Jerome claims to have injured himself as a result of fallingfrom the icy stairs of Tabaret hall due to snow being not properlyremoved after early snowfall and low temperatures in mid-Novemberin Ottawa. As a result of the bad fall, Jerome will not be able towork for a while and will need to undergo surgery to repair abroken hip. Jerome, upon suggestion of his private insurance, issuing the subcontractor in charge of snow removal for negligencebecause, despite the snowfall was predicted by the weather forecastseveral days in advance, no shoveling or salting took place for twodays after the first snowfall. Jerome is asking for damages of $1.5million considering both the loss of working days, the decreasedquality of life, and the high costs of surgery/hip replacement. Asa result of some initial negotiation Jerome offered to accept asettlement of $750 thousand. Snowclear, the snow removalcontractor, thus has a few options: One is to accept the settlementand pay Jerome the agreed $750 thousand. Snowclear lawyers are alsosuggesting an alternative approach consisting in a counter-offer of$400 thousand in the hopes he will accept a lesser sum in order toavoid lengthy and costly process of a full-fledged trial.
However, Jerome strongly believes in his case and might stilldecide to refuse the counter-offer and let the judge and jurydecide the proper sum to be paid (if any) by Snowclear during atrial. More specifically, Jerome can react in one of three ways:(1) accept the counteroffer of $400 thousand, (2) reject thecounteroffer and take the case to court for a full trial where jurywill decide, (3) Jerome himself will make a counteroffer of $600thousand for settlement. If (3) happens then it will be Snowclear’scall on whether to accept such counteroffer and pay Jerome the $600thousand or go to trial. If the case goes to trial there are threepossible outcomes: (1) the jury may reject Jerome’s claim andSnowclear will owe nothing, (2) the jury will award Jerome the $750thousand agreed upon during initial negotiation between theparties, (3) the jury will conclude that Jerome has a strong caseand sentence Snowclear to pay him the full $1.5 million Jeromeinitially requested.
Key considerations when preparing Snowclear’s strategy on how tohandle the situation are the probabilities associated with Jerome’sresponse to the counteroffer of $400 thousand, and theprobabilities associated with the three possible outcomes for thetrial. Based on historical cases similar to Jerome’s, Snowclear’slawyers estimated that he will accept the counteroffer of $400thousand with a probability of 0.10, that the probability of Jeromerejecting the counteroffer of $400 thousand is 0.40, and that theprobability of Jerome himself making a counteroffer of $600thousand is 0.50. If the case goes to trial they believe that thejury will award Jerome the full damage of $1.5 million is 0.30, theprobability that the jury will award Jerome $750 thousand is 0.50,and the probability that the jury will award Jerome nothing is0.20.
Perform an analysis of the problem facing Snowclear and itslegal department and prepare a report that summarizes your analysesand final recommendations. Please include:
1. A decision tree modeling the problem
2. A recommendation on whether to accept Jerome’s initial offerof settlement for $750 thousand
3. A decision strategy that Snowclear should adopt if theydecide to go ahead with their counteroffer of $400 thousand
