Legal Definitions - hilo settlement

A hilo settlement, also commonly known as a high-low agreement, is a private contractual arrangement made between parties involved in a lawsuit, typically before a jury delivers its verdict. This agreement establishes both a minimum amount (the "low") that the plaintiff is guaranteed to receive, regardless of the jury's decision, and a maximum amount (the "high") that the plaintiff can recover, even if the jury awards a larger sum. The primary purpose of a high-low agreement is to reduce the financial risk and uncertainty for both sides in litigation, providing a predictable range for the final outcome.

• Example 1: Personal Injury Lawsuit

  Imagine a plaintiff suing a driver for severe injuries sustained in a car accident. The plaintiff's legal team believes the damages could be as high as $500,000, while the defendant's insurance company argues that their liability, if any, is much lower, perhaps $100,000. Both parties are wary of the unpredictable nature of a jury trial: the plaintiff fears receiving nothing, and the defendant fears a verdict far exceeding their expectations.

  To manage this risk, they enter into a high-low agreement. They set the "low" at $150,000 and the "high" at $400,000. This means:

  • If the jury awards the plaintiff $0, $50,000, or even $140,000, the defendant's insurance company will still pay the plaintiff the agreed "low" of $150,000.
  • If the jury awards the plaintiff $450,000, $600,000, or more, the defendant's payment is capped at the agreed "high" of $400,000.
  • If the jury awards an amount between $150,000 and $400,000 (e.g., $275,000), the defendant pays the exact jury award of $275,000.

  This agreement provides the injured plaintiff with a guaranteed minimum recovery, while simultaneously protecting the defendant from a potentially catastrophic, open-ended verdict.

• Example 2: Commercial Contract Dispute

  Consider a small technology startup (plaintiff) suing a large software corporation (defendant) for breach of a licensing agreement, claiming $2 million in lost revenue and damages. The corporation disputes the extent of the breach and argues that any damages should not exceed $500,000. Both companies want to avoid the extreme financial and reputational risks associated with a completely unpredictable jury verdict.

  To bring some certainty to the outcome, they agree to a high-low settlement. They set the "low" at $750,000 and the "high" at $1,750,000. This arrangement works as follows:

  • If the jury finds in favor of the corporation and awards the startup $0, or a minimal amount like $200,000, the corporation is still obligated to pay the startup the agreed "low" of $750,000.
  • If the jury awards the startup $2.5 million, $3 million, or even more, the corporation's total payment is capped at the agreed "high" of $1,750,000.
  • If the jury awards an amount within the agreed range (e.g., $1.2 million), that is the exact amount the corporation pays.

  This high-low agreement ensures the startup receives a significant recovery to help mitigate its losses, while the large corporation limits its maximum financial exposure, allowing for more predictable financial planning regardless of the jury's specific findings.