Defendants: Reject §998 Settlement Offers at Your Peril

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Here’s a cautionary tale for all those defense attorneys who don’t take §998 settlement offers seriously enough.

In a recent case in San Diego Superior Court, two teenage boys sued an outpatient services provider, alleging that they were molested by a volunteer with the defendant’s organization. Plaintiffs claimed that the defendant negligently failed to do a background check on the volunteer and ignored their parents’ concerns.

In their §998 offer to settle the case, plaintiffs demanded only $5,000 per plaintiff ($10,000 total). They later increased their final demand before trial to $250,000 per plaintiff ($500,000 total).

The defendant rejected both demands and they went to trial. It turned out that the §998 offers were extremely modest in comparison to the whopping $6.5 million verdict!

The problem with a defendant’s miscalculated rejection of a §998 offer can go beyond being hit with a much bigger verdict—the defendant may also be required to pay plaintiffs’ costs under §998’s cost-shifting penalties.

Here’s how CCP §998 works: A plaintiff may make a formal written offer to allow judgment or an award to be entered under specified terms. If the defendant doesn’t accept this offer and then fails to achieve a more favorable award at trial or arbitration, the defendant is hit with the cost-shifting penalties.

Here’s what the cost-shifting penalties include:

  • Prejudgment interest. In personal injury actions, the plaintiff is entitled to prejudgment interest calculated at 10 percent annually after the date of the offer. CC §3291. When a successful plaintiff makes two successive unaccepted §998 offers in a personal injury action and the plaintiff obtains a recovery in excess of both offers, the prejudgment interest runs from the date of the first offer. Ray v Goodman (2006) 142 CA4th 83, 91. If multiple defendants are found liable for the judgment, they are jointly and severally responsible for the prejudgment interest.
  • Expert witness fees. In its discretion, the judge or arbitrator may award a reasonable amount to cover the cost to the plaintiff of the services of expert witnesses. CCP §998(d). Police officers are deemed to be expert witnesses for purposes of these provisions. CCP §998(f).
  • Attorney fees and costs. Section 998(a) provides that costs allowed under CCP §§1031-1032 may be awarded to the plaintiff as the “prevailing party.” Costs available under CCP §1032 are listed in CCP §1033.5. Both attorney fees authorized by statute and recoverable under a contract are included. CCP §1033.5(a)(10).

Section 998 is all about encouraging settlement. The earlier the §998 offer is made, the more substantial the post-offer attorney fees will be.

This powerful litigation tool can also be used by defendants against plaintiffs—learn about that next week on CEBblog.

On the use of §998 offers by both sides, turn to CEB’s California Civil Procedure Before Trial, chapter 47. And check out CEB’s On Demand program Using and Responding to CCP §998 Offers for expert discussion on how both plaintiffs and defendants can use §998 offers to their advantage and the risks of not accepting such an offer.

© The Regents of the University of California, 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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Topics:  Bodily Injury, Healthcare, Settlement

Published In: Civil Remedies Updates, Personal Injury Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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