How to Negotiate a Personal Injury Settlement

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

If you have been injured as a result of someone else's negligence or carelessness, you have the legal right to be compensated for your losses. You will eventually want to consider whether or not to settle your case before going to trial (or in some cases, before even filing a lawsuit).

Resolving your claim by way of a voluntary settlement agreement may be beneficial to you because it saves you the time and cost of going through a court trial. But determining a fair value for which to settle your injury claim can be difficult, since it is dependent on a variety of factors.

Before You Can Start

Before you can begin the settlement process of a personal injury claim you must first get medical attention. Your doctor will be able to determine the type and extent of the injury and begin the appropriate treatment. Without this critical information, there's no way to determine how much money you should demand to settle your case.

After your doctor has determined the nature, severity and duration of your injuries, you and your attorney (if you have one) can begin the settlement process. Here are the basic steps you'll need to follow:

Step One: Calculate Special Damages

First, you must calculate special damages. Special damages (also known as economic losses) are damages for which money is only a comparable substitute for what was lost. This is also known as the "out-of-pocket loss" rule. Special damages can include:

  • lost wages
  • lost earning capacity
  • medical expenses
  • funeral and burial expenses, and
  • property damage.

Past economic losses. Calculating special damages can be easy to do for past medical expenses and lost wages, so long as you keep thorough and detailed records of every doctor or physical therapist that you visit, as well as all medication that you take as a result of the injury.

Future economic losses. Figuring out special damages may be more difficult for future medical expenses and lost earning capacity. Calculating damages depends heavily on the facts of your particular case. Usually, you or your attorney will engage an expert in medical treatment to testify with respect to your future medical expenses, as well as an economics expert to perform an economic damage analysis when it comes to the impact your injuries will have on your income and earning ability.

With respect to your lost earning capacity, the damages suffered are usually measured by the difference in your actual earnings from your projected earnings, were it not for the defendant's actions. So, the first step in calculating damages is to project your revenue based upon your life expectancy and retirement age. The expert will rely on a multitude of factors, including your income tax returns and W-2s, the state of the economy, and state of the industry in which you are engaged, as well as the salary of other people engaged in the same industry as you with similar education and training.

Step Two: Calculate General Damages

Next, calculate general damages. General damages (or non-economic losses) are losses for which money is only a rough substitute. General damages 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.

General damages usually equal 1.5 to 5 times special damages, depending upon the severity of the injury.

Step Three: Adjust the Value of Your Claim

Next, you must adjust the amount you calculated above to reflect the following factors:

  • Liability. Cases where liability is clearly established will lead to a higher settlement value than cases where liability is disputed. If you were partly to blame for the accident, your settlement will decrease by some amount based on your "contribution" of fault.
  • Multiple defendants. Where there are multiple defendants, there may be an issue as to how much each should pay.
  • Characteristics of the plaintiff. Your own characteristics can influence the value of the settlement. For example, your age, occupation, likeability, and prior medical history will probably affect the settlement value.
  • Where the case would be tried. Some venues are more conservative than others and have a tendency to award lower personal injury damages than juries in more populated, urban communities. An insurance adjuster will keep this factor in mind when negotiating a settlement.
  • Mitigating Damages. Damages must be mitigated, or reduced, by the injured party if it is reasonably possible. For example, if you decided not to seek treatment after your accident and, as a result, your medical expenses are now higher because your injuries are more difficult to treat, the value of your claim may be reduced to reflect this failure to mitigate.

Step Four: Make Your Settlement Offer

Finally, you are ready to submit your settlement demand letter to the defendant or his or her insurance company. Oftentimes, there will be a lot of negotiating back and forth between you and the insurance company with regard to the value of the claim, until an agreement is reached.

The bottom line, however, is that if you and the insurance company do not come to some sort of a voluntary settlement agreement, you will have to go to trial where a judge or jury will determine the amount of damages, if any, to which you are entitled.

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