George Jetson, an employee of Spacely Construction Company, claims to have injured his back as a result of a fall while repairing the roof at of the 1313 Mockingbird Lane Apartments. He filed a lawsuit against Herman Munster, the owner of 1313 Mockingbird Lane Apartments, asking for damages of $1,500,000. George claims that the roof had rotten sections and that his fall could have been prevented if Mr. Munster had told Spacely Construction about the problem. Mr. Munster notified his insurance company, Dewey, Cheatem and Howe Insurance (DCH), of the lawsuit. DCH must defend Mr. Munster and decide what action to take regarding the lawsuit.
Some depositions and a series of discussions took place between both sides. As a result, George Jetson offered to accept a settlement of $750,000. Thus, one option is for DCH to pay George $750,000 to settle the claim. DCH is also considering making George a counteroffer of $400,000 in the hope that he will accept a lesser amount to avoid the time and cost of a trial. DCH's preliminary investigation shows that George's case is strong; DCH is concerned that George may reject their counteroffer and request a jury trial. DCH's lawyer spent some time exploring George's likely reaction if they make a counteroffer of $400,000.
The lawyer concluded that its is adequate to consider three possible outcomes to represents George's possible reaction to a counteroffer of $400,000: (1) George will accept the counteroffer and the case will be closed; (2) George will reject the counteroffer and elect to have a jury decide the settlement amount; or (3) George will make a counteroffer to DCH of $600,000. If George does make a counteroffer, DCH decided that they will not make additional counteroffers. They will either accept George's counteroffer of $600,000 or go to trial.
If the case goes to a jury trial, DCH considers three outcomes possible: (1) the jury may reject George's claim and DCH will not be required to pay any damages; (2) the jury will find in favor of George and award his $750,000 in damages; or (3) the jury will conclude that George has a strong case and award him the full amount of $1,500,000.
Key considerations as DCH develops its strategy for disposing of the case are the probabilities associated with George's response to a DCH counteroffer of $400,000 and the probabilities associated with the three possible trail outcomes. DCH's lawyers believe the probability that George will accept the counteroffer of $400,000 is 0.10, the probability that George will reject the counteroffer of $400,000 is 0.40, and the probability that George will, himself, make a counteroffer to DCH of $600,000 is 0.50. If the case goes to court, they believe that the probability the jury will award George damages of $1,500,00 is 0.30, the probability that the jury will award George damages of $750,000 is 0.50 and the probability that the jury will award George nothing is 0.20.
Perform an analysis of the problem facing Dewey, Cheatem and Howe Insurance. Summarize your findings and recommendations as to how to proceed.