Should I Settle Out of Court?

Why You Might Want to Take a Settlement Agreement

Couple signing legal document


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Going to trial can be lengthy, difficult, and costly. So, many lawsuits end up being settled out of court. In fact, of major case categories, tort cases (including personal injury and negligence) tend to have the highest settlement rates, followed by contract cases, employment discrimination cases, and then constitutional tort cases. One study from the Eastern District of Pennsylvania reported that the highest settlement rate for tort cases was 87.2%. If you’re considering whether to settle out of court or not, here’s a breakdown of how it works to help you decide, plus a sample settlement agreement template.

What Is an Out-of-court Settlement? 

A settlement is an agreement between the parties in a lawsuit that effectively halts the lawsuit and any other future litigation. It’s basically a compromise, which is why it’s sometimes called a compromise agreement. The compromise agreement is substituted for the claim, and the rights and liabilities of the two parties are then set by the agreement.

Why Do So Many Court Cases Settle Out of Court? 

Going to trial in a civil case against another party—whether you are the plaintiff or the defendant—can be stressful. Settling before the trial may be the best option to save time and money. Some attorneys will turn away cases when it is not cost-effective to try them.

Many court cases are settled just before trial and, of course, a significant amount of money has probably already been spent getting ready for it. This money may go toward: 

  • Billed time for attorneys
  • Costs for investigation
  • Depositions
  • Court filings

To put these costs into perspective, a study at the University of Denver cited this example:

“...while a simple automobile case may resolve quickly after case initiation and incur less than $10,000 in fees, the total costs of such a case can also exceed $100,000 per side if the case goes to trial.”

To Settle or Not to Settle?

Consider these points in making a decision to settle:

  • Stress and time away from work: The “stress factor” is different for everyone, but if the case is taking you away from your work and it’s costing you money, or the stress is eating away at you, it might be wise to settle. 
  • Cost of the trial: Paying an attorney is a big part of the cost. The trial process can take months, if not years, eating up your time as a participant and causing stress. The costs may include attorney fees, costs of pretrial motions, discovery, depositions, and interrogatories. 
  • Judge vs. jury trial: Jury verdicts are more uncertain than having a judge. For instance, studies have found that juries tend to be more empathetic to defendants in certain situations than a judge might be. If you are the plaintiff in a jury trial, you might want to settle if the trial has been given to a jury. 
  • The certainty of the outcome: Probably the biggest reason many cases are settled before the trial is that the outcome of a trial is difficult to predict. Why spend all that time, money, and effort if there’s a possibility you won’t win the case? You or the other party can appeal a trial verdict, but a settlement ends the dispute and is binding on both parties.

Another Possibility for Settlement: Mediation

As a way to get to a settlement agreement, the parties in a lawsuit can agree to mediation. In mediation, the two parties meet with a trained mediator who works to reach an agreement. At any point in a lawsuit before trial, the two parties can agree to mediate; if mediation comes to a stalemate, the lawsuit can continue.

How Does a Settlement Agreement Work?

A settlement agreement is a contract, so it must meet the terms necessary for a contract, including mutual agreement and consideration (something given by both sides).

The various sections in a typical settlement agreement may include: 

  • Names of the parties to the agreement
  • An introduction that explains the reasons for the contract, also known as the “whereas” section
  • The “no admission of liability” clause that says the settlement doesn’t include an admission of wrongdoing by either party
  • A “promise to pay” section that states the settlement amount that one party agrees to pay to the other party
  • The invoicing and payment schedule with details on the money transfer
  • The “mutual release” clause, which states that both parties agree not to make any claims against the other party; the details in this section are an attempt to cover all possible situations

Bottom Line

Each lawsuit is different and it’s impossible to know whether a settlement is a good idea until the parties reach a specific point in the process when an agreement might be possible. You and your attorney will ultimately decide what’s best for you.