Three-Party Settlement Bargaining with Insurer Duty to Settle: Structural Model and Evidence from Malpractice Claims
nearly final version; Journal of Law, Economics and Organization, 2015, Forthcoming
55 Pages Posted: 23 Oct 2011 Last revised: 21 May 2015
Date Written: May 2015
Abstract
Prior efforts to specify and then empirically estimate structural models of the outcomes of tort lawsuits involve only two parties – plaintiff and defendant. We incorporate the defendant’s insurer and its “duty to settle” into a settlement model. In medical malpractice cases, there is both anecdotal and quantitative evidence that policy limits and the insurer’s duty to settle are central parts of settlement bargaining. We estimate the model using a Texas database of closed, paid claims. Both the data and our model predict a mass of cases with a settlement offer by the plaintiff exactly at limits; a smaller but still sizeable mass of cases with payout exactly at limits (both before and after trial), and substantial haircuts (payout < damages) in tried cases with damages > limits. In counterfactual analysis, we predict that, as duty-to-settle liability becomes stricter, there will be: more at-limits offers, fewer trials, fewer at-limits payments in tried cases, more insurer payments above limits, and smaller haircuts.
Keywords: tort litigation, settlement models, insurer duty to settle, bargaining model, structural estimation, maximum likelihood
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Estimating the Effect of Damages Caps in Medical Malpractice Cases: Evidence from Texas
By David A. Hyman, Bernard S. Black, ...
-
By Bernard S. Black, David A. Hyman, ...
-
The Hidden Victims of Tort Reform: Women, Children, and the Elderly
-
Settlement at Policy Limits and the Duty to Settle: Evidence From Texas
By David A. Hyman, Bernard S. Black, ...
-
The Demographics of Tort Reform
By Joanna Shepherd and Paul H. Rubin
-
By Theodore H. Frank and M.e. Newhouse
-
The Effects of Jury Ignorance About Damage Caps: The Case of the 1991 Civil Rights Act
-
Tort Reforms’ Winners and Losers: The Competing Effects of Care and Activity Levels