Dealing with a Liability Claim

How to Negotiate a Settlement

Adapted from my book, “The Compact Book on Adjusting Liability Claims, Second Edition, available at

After the adjuster determines that coverage exists, that the insured is probably liable for causing bodily injury or property damage to a third person, the adjuster must negotiate a settlement with the claimant or his or her attorney.

Just like the plaintiff’s attorney in a personal injury case, the insurance adjuster will investigate the claim – the facts of the accident and the plaintiff’s damages.

A very skillful and well-prepared insurance adjuster will often know more about the accident and about the plaintiff’s background than the plaintiff’s lawyer does.

The adjuster prepares for making an offer by first getting the insured’s story of the accident. This is obtained by completing a thorough recorded statement.

The adjuster will then investigate the plaintiff or claimant. The investigation can be as simple as reviewing claims databases compiled by the National Insurance Crime Bureau (NICB) or the Insurance Services Office (ISO) all claims data base that allow adjusters to determine whether the plaintiff has ever filed a personal injury claim before. The thorough adjuster will also search Google, Bing, Ask, Twitter, Facebook and LinkedIn to learn as much as possible about the plaintiff.

The adjuster must obtain from the plaintiff or the plaintiff’s lawyer to introduce him/herself and request that the plaintiff provide documentation relating to the plaintiff’s claim. The adjuster will review medical records, medical bills, proof of earnings, tax returns, and proof of property damage. If the initial medical records indicate that the plaintiff may have had prior injuries or complaints to the body part that was injured in the accident that led to the current claim, a competent adjuster will obtain all prior medical records for any treatment that the plaintiff or claimant has ever had for that condition.

If the plaintiff or claimant is self-employed and claims lost earnings, the adjuster will usually request that the plaintiff produce business records to document the lost income.

The documentation obtained will be reviewed carefully by a competent adjuster. The adjuster should read every page on the medical records and bills to see if anything is missing, if anything suggests that the plaintiff has had prior conditions or that the plaintiff is malingering, or if the plaintiff’s lost earnings claim seems to be unsupported.

The adjuster should never make a settlement offer or respond to a settlement demand until the adjuster has every document that he/she needs in order to value the case.

Determination of Settlement Value

Once the adjuster has all the claimant’s or plaintiff’s medical records and bills and all of the other information that he/she needs to value the case, he/she will, based on experience, knowledge of the local jurisdiction, and experience and knowledge of local jury verdicts for the same type of accident and injury.

In order to value the case, the adjuster has to think about:

  • what are the plaintiff’s chances of winning at trial?
  • how much might a jury award the plaintiff?
  • How amenable is the claimant and his or her counsel to negotiate a settlement?
  • How much experience does the claimant’s lawyer have in trial?

If, for example, the plaintiff has damages that approach a million-dollar judgment if the jury finds the adjuster’s insured liable but has little, if any, chance of winning at trial, then an adjuster should never offer much to settle. The obverse is also true, if there is a good chance of success at trial the adjuster and insurer should be prepared to offer a sum close to, but much less than the jury verdict value.

Once the adjuster has decided what the plaintiff’s chances of winning are, he/she will think about the plaintiff’s damage claim. Damages in personal injury cases are usually divided into two categories: damages capable of exact calculation (medical bills, lost earnings, cost to repair or replace damaged property), and damages not capable of exact calculation (pain, suffering, inconvenience). For medical bills and lost earnings, the adjuster simply adds them up if they are legitimate and presented by a legitimate organization like a hospital. The adjuster recognizes that hospital and physician billings are flexible. If the plaintiff is on Medicare or Medicaid the hospital or physician, by contract, charge much less than they charge a person without insurance or on a lien (where the physician agrees to only require payment when the lawsuit is settled or a judgment is issued in favor of the plaintiff).

Adjusters, with full knowledge of the different amounts charged by health care providers will be in a position to honorably discount medical bills if they appear to be “soft,” meaning that the vast majority of medical bills come from health care providers other than physicians and hospitals. If, for example, a plaintiff had $7,000 of medical bills, but $6,800 of the bills were chiropractic and physical therapy bills, the adjuster will consider it appropriate to cut the medical bill claim in half for valuation purposes.

The adjuster should also determine whether the medical bills presented by the insured were paid by a third party like a health insurer, Medicaid, or Medicare. These entities often pay much less than the amount billed as a result of contracts with health care providers. I once dealt with a case where medical bills were presented in excess of $3 million only to find that the health care providers accepted, as full payment, $200,000 from Medicare. The settlement negotiations changed exponentially when the true amount of medical billing was established.

“To be recoverable, a medical expense must be both incurred and reasonable.” (Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, 555.) “[I]nitial medical bills are generally insufficient on their own as a basis for determining the reasonable value of medical services . . . cases have held that a plaintiff who relies solely on evidence of unpaid medical charges will not meet his burden of proving the reasonable value of medical damages with substantial evidence.” [Van Anz v. Ozawa (Cal. App., 2019)]

Determining the Value of a Pain and Suffering Claim

This is the real struggle, both for plaintiff’s attorneys and for insurance adjusters. Adjusters these days have the assistance of formulas and specialized software to assign a value to the subjective pain, suffering and inconvenience claims.

A key component of the bodily injury claim demand made by the claimant are the medical specials, which as the Howell case made clear, may be inflated, and at times, unrelated, to the claim. Just because the attorney says it is so, doesn’t make it so.

In many instances, there are varying degrees of subjectivity in findings. There are also numerous opportunities for billing errors, or even intentional billing fraud.

Claims adjusters should be aware that there is a high probability that medical bills contained in a bodily injury claim demand are upcoded or unbundled. It is also possible there are issues pertaining to causation, duration, and frequency of treatment.

It is the job of the adjuster to identify these issues and raise questions, often documented with the assistance of third-party medical billing review software, such as Mitchell International’s DecisionPoint, to identify potential fraud, billing errors or improper edits.

By further leveraging medical experts or those fluent in billing and coding, a tremendous amount of medical inflation can be avoided. By coupling this knowledge with proper liability assessment, the benefit to the insurers and the consumer can be significant.

When the bodily injury claim demand is received, the adjuster should review all contents to ensure that they include the necessary documentation to complete the injury evaluation. There should also be a notation of any time limit demand requirements with the appropriate action taken to ensure a timely response. Generally, this requirement is met by either tendering an offer (when warranted) or notifying the attorney, in writing, of additional documentation necessary to complete the injury evaluation.

The First Settlement Offer

Once the adjuster has calculated a settlement value, then he/she has to decide what to offer. The first offer is almost never the value calculated and the authority the adjuster obtained from management. The first offer is going to be a percentage of what the insurer thinks is the final value of the case.  An insurer’s software or the adjusters experience and investigation may dictate precisely what the first offer should be. For example, the insurer may require that the first offer to be 40% of the settlement value the adjuster has calculated. There is no industry-wide standard on this. Different insurers have different procedures. Different cases with different fact situations, different health care providers and different management will cause the initial offer to be different.

Adjusters, of course, have leeway to adjust the first offer depending on who he/she is dealing with. If the adjuster is dealing with an unrepresented plaintiff, the first offer will usually be lower than if the plaintiff has a lawyer. If the adjuster is dealing with a very competent, experienced lawyer who has tried to a jury verdict many bodily injury cases, the offer might be higher than average. If, conversely, the adjuster is dealing with an inexperience bodily injury lawyer or a lawyer who is known to never to go trial, the offer should be lower than average.

There is no perfect method of valuing and negotiating a personal injury claim or suit. Each must be dealt with individually and the adjuster must be flexible enough to obtain a settlement that is agreeable to the insured, the plaintiff or claimant, and the lawyer representing the plaintiff or claimant.

Negotiating a final settlement is a little like bargaining to buy something at an outdoor market where haggling is commonplace. The adjuster and the claimant, plaintiff or plaintiff’s attorney both know roughly how much the damages claim is worth. The adjuster knows the most he or she is willing to pay and the claimant, plaintiff or lawyer, know the least amount they are willing to take to settle.

Neither party to the settlement negotiations know how much the other side is willing to pay or receive. As a result, the adjuster and claimant, or his or her lawyer, go through a process of testing each other. The negotiations have been described as a dance of bluff and bluster that usually only last through two or three phone calls or in person meetings. The claimant or lawyer make demands that they believe are at least twice what they are willing to accept and the adjuster is starting with about half of what the insurer is willing to pay.

Here are a few typical steps in the settlement dance engaged in by lawyers and adjusters:

  • The plaintiff or claimant asks for a high amount in a written demand letter.
  • The insurance adjuster tells responds with details why he or she believes the claim can never survive a jury trial and that most of the negligence is on the plaintiff or claimant.
  • The adjuster will explain that the claimant’s or plaintiff’s lengthy physical therapy or chiropractic treatment was unnecessary or excessive.
  • Regardless of the claimant’s or plaintiff’s response the adjuster makes a low counteroffer to feel out whether there is an immediate need to take any settlement amount.
  • The claimant or plaintiff concedes some of the adjuster’s arguments and changes the demand slightly lower than the one in the original demand letter.
  • The insurance adjuster increases the company’s offer.
  • The plaintiff or claimant either accepts that amount or make another counter-demand.

It is usually as simple as that. The main facts determining how an accident settlement comes out are how well the adjuster has prepared all stages of the claim – investigation, supporting documents, demand letter, response, and counter offers and demands. How much the plaintiff or claimant is willing to settle for if it falls within the evaluation of the settlement value reached by the adjuster and the insurer will allow the parties to reach agreement.

Negotiations Begin as Soon as the Adjuster and Claimant Are Ready

Negotiations with the insurance claimant or counsel usually begin shortly after the adjuster receives the demand letter. Usually the adjuster will telephone the claimant or counsel within a week or two after receiving the demand. Fair Claims Settlement Practices Regulations usually require a response to the demand immediately but no more than 14 calendar days after the demand. The length of time between demand letter and response depends on how busy the adjuster is, and how much time the adjuster needs to go over your claim and seek authority to enter into settlement negotiations.

In a typical personal injury case, after all medical bills and other injury information are gathered, you will likely make a settlement offer in writing. A formal settlement offer is usually made in a demand letter sent to the person responsible for the injuries — or to his or her insurance company.

In this article, let’s assume that you are dealing with an insurance company. The insurance company may respond to your demand letter with an unreasonable (“low-ball”) settlement offer. Your response to this initial settlement offer will go a long way toward determining what kind of outcome you’ll get in your personal injury case.

Read this and more than 2850 posts at


© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.


About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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