High-Low Agreements: A Misunderstood Litigation Tool
For Immediate Release: November 11, 2019
Contact: Craig M. Sandberg, 833.726.3237, craig@sandberglaw.com
Chicago, IL – Last week, a Chicago-based team of lawyers obtained a record-breaking $101 million on behalf of a baby who suffered an injury during birth. Before the jury’s verdict, however, both sides agreed to a “high-low agreement” on any verdict; specifically, the parties agreed that the verdict would be capped at $50 million, if the verdict exceeded $50 million, and would be set at $20 million in the event the defendants were found “not guilty” or received a verdict of less than $20 million. For those unfamiliar with “high-low agreements”, to see a victim’s recovery reduced from $101 million to $50 million may, in hindsight, seem unfortunate and inequitable, especially where the correlated floor of recovery was only set at $20 million.
However, to understand the importance of these agreements in the context of their role in the parties’ risk-management calculus is necessary. I will briefly discuss the potential benefits of mitigating risks of litigation and why high-low agreements actually benefit both parties. .
As defined by Black’s Law Dictionary, a high-low agreement is “[a] settlement in which a defendant agrees to pay the plaintiff a minimum recovery in return for the plaintiff’s agreement to accept a maximum amount regardless of the outcome at trial.” Black’s Law Dictionary 797 (9th ed. 2009). Any outcome between the agreed limits is to be accepted by the parties.
High-low agreements, during the trial of tort cases, is an often underutilized and misunderstood litigation technique. High-low agreements are discussed in 20-30 percent of the cases that make it to trial and approximately 10 percent of the cases that reach a verdict end up being resolved by the agreements.
A high-low agreement is a private contract that, if signed by litigants before the conclusion of a trial, constrains any plaintiff recovery to a specified range. In a nutshell, a high-low agreement represents a “partial” settlement of a dispute under which the parties agree to a minimum recovery for the plaintiff, and a maximum payout by the defendant, and then proceed towards final resolution (jury verdict) subject to the agreement. The technique is appealing because it mitigates risk for both parties by avoiding extreme outcomes — irrespective of the resolution, the plaintiff is guaranteed a recovery of at least the low number, while the defendant caps its exposure at the high number. Further, to a defendant’s insurance company, it also protects the carrier from bad faith claims, if the jury verdict exceeds a limited policy of insurance.
Since a high-low agreement is a form of a settlement agreement, it should be in writing and set out what happens in every contingency. Given that these are viewed as contracts, under Illinois contracting principles, ambiguous terms will be construed against the drafter of the disputed provision of the contract. Contract terms are ambiguous if they can be reasonably interpreted in more than one way due to lack of clarity or double meanings. Just because the parties may disagree on a term does not make it ambiguous.
While Illinois has not spelled out the issue with any certainty, judicial approval, or at least advising the court of the high-low settlement agreement is highly recommended. In certain circumstances, judicial approval will be required. Cases involving a minor will require the appointment of a guardian ad litem (GAL) and approval by the GAL of the high/low settlement agreement. In wrongful death cases, the administrator or executor of the estate, as well as those otherwise affected, will need to be provided with notice of the agreement and consent. This can be difficult if the high-low settlement agreement is being negotiated while the jury is out.
Because the parties may be anxious to enter into a high-low settlement agreement, all the issues may not be properly considered. For example, some issues concern the possibility of a mistrial or permissibility of appeal. The high-low settlement agreement must be clear that taxed costs, interest, and other sanctions are waived. High-low settlement agreements are intended to bring finality to the case upon the rendering of a verdict.
A high-low agreement must not be confused with a “Mary Carter” agreement, which is a variant of the normal release or covenant not to sue. The name Mary Carter is derived from the case Booth v. Mary Carter Paint, 202 So.2d 8 (Fla. Dist. Ct. App. 1967). That term is used to describe any agreement between the plaintiff and some, but not necessarily all defendants, in which the parties secretly place limitations on the financial responsibility of the settling defendants, the amount of which is variable and usually in some inverse ratio to the amount of recovery which the plaintiff is able to obtain against the non-settling defendant or defendants.
About Craig M. Sandberg
Craig M. Sandberg is an award-winning Trial Attorney specializing in medical malpractice, personal injury, and criminal defense in Illinois. He is a recognized leader in complex personal injury, wrongful death cases, medical malpractice, products liability, premises liability, transportation litigation, and commercial litigation cases. https://www.sandberglaw.com