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1976 Ins. L.J. 589 (1976)
Quantitative Aspects of Legal Analysis

handle is hein.journals/inslj38 and id is 589 raw text is: October, 1976 Number 645 Quantitative Aspects of Legal Analysis By RONALD DAVID GREENBERG In determining whether to settle a claim out of court, an insurer must determine at the outset what amount of money received upon prompt settlement would be a satisfactory equivalent, from the viewpoint of the policyowner as well as the company, to the amount of money that might be recovered eventually after completion of all the legal pro- ceedings. The author explains quantitative techniques, in- volving the use of interest and probability, that may be helpful to insurers and their attorneys in their analysis of a case. INTRODUCTION R ABELAIS remarked that Nothing is so dear and precious as time.' People havy expounded the value of time for centuries. Insurance companies and their lawyers too cannot escape this basic economic experience. In deciding whether to settle a claim out of court, as a threshold matter, the company must determine what amount of money received upon prompt settlement would be a satisfactory equivalent, from the viewpoint of the policyowner as well as the com- pany, to the amount of money that might be eventually recovered after completion of all expected legal proceedings. This determina- tion, to some degree, is conducted by every company. But it is not always recognized that this equivalency test is a subjective one, inas- much as different policyowners might very well be satisfied with dif- ferent amounts of settlement proceeds depending on the utility2 and Rabelais, Works, Book 5, Ch. 5. The concept of utility 4escribes the situation where persons accumulate wealth and each successive unit of wealth tends to be less appreciated. In other words, as the7 amount of money accumulated increases, the marginal utility to the owner thereof tends to decrease. See, for example, P. Samuelson, Economics at 431-434 (9th Ed. 1973). For an interesting discussion employing a mathematical model of ,this concept in a perhaps larger social or societal context, see, Baker, Utility and Rights: 'Two Justifications for State Action Increasing Equa'ity, 84 Yale Law Journal 39 (1974). Quantitative Aspects of Legal Analysis

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