Insurance Settlement Formula

In the State of Florida, many civil cases are resolved through settlement. Florida Statute 768.79 explains the rules for offers of settlement and requires that offers are made in writing and state the total amount of compensation being offered to resolve a civil claim. Insurers frequently make settlement offers, as insurers are often responsible for paying legal fees and damages when their policyholders cause harm.

In determining an appropriate amount of compensation to offer to settle claims, insurers may use an insurance settlement formula. Settlement formulas aim to make it easier to determine appropriate compensation for noneconomic losses, such as compensation for pain and suffering or emotional distress.

There are different settlement formulas which may be adopted by insurers. One common formula aims to determine pain and suffering compensation by calculating the number of days a victim was in pain and paying a daily rate for each day of discomfort. This method is referred to as the per diem formula, and often a victim’s daily wages are used as the daily rate paid for pain when doing the calculation.

Another common formula involves calculating actual losses and then multiplying this amount by a “pain multiplier.” The pain multiplier is typically a number between 1.5 and 5, with a higher number used for more serious injuries.

While insurers may wish to use these settlement formulas to determine how much compensation to provide, victims do not have to accept a settlement offer. Victims may believe they deserve more compensation and may choose to pursue a civil claim for compensation in court to try to obtain a higher damage award from a jury.