Negotiation 101—know your bargaining position

The Pennsylvania Court of Appeals recently issued an opinion that reinforces the basic foundation of Negotiation 101—know your bargaining position.  Medical Protective Company insured Dr. Paul G. Marcincin for medical malpractice.  Unfortunately, Dr. Marcincin committed malpractice when he failed to diagnose his patient with skin cancer.  A jury awarded the patient $2.5 million.  Medical Protective Company only covered Dr. Marcincin up to $1.2 million.  Instead of personally paying the difference, Dr. Marcincin gave the patient the right to sue Medical Protective Company for bad faith.   Prior to the jury trial, Medical Protective Company offered the patient $50,000 to settle the claim, even though the patient was asking for $1.5million.  In fact, Medical Protective Company admitted during a deposition that it instructed its attorney to “stick with $50,000 and let’s see how this pans out in court”.  The judges involved in the case, each tried to settle the case for around $1 million, but Medical Protective Company would not budge from $50,000.  Unfortunately, for Medical Protective Company, a jury found that they committed bad faith when it unreasonably denied the patient’s claim.  The jury awarded an additional $8.5 million.  Yes, you read that correctly.  The patient asked for $1 million, and because Medical Protective Company did not understand their bargaining position, it now has to pay $7.9 million plus attorney fees (approximately another $350,000).

What did Medical Protective Company do wrong?  They did not develop a negotiation strategy prior to beginning negotiation.  Developing a negotiation strategy involves three steps.  First, identify the other parties’ bottom line.  What is the other side’s number one goal?  In this case, the patient wanted to be compensated for his injuries.  How much were his injuries worth?  I know what you are thinking, what if Medical Protective Company did not believe that Dr. Marcincin committed malpractice? It is irrelevant.  You are attempting to settle a dispute; the goal is not to convince the other side that you are right.  The goal is to convince the other side that settling will make him/her feel good. 

Second,   identify your bottom line.  What is your number one goal?  For, Medical Protective Company, it was protect its brand name.  How to achieve that goal? Execute a confidential settlement agreement.    In this case, it is clear that Medical Protective Company’s goal was to gain publicity and spend close to a million in attorney fees (their attorneys and the patients’ attorneys). 

Step three–develop action steps that will achieve both parties’ goals.  Brainstorming is the best method.  For, Medical Protective Company, $200,000 plus free health care for 10 years.   Anything is possible.

The fourth step is my favorite part.  Play the “what if” game.  Test your plan.  Imagine everything that can reasonably happen as a result of your plan.  Does your plan lead you to your goal?  In my opinion, this is where Medical Protective Company made its biggest mistake.  They adopted a “let’s wait and see” plan.  If they had played the “what if“ game, a competent attorney could have told them that they are committing bad faith by refusing to make a reasonable settlement offer.  Pennsylvania law is alarmingly severe for insurance company practicing bad faith (judgment plus at least 6.25% interest, punitive damages, and attorney fees).   

As a business owner, what can you learn from this case against Medical Protective Company?  In business, you cannot afford to leave financial decisions to chance.  You deliberately and meticulously grew your business from the ground up.  Follow the same steps when you are negotiating and settling disputes.