Law firms are increasingly using a multitude of factors to value cases. Valuation provides the parties a better means to identify the issues in litigation, discuss which ones are in dispute, and calculate a logical resolution/settlement. Factors considered during valuation include the type and severity of injury or business interruption, impact of consequential damages, involvement of other parties, indemnity sources, and chances of prevailing.
Predicting the market value of a litigation claim is an inexact science but various methodologies exists to assist legal counsel and their clients in this effort. One methodology tool is the decision tree model which develops if/then scenarios and aims to predict all possible outcomes. A publication issued by Cogent Valuation discusses this methodology and points out the difference between valuing litigation and valuing damages. [The Valuation Of Litigation, Valuation Strategies, March/April 2006]
The value of litigation includes not only potential damages, but the risk of losing, legal costs and time spent waiting before damages are received. As such, the value of litigation discounts expected damages and is a lower amount.
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