The $9.5M Demand, the Co-Defendant, and $1.2M of Authority
A tractor-trailer rear-ends a stopped sedan on an interstate. The claimant is a 34-year-old physical therapist with a traumatic brain injury, $640,000 in documented specials, and a life-care plan projecting $1.4M. Your insured carries $2M auto liability and $5M umbrella. Plaintiff counsel has retained a litigation funder, run focus groups in a venue known for large verdicts, and issued a pre-suit demand of $9.5M with a 30-day deadline, with a 'reptile' theme built on the driver's hours-of-service logs. Defense counsel's evaluation ranges from $1.8M to $3.5M and recommends authority to mediate at $2.5M. A loading-dock contractor is a co-defendant and may carry 30% of the fault. Your carrier's authority is $1.2M; the insured's general counsel is demanding the case settle inside limits.
1. How do you set and document the reserve, and how do you justify a number that may exceed authority?
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Reserve to probable ultimate cost, not to authority and not to the demand.
The demand ($9.5M) is an anchor; the defense evaluation ($1.8M–$3.5M) is the informed range. Set the case reserve at the upper end of the defense range if the co-defendant's 30% share does not reliably reduce your insured's exposure - and it may not, if the jurisdiction applies joint and several liability or if the co-defendant is thinly insured. A $3.5M reserve on a $2M primary means the umbrella is engaged and the file must be reported to the excess carrier immediately, not at the mediation.
Document the reasoning in the file, not just the number:
- the verdict range and the venue verdict history, with sources
- the funder's presence, which correlates with a higher reservation price and later settlement
- the credible specials versus the life-care plan's contestable assumptions
- the co-defendant's insurance status and the allocation theory
- the worst-case scenario: a verdict at or above limits plus a bad-faith allegation for failing to settle within limits
Justifying a reserve above authority is a normal event, not an escalation failure. Present the range, the worst case, and the recommendation to the person who owns the authority, with a written request for increased authority before the 30-day deadline expires. A denied or delayed authority request that produces an excess verdict is exactly the fact pattern that supports a bad-faith claim against the carrier.
2. Defense counsel proposes $2.5M at mediation. What do you consider before responding, and what do you tell the insured?
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Considerations before answering:
- Is $2.5M a reasonable settlement value or a fear number? Check it against the mid-to-upper defense range, the venue's verdict history, and whether the funder's participation suggests an ability to wait. A number inside a credible range is defensible; a number pulled up by the demand is not.
- The co-defendant problem. A joint tortfeasor's 30% share does not protect your insured if the co-defendant is underinsured or if the jurisdiction allows joint and several liability. Conversely, a joint offer or a Mary Carter-style arrangement can create new exposure. Ask defense counsel how the co-defendant's carrier is valuing the case - coordination now is worth more than authority later.
- Consent and cooperation. The umbrella policy almost certainly has a consent-to-settle clause and may have a hammer clause; settling at $2.5M engages the umbrella, so its consent is required and its participation at mediation is not optional.
- Bad-faith exposure. If a settlement inside total limits is available and you refuse it on an unreasonable basis, you own the excess verdict. That risk is what the insured's general counsel is reacting to.
What to tell the insured: the evaluation range, the fact that the demand exceeds limits, the mediation plan, your authority position, and - frankly - that a verdict above limits is a real possibility and that they should consider personal or corporate excess protection. Do not promise that the case will settle inside limits. A candid excess letter now is far cheaper than a surprised insured later.
3. Plaintiff counsel offers to settle with the co-defendant alone and continue against your insured. How does that change your strategy?
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It usually makes the case worse for your insured, and you should say so.
- Non-diversion of liability. Depending on the jurisdiction, a plaintiff who settles with one tortfeasor may still pursue the remaining defendant for the whole judgment, with the settling share determined later or by a setoff that is often less favorable than the nominal percentage. The 30% allocation becomes an accounting exercise after the verdict rather than a reduction before it.
- The co-defendant becomes a witness, not a defendant. The dock contractor's employees will testify, likely favorably to the plaintiff, with no incentive to defend the loading practice. Prepare for that.
- Contribution and indemnity. Check the contracts between the insured and the dock contractor; a valid indemnity and insurance obligation is often the single most valuable asset in the file, and it must be preserved in writing before any release extinguishes it.
- Your subrogation and recovery position. If you fund a settlement, you may inherit a claim against the co-defendant; confirm the release language preserves it.
Practical response: object in writing to a piecemeal settlement that prejudices the insured, notify the umbrella carrier, and consider making your own offer conditioned on a global release that includes the co-defendant. If plaintiff refuses a global resolution and the co-defendant settles out, re-evaluate the reserve upward - the insured's exposure to a joint judgment has just increased, and the umbrella needs to know the same day.