endorsements impose strict requirements on vendors (e.g., providing written instructions, performing adequate maintenance, etc.). Even if the customer does not comply, powerful internal pressures might impel picking up defense for the really big customer.  

At what cost, though? Forget the dollars spent on defense. Is the company reinforcing bad behavior? Might a vendor’s repeated actions place more consumers at risk? Do you want to be known to shareholders and to the public as the company that does not hold its business partners accountable?  

Company Witnesses. This is often the first factor considered in evaluating a case inside the corporate suites and meeting rooms. Are the key witnesses still employed by the company? If not, did they leave on good terms? Or are they malcontents, tweeting about the company’s alleged faults? Would a jury see the witnesses as likeable? Are witnesses available to the legal department for inspections, depositions, and trial? Sales and engineering folks typically do not jump at opportunities to take connecting flights with middle seats to “help” with lawsuits.

Regulatory Issues. Much of what firms produce in one claim may negatively impact future cases. Many clients want to spare company witnesses from depositions about what may not have been a company’s finest hour. This is especially true if the company has successfully addressed those issues and wants to move forward.

The bottom line is that when defending corporate clients, do not talk solely in terms of dollars and cents. Carefully consider and discuss the issues raised here. Let the client articulate the factors having nothing to do with money and everything to do with appetite for prolonged litigation. Only the client can truly tell you what the creamy filling in that donut really tastes like!

About The Authors
Multiple Contributors
Kevin Quinley

Kevin Quinley, CPCU, AIC, ARM, is an advisor at CLM Advisors and is principal of Quinley Risk Associates, LLC. He has been a CLM Fellow since 2007 and can be reached at,

Gretchen L. Schuler

Gretchen L. Schuler is vice president of risk management and technical documentation for Invacare Corporation. She has been a CLM Fellow since 2009 and can be reached at

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