Over the past decade the Texas legislature has passed numerous laws that affect the rights of Texans to recover damages when they have been injured by the negligent acts of other individuals or business entities. These laws are commonly known as “Tort Reform“. One of the Tort Reform laws passed in Texas allows for the recovery of litigation costs even when the responsible party has been sued by the person whom they have injured. This right to recover litigation costs is contained in Chapter 42 of the Texas Civil Practice and Remedies Code. Before the passage of this statute, unlike suits involving contracts, neither party to a personal injury suit could recover their litigation costs. Under certain circumstances, this law gives either the injured person or the wrongdoer the right to recover their litigation costs when the defendant has attempted to settle the suit before going to trial.
The settlement offer procedure provided in Chapter 42 applies only to suits where monetary damages are requested. Chapter 42 does not apply to a class actions, shareholder’s derivative actions, an action by or against a governmental unit; family law cases, claims for workers’ compensation benefits or an action filed in a justice of the peace court.
Chapter 42 does not come into effect unless a defendant in the suit files a declaration that the settlement procedure provided by Chapter 42 is available in the litigation. If there is more than one defendant, the settlement procedure is available only to the defendant that filed the declaration and to the parties that make or receive offers of settlement in relation to that defendant.
Chapter 42 does not limit or affect the ability of any person to make an offer to settle or compromise a suit that does not comply with its provisions or an offer to settle or compromise a suit to which Chapter 42 does not apply. However, an offer to settle or compromise that is not made under Chapter 42 or an offer to settle or compromise made in an action to which Chapter 42 does not apply does not entitle the offering party to recover litigation costs under Chapter 42.
To make a settlement offer under Chapter 42, the offer must:
- be in writing;
- state that it is made pursuant to Chapter 42;
- state the terms by which the claims may be settled;
- state a deadline by which the settlement offer must be accepted; and
- be served on all parties to whom the settlement offer is made.
If a settlement offer is made and rejected and the judgment entered in the suit is significantly less favorable to the rejecting party than was the settlement offer, the offering party can recover their litigation costs from the rejecting party. A judgment is significantly less favorable to the rejecting party than was the settlement offer if:
- the rejecting party is the plaintiff and the judgment is for less than 80 percent of the rejected offer; or
- the rejecting party is a defendant and the judgment is for more than 120 percent of the rejected offer.
“Litigation costs” means money actually spent and obligations actually incurred that are directly related to the case in which the settlement offer is made. Litigation costs includes court costs, fees for not more than two testifying expert witnesses and attorney’s fees. The litigation costs that may be recovered by the offering party are limited to those litigation costs that were incurred by the offering party after the date the rejecting party rejected the settlement offer.