Question

You are an insurance adjuster for XYZ Insurance Company. You supervisor has asked you to review the following claim and make a recommendation as to how much XYZ should offer to settle it. Your response should include the amount you recommend AND how you arrived at that number, i.e., the reasons why you are recommending the amount stated to settle the claim.

XYZ insures BurgerMac, a nationwide fast food chain, under a CGL policy. The liability limit of the policy is $1M. BurgerMac sells hot coffee. Stella Liebeck is 79 years old. She is retired. She lives with her adult daughter, Frances Liebeck. One morning, Frances and Stella drive to the closest BurgerMac. Stella orders hot coffee. The coffee is served in a Styrofoam cup with a plastic lid. While still parked in the parking lot, Stella removes the lid in order to add cream and sugar to her coffee. She places the cup between her legs so she can use both hands to open the cream and sugar packets. She is wearing very thin, cotton, sweat pants. The coffee spills. The coffee causes severe burns to the inside of Stella’s legs. Frances drives to the closest hospital where Stella is admitted. The doctors determine Stella has suffered third degree burns to the insides of her legs. She is hospitalized for 8 days during which she undergoes numerous skin grafts. Her doctors believe she will need additional medical treatment for the burns for 2 more years. Stella’s hospital and doctor bills total $25,000. The additional two years of treatment is expected to cost an additional $20,000. The grafts are successful, nevertheless, there is a moderate amount of scarring to the insides of Stella’s legs.

Frances is employed as a bookkeeper for a local construction company. She earns $35,000/year. Frances takes time from work to drive Stella to the doctors for her treatments. She estimates she will miss a total of one month from work in order to assist her mother with her medical treatments. Frances states she is very close to her mother and their relationship has suffered since Stella seems sullen and depressed about her injury.

Frances and Stella have hired a lawyer. Their lawyer tells you he wants $600,000 to settle the claim. If this amount is not paid, he will file a products liability lawsuit against BurgerMac.

How much do you recommend XYZ offer to try to settle the case before it goes into litigation?

Answer 1

Claims	Value in $
Estimated cost of the treatment
Stella hospital costs	25000
Two years additional treatment	20000
Frances salary for 1 month of 35000	2917
Compensatory damages for emotional distress, trauma, past and future pain and suffering	200000
lawyer fee for settling the claim	600000
Total amount XYZ should offer to settle the claim	847916.67
Burger Mac has breached the implied warranty of mechantability which states that the product has inherent expected standards which should be met. Further the product liabilty law shows a damage caused due to defect in the styrofoam cup which should be able to hold coffee of a certain temperature.