John Campbell, an employee of Manhattan Construction Company, claims to have injured his back as a result of a fall while repairing the roof at one of the Eastview apartment buildings. He filed a lawsuit against Doug Reynolds, the owner of Eastview Apartments, asking for damages of $1,500,000. John claims that the roof had rotten sections and that his fall could have been prevented if Mr. Reynolds had told Manhattan Construction about the problem. Mr. Reynolds notified his insurance company, Allied Insurance, of the lawsuit. Allied must defend Mr. Reynolds and decide what action to take regarding the lawsuit.
Some depositions and a series of discussions took place between both sides. As a result, John Campbell offered to accept a settlement of $750,000. Thus, one option is for Allied to pay John $750,000 to settle the claim. Allied is also considering making John a counteroffer of $400,000 in the hope that he will accept a lesser amount to avoid the time and cost of going to trial. Allied’s preliminary investigation shows that John’s case is strong; Allied is concerned that John may reject their counteroffer and request a jury trial. Allied’s lawyers spent some time exploring John’s likely reaction if they make a counteroffer of $400,000.
Perform an analysis of the problem facing Allied Insurance and prepare a report that summarizes your findings and recommendations. Be sure to include the following items:
1. A decision tree
2. A recommendation regarding whether Allied should accept John’s initial offer to settle the claim for $750,000
3. A decision strategy that Allied should follow if they decide to make John a counteroffer of $400,000
4. A risk profile for your recommended strategy.