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John Campbell, an employee of Manhattan Construction Company, claims to have injured his back as a result of a fall while repairing the roof at one...
John Campbell, an employee of Manhattan Construction Company, claims to have injured hisback as a result of a fall while repairing the roof at one of the Eastview apartment buildings. Hefiled a lawsuit against Doug Reynolds, the owner of Eastview Apartments, asking for damages of$1,500,000. John claims that the roof had rotten sections and that his fall could have beenprevented if Mr. Reynolds had told Manhattan Construction about the problem. Mr. Reynoldsnotified his insurance company, Allied Insurance, of the lawsuit. Allied must defend Mr.Reynolds and decide what action to take regarding the lawsuit.Some depositions and a series of discussions took place between both sides. As a result,John Campbell offered to accept a settlement of $750,000. Thus, one option is for Allied to payJohn $750,000 to settle the claim. Allied is also considering making John a counteroffer of$400,000 in the hope that he will accept a lesser amount to avoid the time and cost of going totrial. Allied’s preliminary investigation shows that John’s case is strong; Allied is concerned thatJohn may reject their counteroffer and request jury trial. Allied’s lawyers spent some timeexploring John’s likely reaction if they make a counteroffer of $400,000.The lawyers concluded that it is adequate to consider three possible outcomes torepresent John’s possible reaction to a counteroffer of $400,000: (1) John will accept thecounteroffer and the case will be closed; (2) John will reject the counteroffer and elect to have ajury decide the settlement amount; or (3) John will make a counteroffer to Allied of $600,000. IfJohn does make a counteroffer, Allied decided that they will not make additional counteroffers.They will either accept John’s counteroffer of $600,000 or go to trial.If the case goes to a jury trial, Allied considers three outcomes possible: (1) the jury mayreject John’s claim and Allied will not be required to pay any damages; (2) the jury will find infavor of John and award him $750,000 in damages; or (3) the jury will conclude that John has astrong case and award him the full amount of $1,500,000.Key considerations as Allied develops its strategy for disposing of the case are theprobabilities associated with John’s response to an Allied counteroffer of $400,000 and theprobability associated with the three possible trial outcomes. Allied’s lawyer believe theprobability that John will accept a counteroffer of $400,000 is 0.10, the probability that John willreject a counteroffer of $400,000 is 0.40, and the probability that John will, himself, make acounteroffer of Allied of $600,000 is 0.50. If the case goes to court, they believe that theprobability the jury will award John damages of $750,000 is 0.50, and the probability that thejury will award John nothing is 0.20.Perform and analysis of the problem facing Allied Insurance and prepare a report that summarizes your findings and recommendations. Be sure to include the following items:1 a decision tree2 A recommendation regarding whether Allied should accept John’s initial offer to settle the claim for $750,0002 A decision strategy that Allied should follow if they decide to make John a counteroffer of $400,0004 A risk profile for your recommended strategy
