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ADMISSIBILITY OF SETTLEMENT EVIDENCE

Admissibility of Settlement Evidence

What Is Protected from Discovery and Admission at Trial?

Beware — Saying Too Much When Engaging in Pre-Suit Settlement Negotiations

Submitted by the Insurance PAC

By Pamela W. Carter, Carter Law Group

Many lawyers assume that evidence of settlement offers and negotiations can never be admitted at trial. There is a general belief that placing the legend “Settlement Communication” on correspondence and other documents somehow precludes those documents from ever being seen by a jury. The jurisprudence on the admissibility of settlement-related evidence is not nearly that broad.

Federal Rule of Evidence 408, which governs admissibility of settlement-related evidence, excludes such evidence only in certain circumstances. Moreover, Rule 408 expressly allows the use of settlement-related evidence for a number of reasons. For example, in the Cook case, a settlement agreement was admitted to show that a settling party understood certain reporting requirements contained in the agreement, and hence that the party’s later alleged violation of those same requirements was intentional. Cook v. Yellow Freight System, Inc., 132 F.R.D. 548 (E.D. Cal. 1990).

Here are instances where settlement-related evidence was allowed:

a. A defendant removing a case to federal court introduced evidence of its opponent’s settlement offers to establish the “amount in controversy.”

b. A party introduced evidence of prior settlements with witnesses who will be called to testify at trial, where the settlements tended to show witnesses’ bias.

c. A party seeking to enforce a settlement introduced evidence regarding settlement negotiations when necessary to explain the meaning of certain ambiguous terms in the parties’ agreement.

d. Prior settlement negotiations between a plaintiff and another party could be introduced by a defendant to establish for statute of limitations purposes the date that plaintiff understood the cause of his injuries. Evidence regarding the fact of settlement between the defendant and other plaintiffs would be permitted when necessary to avoid jury confusion.

One area of uncertainty relates to use of settlement evidence to prove mitigation of damages. For instance, a defendant may wish to introduce evidence of aborted settlement negotiations to explain why it failed to take steps that would have reduced its injuries. Some courts view such evidence as tending to prove the amount of the claim, and hence as being barred by Rule 408. Other courts have permitted such evidence on grounds it is being used to prove mitigation, an affirmative defense.

Furthermore, some courts have asserted discretionary authority to bar admission of settlement evidence even if one of the foregoing exceptions applies. According to these courts, such discretion should be exercised if admitting the evidence would have the effect of chilling settlement discussions or if the evidence is of merely marginal probative value.

Conclusion

Lawyers should remind their clients that pursuing settlement is not a risk-free exercise. While courts give an expansive reading to Rule 408, they generally find settlement agreements discoverable and admit them and certain settlement communications into evidence in a variety of unexpected situations.

Settlement-related evidence can be admissible for a myriad of purposes other than to prove or disprove a disputed claim or to impeach a witness. To protect such evidence from being admitted, a practitioner should place a “Settlement Communication” legend on each document, which will at least indicate that a “dispute” existed when the document was created; secure an agreement from opposing counsel that settlement offers and related communications will not be offered for any purpose; and be aware of the many exceptions to Rule 408’s bar on use of settlement-related evidence.

This current cases teach a valuable lesson. We can fall into a trap of Rule 408 myopathy–that if we caption something “Rule 408 Confidential and Inadmissible Settlement Negotiations,” courts will consider it as such and bar its use. What is one of the main the lessons learned under Rule 408? Keep written settlement communications short and to the point–the offer itself. If you have to discuss the merits of the case, either do so over the phone or only put in writing what you live with a judge or jury considering.

The scope of protection provided by Rule 408 and any “settlement privilege” will differ among jurisdictions, ranging from a blanket-protection of all communications from admission and discovery to a more narrow and strict application of Rule 408. Generally, defense counsel will be best served to assert a broad protection of settlement negotiations by objecting to discovery requests and the admission of protected settlement communications at trial.

Pamela W. Carter is National Director/Board Member for the DRI (Defense Research Institute), is an IADC member and former American Bar Association TIPS Board Member. She is a Martindale Hubbell AV-rated attorney and the founding member of Carter Law Group. A significant part of her practice includes civil litigation with an emphasis on insurance, construction, product liability and commercial litigation matters. She has received several national awards for her diversity efforts in the legal profession, is a contributing author to two books and has published many diversity and inclusion articles.