Managing Risk in a Risky World in Mediation

Tue, Jan 7th, 2025 | by Miles Mediation and Arbitration | Article | Social Share

By Eric J. Frisch 

During mediation, the neutral speaks with the parties about their “litigation risk” to motivate them toward a resolution. What is “litigation risk” in today’s environment? Throughout the country, verdict values in catastrophic injury cases are up. The challenge for mediation participants is to assess the realistic impact of what risk analyst Nassim Nichaolas Taleb described as the “known knowns,” the “known unknowns” and the “unknown unknowns” in litigation. In this commentary, we conceptualize litigation risk and how it can help reach a settlement in mediation.

Risk in the Context of Climbing

Authors Ron Funderburke and Derek Debruin defined risk in an article entitled “Managing Risk in Rock Climbing” in the periodical “Accidents in North American Climbing” published in 2019. They wrote, “Dictionaries suggest the words ‘hazard’ and ‘risk’ are synonymous, but the scholarship surrounding this subject describes a much different relationship between these words. We’re going to describe risk as a cycle, wherein hazards exist objectively, our exposure to those hazards subjectively creates an opportunity for loss as well as reward, and the outcome of our exposure can be analyzed.”

Quick background: My recreational habit of choice is mountaineering and, specifically, high-altitude expeditions. The short story is that I got my first taste with a trip to Everest Base Camp in 2011. From there, I progressed to summiting Kilimanjaro, Mount Elbrus, Cayambe and attempting Aconcagua. My next planned trip is to Carstensz Pyramid with sights set on Denali and Mount Vinson at some point. Each of these peaks is over 16,000 feet in elevation. In climbing parlance, these are known as the objective.

After Kilimanjaro, I realized I needed more specific training and skills to continue in the sport. At age 46, I found myself climbing rock and ice and then learning glacier travel, multipitch traditional and sport climbing and alpine climbing. I joined the American Alpine Club and began receiving its great yearly periodical called “Accidents in North American Climbing,” which presents case reports of all known accidents throughout the United States, Canada and Mexico. The report states what happened and then there is, as much as possible, a post-mortem of what happened. The goal of the publication is to further the readers’ knowledge of the risks.

The 2019 edition of “Accidents in North American Climbing” included an article entitled “Managing Risk in Rock Climbing” by Ron Funderburke and Derek Debruin. The authors provided an enlightening analysis of the risks involved in mountaineering beyond the “what if you fall,” “what if the rope breaks,” or what happens when you climb without a rope (free soloing). Additional risk in mountaineering includes terrain, weather, and, importantly, human weaknesses in assessing and managing known and unknown hazards.

The authors start with the definitions of “risk” and “hazard,” which lawyers use often but do not necessarily define or view consistently. The authors define a “hazard” as something that exists objectively, meaning it is dangerous regardless of whether humans are ever exposed to it. “Risk” is what happens when humans expose themselves to the hazard and alter the predicted probabilities and even create new consequences.

To understand the significance of a hazard, you must assess the relationship between the probability of occurrence and the consequence from exposure. Distilled to their essence, those relationships are:

1. High-probability/low-consequence
2. High-probability/high-consequence
3. Low-probability/low-consequence
4. Low-probability/high-consequence

In addition, humans have inherent cognitive biases, which can cause us to misunderstand the probabilities, underestimate risk, misperceive hazards and consequences or overestimate our chances of mitigating risk. Some of the better-known biases include confirmation bias (the “gambler’s fallacy”), optimism bias and commitment bias. Putting it all together, safety in the rock-climbing context involves knowing the known hazards, understanding the possibility of unknown hazards, understanding the spectrum of consequences, and attempting to assess the probabilities of successfully climbing the objective without giving in to the cognitive biases.

Litigation Risk

So how can the climbing-risk model help us in litigation? First, we start off with our objective—the best possible outcome for our client, regardless of which side we are on. For trial lawyers, this is a complete and final verdict in our client’s favor. Conversely, the worst possible outcome is a complete and final verdict in favor of the opposing party. In this context, “high probability/low consequence” is our best outcome, and “high probability/high consequence” is our worst.

We start our risk assessment on a spectrum, depending on who we represent at trial. On the plaintiff’s side, the spectrum goes from complete and final verdict of the desired value on one side through complete and final defense verdict on the other. For the defense, the converse. Along the spectrum, we have the hazards of trial. If you noticed, I defined the objective in terms of “complete and final” because trial includes three well-known hazards: (1) partial verdicts (fewer than all the issues resolved how we want); (2) appeal issues; and (3) mistrial. Hazards are agnostic, meaning the consequences affect everyone. For example, a verdict for the plaintiff that is apportioned between parties and nonparties can be good or bad for any trial participant, depending on what the jury decides.

Mistrial is a low probability/high consequence outcome, generally speaking. In some cases, mistrial may be a high probability/high consequence outcome, or it may be a high probability/low consequence outcome, depending on our client’s perspective. A low probability/low consequence outcome might be a compromise verdict, particularly a verdict that falls squarely at the midpoint between the last demand and last offer.

After defining our objective and identifying the known hazards, we are ready to assess our “known unknowns.” The first known unknown is the jury. To be fair, the jury is not “unknowable,” but is unknown. We know there will be a jury, we know it will consist of X number of people from where juries are drawn, and we can be reasonably confident it will not include certain classes of people who are either disqualified or likely to be stricken for cause. Beyond that, we know that we cannot know who the jurors actually are, what they are thinking now or how they will think about our case when they hear information about it.

Our next “known unknown” is the judge. In some jurisdictions, we will have the same judge the entire time. We can do due diligence and get some idea of tendencies, often based on experience with them. In other jurisdictions, the judge is not known until the day of trial.

Now that we know the objectives and the potential hazards, we need to assess the probability of any of the possible outcomes in light of the known knowns and the known unknowns. In today’s litigation environment, this represents the biggest challenge. Notably, this is where the cognitive biases come into play:

1. I won a similar case the last time, so I will win it this time (anchoring bias);
2. So-and-so won a similar case against the same lawyer, therefore I will too (especially if I use a similar gameplan) (gambler’s fallacy); and
3. These types of cases are always worth “this much” (confirmation bias).

The difficulty of assessing the probabilities is confounded further by underwhelming access to usable data about outcomes. For example, verdict and settlement reporting suffers from underreporting and overreporting. Most reporting services are only as good as the information provided. This frequently means underreporting of defense verdicts and confidential settlements and overreporting of plaintiff verdicts and nonconfidential settlements. Many have tried to compile what they believe are reliable datapoints, an honest assessment of today’s “severity” environment (big verdicts) provides some insight that data science has a long way to go to improve accuracy (in my opinion).

How Does this Help Us in Mediation?

The objective of mediation is an agreed resolution on terms acceptable to all participants. That starts with a candid risk assessment for all. And, importantly, mediation is a chance to confront one of the biggest biases: the effect of emotions on our risk assessment. Most litigation participants have a personal interest in their best outcome. In climbing terms, this is “commitment bias.”

Commitment bias describes one’s commitment to a goal or outcome—the “summit-or-die” mentality. Unfortunately, such strong commitment to a goal can often lead to a “summit-and-die” outcome. Each of these biases can be alleviated to some extent with candid reflection on the outcomes of every climb, especially with an honest and objective partner.

Commitment bias represents the biggest threat to the rock climber. For the climber, arriving home safely IS the objective. The commitment bias is often what leads the climber to take on unnecessary and/or excessive risk. And, importantly, it can affect other parties, including climbing partners, family members and search-and-rescue teams.

In litigation terms, commitment bias is the “we have already invested so much, why not let the jury decide” approach. The investment is mostly monetary but can also be emotional. Whether it is the plaintiff who wants “their day in court” or the defendant who “won’t admit” anything, the commitment bias can lead a litigant away from control over the hazards and into excessive risk. If this is done knowingly and purposefully, then they have exercised self-determination. But it is only after an honest, complete and thorough assessment that this can be done.

Conclusion

Good advocates prepare their clients and stakeholders for mediation by defining the objective, identifying the hazards, and attempting to assess the probabilities using the highest and best data available. At mediation, the neutral can assist the well-prepared participants in understanding the consequences of taking on risk.

*Originally published in the Daily Report and reprinted with permission.

About Eric Frisch

Eric Frisch is an AV Preeminent®-rated lawyer and registered mediator and arbitrator in Georgia. Eric graduated from the University of Florida with a bachelor’s degree in political science in 1993. He graduated from Emory University School of Law in 1996.

Since graduating in 1996, Eric has built his practice around the trial of complex medical malpractice, personal injury, professional liability, and commercial cases. He has tried more than 35 cases in the state and federal courts of Georgia as first or second chair.