Legal Definitions - high–low agreement

A high-low agreement is a specific type of settlement reached between parties in a lawsuit, typically before a trial concludes. In this agreement, the defendant commits to paying the plaintiff a guaranteed minimum amount, regardless of the trial's outcome. In return, the plaintiff agrees to accept a predetermined maximum amount, even if the trial's verdict would otherwise award them more. This arrangement provides both sides with a degree of certainty, mitigating the financial risks associated with an unpredictable jury decision.

Here are some examples to illustrate how a high-low agreement works:

• Personal Injury Lawsuit: Imagine a car accident case where the plaintiff suffered significant injuries. The plaintiff is seeking $1 million in damages, but the defendant's insurance company believes their liability is limited. To reduce the uncertainty of a jury verdict, they enter into a high-low agreement. They agree that the defendant will pay the plaintiff a minimum of $100,000, even if the jury awards less or nothing at all. In exchange, the plaintiff agrees to accept no more than $500,000, even if the jury awards a higher amount, such as $700,000. This agreement ensures the plaintiff receives some compensation while capping the defendant's potential payout, regardless of what the jury ultimately decides.

• Medical Malpractice Claim: A patient sues a hospital for alleged negligence during a surgical procedure. The potential damages are very high, but proving negligence can be challenging and unpredictable for a jury. To manage the risk, both parties agree to a high-low settlement. They set a low of $250,000 and a high of $1.5 million. If the jury finds in favor of the hospital, awarding no damages, the patient still receives $250,000. Conversely, if the jury awards the patient $2 million, the hospital's payout is capped at $1.5 million. This protects the patient from receiving nothing and shields the hospital from an exceptionally large verdict.

• Commercial Contract Dispute: Two companies are in a legal battle over a breach of a supply contract. Company A (the supplier) claims Company B (the buyer) failed to pay for a large order, resulting in $750,000 in damages. Company B disputes the amount and claims some of the goods were defective. Facing the expense and unpredictability of a lengthy trial, they opt for a high-low agreement. They agree on a minimum payment of $150,000 to Company A and a maximum payment of $400,000. If the jury awards Company A only $50,000, Company B still pays $150,000. If the jury awards Company A $600,000, Company B's liability is limited to $400,000. This allows both businesses to mitigate financial risk and gain certainty about the range of potential outcomes.