Comment: comparing defense costs to amounts at risk

A reader commented on my post of August 31st about comparing litigation fee burn rates and probabilistic amount at risk. “This is a standard risk management approach when examining potential liability in contract and has considerable merit. But I wonder what you think the ‘cut off’ point is – i.e. when you should stop spending defense dollars and just settle. Arguably, if you are spending $1 in legal costs and have $1.01 at risk, you should keep defending.”

I appreciate this, and all comments. Here, I was really driving at a way of comparing investments in defense across many cases. The formula gives litigation managers or business managers (See my post of Aug. 21, 2005 about not hiring litigation managers.) a standard scale for assessing defense costs and amounts likely at risk. It is not a calculus for deciding when to settle, although the calculation might have a role in that decision.