How to Negotiate a Personal Injury Settlement

An overview of the basic strategy for negotiating a settlement of your personal injury claim.

Updated by Dan Ray, Attorney · University of Missouri–Kansas City School of Law

You've been hurt—maybe in a car wreck, or by a careless doctor, or in a slip and fall accident—and you're hoping to settle your personal injury (PI) insurance claim. But like most people, you don't really understand how the settlement process works. How do you negotiate a PI settlement?

As we'll see, the process actually starts long before you begin negotiating with the insurance company. We'll start there and walk you through the basic settlement steps.

Before You Start Negotiating

Most PI insurance claims settle, and yours probably will, too. How long it will take to settle is likely to depend on several factors. (Learn more about the timeline of a personal injury case.)

Getting to the settlement you want will involve work. That work should start as quickly as possible after you're injured. Of course, your first priority must be getting the medical care you need. Once you're able, here are some things you should do to help position your claim for settlement:

Estimate a Range of Settlement Values

You can't negotiate a settlement of your PI claim until you have some idea of what it's worth. While you should have in mind your minimum or bottom line settlement number, try not to fixate on that—or any other—single number. Instead, focus on estimating a range of likely settlement values for your claim.

This process requires three calculations.

  • First, we begin by estimating the compensatory damages you're entitled to collect for your injuries. As we'll see, there are two categories of compensatory damages: Special damages and general damages.
  • Second, we need to adjust that compensatory damages estimate to account for your share of the blame for the accident, as well as for the risks of trial.
  • Third, we use that adjusted value to estimate a range of settlement values for your claim.

Step One: Calculate Your Special Damages

Special damages (also known as "economic" damages) are designed to reimburse you for your past and future out-of-pocket losses. Your special damages might include:

  • lost wages and lost earning capacity
  • medical expenses
  • medical equipment
  • pharmacy charges
  • costs for replacement household services
  • funeral and burial expenses
  • property damage, and
  • other out-of-pocket expenses caused by your injuries, treatment, and recovery.

Calculating Past Special Damages

As a rule, calculating your past special damages should be straightforward. Total your medical bills to calculate your past medical expenses. A statement from your employer's payroll office will tell you how much in wages and benefits you lost. As long as you save your receipts and keep good records, you shouldn't need much more.

Calculating Future Special Damages

Figuring out your future out-of-pocket expenses will be more difficult. We'll use future lost income to illustrate why.

If you're able to resume your employment but will need time away from work for things like medical treatment and recovery, an accountant can testify to the value of your future lost wages and benefits.

But what if you can't resume your present employment? What if, instead, you must find new work that pays considerably less? In that case, a vocational rehabilitation expert will have to testify to your lost future earning capacity. This calculation will be complex.

In the simplest terms, lost future earning capacity represents the difference between what you would have earned throughout the remainder of your work life had you not been injured and what you actually can be expected to earn given the physical and mental limitations caused by your injuries.

Step Two: Calculate Your General Damages

General damages (sometimes called "non-economic" damages) compensate you for intangible injuries that are harder to translate to dollars. General damages might include:

  • physical pain and suffering
  • humiliation and embarrassment
  • shock and mental anguish
  • loss of reputation
  • loss of consortium
  • loss of society and companionship, and
  • emotional distress.

Calculating General Damages

How are these damages calculated? In many cases, lawyers and insurance companies use a formula. The formula multiplies your past and future medical expenses by a factor—typically a number between one and five, though it can be much higher in cases involving severe injuries and disabilities—to arrive at an estimate. If you want help with the math, use our settlement calculator.

Watch Out for Damages Caps

Many states have enacted limits—sometimes called "caps"—on personal injury damages. Noneconomic damages like pain and suffering and emotional distress are favorite targets. If you live in a caps state, you might need to factor the caps into the value of your general damages. They can significantly reduce the value of your claim.

Step Three: Adjust the Value of Your Claim

Next, you need to adjust your total damages for your share of the fault and for the risks associated with a trial, should your case get that far.

Your Share of the Fault

Your PI case is probably based on the insured's negligence (carelessness). To win a negligence case, you must prove that:

  • the other party was at fault, and
  • their fault was the cause of your injuries.

In many negligence cases, the insurance company will argue that you share at least some of the blame for what happened. This defense is called "comparative negligence" or "contributory negligence." Every state has adopted some version of the defense.

You'll need to adjust the value of your damages to account for your state's comparative or contributory negligence rule and the fault, if any, that's likely to be assigned to you.

The Risks of Trial

Ask any experienced personal injury lawyer and they'll tell you: A trial is a risky bet. Lots of things can go wrong, and many of them are beyond your control. Here are just a few of the many risks involved in taking your case to trial:

  • the judge or jury might be biased against you or in favor of your opponent
  • the judge might admit evidence that defeats all or part of your case, or might exclude evidence that you need to prove your case
  • you might perform poorly while testifying, or get roughed up on cross-examination
  • you might come off in court as unlikeable, unsympathetic, or as greedy and out to score a quick buck
  • witnesses might not show up, or might change their testimony, and
  • the jury might decide that your injuries and damages aren't that severe and return a low verdict.

The risks of trial grow as you approach your trial date. Early on, before you've even filed a lawsuit in court, those risks are close to zero. The week before trial, they're substantial.

As the trial date approaches, you should include a downward adjustment to the value of your claim to take account of these risks. The amount will depend on your case and other circumstances, but an adjustment of as much as 10% to 15% might be appropriate.

Step Four: Calculate a Range of Values

Once you've adjusted your case value to account for your own fault and the risks of trial, it's time to calculate a range of case values. This isn't an exact science. The idea here is to recognize that there are factors we've not considered that might increase or decrease the value of your PI claim.

A reasonable way to take those factors into consideration is to take the adjusted value of your compensatory damages and:

  • add 10% to arrive at a likely high-end value, and
  • subtract 10% to arrive at a likely low-end value.

Once you've done that, you now have a reasonable estimate for a range of your PI claim values. What does this mean? It means that if you get an offer within that range, it's a reasonable offer, one you should consider. Anything less than the low end is probably an offer you should reject. An offer in excess of your high end is one you likely should accept.

Of course, every case is different. The facts of your case, your personal and financial circumstances, and other factors might change your thinking. If you have good, fact-based reasons to think that this range estimate is wrong, you should adjust it accordingly.

Let the Settlement Negotiations Begin

At this point, you're ready to start negotiating. The process usually starts with a settlement demand letter. Send the letter to the insurance adjuster who's assigned to your claim.

At some point, you're likely to get a written reply. But don't be disappointed if it's not what you were hoping for. Chances are that the adjuster's first offer will be substantially lower than your settlement demand—perhaps insultingly low.

Don't get angry or upset. This is standard practice in the insurance business. The adjuster wants to see if you're desperate and will jump at the first offer, no matter how low. Don't fall for it.

Set the letter aside for a day or two and then respond in writing. Start by thanking the adjuster for responding to your demand. Then move, point-by-point, through the adjuster's letter, explaining why the adjuster is wrong. Perhaps the adjuster failed to consider all the facts or evidence. In most cases, the adjuster will heavily discount your noneconomic damages, especially for pain and suffering, and emotional distress.

Make clear to the adjuster that you have witnesses—family, friends, or coworkers—who will testify at trial about your pain and the difficulties your injuries have caused you. Remind the adjuster that jurors will sympathize with your anxiety and anguish, common emotions that we all experience.

Once you've refuted each of the adjuster's points, offer a new settlement figure. You should decrease your original demand by a bit, but by too much. It's still early in negotiations and you want to leave yourself room to move.

Once again, the adjuster will respond. The process follows this back-and-forth approach until both you and the adjuster arrive at a settlement figure you can accept, or you conclude that the case can't be settled and should move forward.

If your claim doesn't settle in this first round of negotiations, don't give up. Cases can settle at any point, even during or after a trial. The closer you get to a trial, the greater the incentives for both you and your opponent to settle.

What's Next?

If you've been unable to settle your PI claim on your own, it might be time to bring in reinforcements. An experienced personal injury lawyer has ample experience negotiating with insurance companies and their lawyers. Often, bringing a lawyer into the negotiations sends a signal to the insurance company that you and your claim aren't going away, and that you have to be taken seriously.

Here's how to find a lawyer who's right for you and your PI claim.

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