Using the Offer of Judgment Rule to Obtain a Reasonable Settlement
The New Jersey Offer of Judgment Rule encourages settlements by requiring parties to examine the merits of their case. It can be a very powerful tool in negotiating a settlement for an injured victim, especially where an insurance company refuses to make a reasonable offer. The rule, set forth at Rule 4:58, provides the process of invoking it.
General Overview of the Rule
Except in a matrimonial action or an action adjudicated in the Special Civil Part, any party to a civil action may, at least 20 days before the trial date, serve upon any party and file with the court, an offer to take a monetary judgment in the offeror’s favor. Rule 4:58-1. Once an offer of judgment has been made, the recipient then has until either 10 days before the trial date or 90 days after being served the offer of judgment, whichever is sooner, to respond to the offer. Id. If the offer is accepted, the Rule has served its purpose, a trial was avoided, and none of the penalties set forth in the Rule apply.
On the other hand, where the offer of judgment is rejected or ignored, Rule 4:58-2 provides the consequences. Where an offer of judgment is rejected by a defendant, and the verdict is at least 120% of the offer, then the Rule provides that the defendant must pay all reasonable litigation expenses incurred following the non-acceptance and prejudgment interest. Id.
Additionally, revisions to the Rule, effective September 1, 2022, now provide that where an offer of judgment is accepted, it will generally not be deemed a judgment against the accepting party. Instead, acceptance and payment of the offer should be followed up with a Stipulation of Dismissal with prejudice that will dispose of all claims covered by the accepted offer. Payment of an accepted offer of judgment should also be made within 30 days, otherwise the offeror may withdraw its offer or seek entry of a final judgment.
The appellate decision of Feliciano v. Faldetta, provides a cautionary tale for the recipient of an offer of judgment. 434 N.J. Super. 543 (App. Div. 2013). There, a $15,000 offer of judgment filed by the plaintiff, and rejected by the defendant, ballooned into a $109,185 judgment after the addition of attorney’s fees, costs, and interested were added to a jury verdict.
The matter of Feliciano involved an injury claim from a car accident. Id. at 546. The defendant had filed a motion for summary judgment arguing that the plaintiff did not satisfy the verbal threshold. The motion was denied and the plaintiff filed an offer to take judgment in the amount of $15,000. Ibid. The defendant rejected the offer and the case proceeded to trial, where the jury awarded the plaintiff $50,000. Ibid.
As the jury award was more than 120% the offer of judgment, plaintiff’s counsel submitted a $62,780 request for attorney’s fees. Ibid. The request was reduced by the trial court, which awarded $42,230 in attorney’s fees and $6,831 in costs. These figures when then added to the jury verdict resulted in a judgment of $109,185 against the defendant. Ibid.
An additional issue then arose, as the defendant’s insurance policy had limits of $50,000. Id. at 547. On appeal, defense counsel argued that the award was excessive and that it would constitute a hardship for the defendant due to the limited insurance coverage. Ibid. The Appellate Division, however, rejected the arguments, concluding that they were not properly before the panel as they were not raised before the court below. Ibid. Nevertheless, the court additionally noted that the defendant may have a Rova Farms claim against his carrier for its failure to settle within his policy limits. Ibid. Consequently, an insurance company is wise to strongly consider settling a case where the plaintiff’s offer of judgment is reasonable and especially where the offer is within the policy limits.
Using the Offer of Judgment Rule in Underinsured/Uninsured Motorist Cases
Effective September 1, 2016, the Offer of Judgment Rule was revised to clear up an ambiguity regarding uninsured or underinsured motorist cases. See Rule 4:58-2(b). The rule changes provide in uninsured or underinsured motorist case, the judgment should be molded only to adjust it for any comparative negligence of the plaintiff. The ambiguity was fully fleshed out in the Appellate Division decision of Seamon v. State Farm Insurance Co., 2017 WL 6398907 (App. Div. 2017).
In Seamon, the plaintiff settled his claim with the tortfeasor for his policy limits of $15,000. The plaintiff then pursued an underinsured motorist claim against her insurance carrier, State Farm. Id. at *1. State Farm refused to settle and the plaintiff therefore filed suit. Ibid. During the litigation, both parties filed an Offer of Judgment. State Farm offered $30,000 and the plaintiff offered to settle for $85,000. Ibid. Neither of the offers were accepted, and the matter proceeded to trial where the jury returned a verdict of $375,000. Ibid. After subtracting the $15,000 the plaintiff received from the tortfeasor, the trial court entered judgment for the plaintiff in the amount of $360,000 plus interest. Ibid.
State Farm then, consistent with Taddei v. State Farm Indemnity Company, 401 N.J. Super. 449 (App. Div. 2008), filed a motion to mold the verdict to its $100,000 policy limits, and the plaintiff filed a motion to amend the complaint to add a bad faith claim. Ibid. The trial court denied the plaintiff’s motion and instead directed that the plaintiff may file a new complaint asserting bad faith. The court likewise denied State Farm’s motion concluding that the court had the discretion not to mold the verdict to State Farm’s policy limits, thus leaving the $360,000 judgment intact. Id. at *2. As the $360,000 judgment was in excess of 120% of the $85,000 offer of judgment (the requested molding by State Farm of $100,00 clearly would not invoke the sanctions), the trial court awarded fees based on the non-molded verdict. Ibid. State Farm appealed.
On appeal, the Appellate Division first dealt with the issue of molding the verdict. It found that the trial court erred in determining it had discretion to refuse to mold the verdict. The panel held: “the trial court misconstrued Taddei v. State Farm Indemnity Company, 401 N.J. Super. 449 (App. Div. 2008), and Wadeer v. New Jersey Manufacturers Insurance Company, as to giving the trial court discretion to decline to mold the verdict.” Ibid. The appellate division instead reiterated that molding is required in uninsured and underinsured motorist cases, as “the claims are based on an insured’s contract rights under the policy.” Ibid. In other words, as the claimant makes the specific choice as to the amount of uninsured and underinsured motorist coverage he has, he cannot recover more than that amount in a jury trial.
However, the Appellate Division agreed that the plaintiff was entitled to use the unmolded jury verdict of $375,000 for the purposes of the offer of judgment rule. Accordingly, as the unmolded verdict value was more than the 120% required by the Rule, the plaintiff was entitled to attorney’s fees, costs and interest. Id. at *3.
Multiple Party Cases
Effective as of September 1, 2022, the Offer of Judgment Rule was amended to address how offers can be made in multi-party cases. For example, in the case of multiple plaintiffs, where one or more plaintiffs seek a claim that is derivative of another plaintiff (e.g. a claim for loss of consortium), the claimants may make a single unallocated offer of judgment. Otherwise, where there are multiple plaintiffs involved, each with specific claims, each plaintiff may file and serve an offer of judgment individually.
In the case of multiple defendants, the revised Rule now allows parties to make individual offers to specific defendants or a global, uniform offer to multiple defendants. Defendants are then able to make global counteroffers. Where there are multiple defendants and a plaintiff obtains a judgment in an amount of 120% or more of a global offer, the plaintiff will be allowed the recoverable expenses and interest on a joint and several basis. In other words, each defendant is responsible for the whole amount that a successful plaintiff can recover and those paying in excess of their share must look to the other defendants for reimbursement.
On the other hand, where there is a global counteroffer made, but the parties nevertheless proceed to trial, and the plaintiff obtains a favorable determination, each defendant is responsible only for the portion of expenses and fees equal to the percentage allocated by the jury. In the event the defendants obtain a global favorable determination, the plaintiff is responsible for the expenses and fees payable pro rata to each defendant.
Offer of Judgment Rule and High-Low Agreements
The parties to a lawsuit may sometimes enter a high-low agreement, ensuring that the plaintiff receives something by setting a floor, while simultaneously capping the damages an insurance company may be liable for by capping the damages with a ceiling. However, what happens where a previous offer of judgment was filed? This interplay was analyzed by the New Jersey Supreme Court in the case of Serico v. Rothberg, 234 N.J. 168 (2018). There, the Court found that an Offer of Judgment was extinguished by a subsequent entry of a high-low agreement, unless the parties explicitly preserve the right to pursue the sanctions of Rule 4:58.
Following a trial in a medical malpractice case, the plaintiff Lucia Serico filed a motion seeking attorney’s fees and costs based upon a previously filed offer of judgment. However, while the jury was deliberating, the plaintiff entered into a high-low agreement with the defendant. The jury returned with a $6 million verdict, which was higher than the $1 million cap placed by the high-low agreement. The jury verdict was likewise in excess of 120% of the $750,000 offer of judgment filed by the plaintiff. Therefore, the plaintiff sought attorney’s fees under the offer of judgment rule with the defendant arguing that the award of sanctions would defeat the purposes of the high-low agreement. The trial court agreed with the defendants and refused to impose sanctions.
Ultimately, the matter proceeded up to the Supreme Court. There the Court reviewed the transcript, specifically where the high-low agreement was placed on the record. The Court found significant that defense counsel at that time expressed that $1 million would be a hard limit with no interest or medical expenses added on. Further, defense counsel noted that $1 million was the insurance policy limits and that there was no secondary insurance. Accordingly, the Supreme Court affirmed the decisions of both the Appellate Division and the trial court concluding that the “critical” aspect of any high-low agreement is finality and that both parties “benefit from the strict and explicit limitation of financial exposure that such agreements provide.” Therefore, one should be cautious when entering a high-low agreement and ensure that an offer of judgment is preserved if that is the party’s intention.
Conclusion
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