Answer Happy

John Campbell, an employee of Manhattan Construction Company,claims to have injured his back as a result of a fall whilerepairing a roof at one of the Eastview apartment buildings. Hefiled a lawsuit against Doug Reynolds, the owner of Eastviewapartments, asking for damages of $1,500,000. John claims that theroof had rotten sections and that his fall could have beenprevented if Mr. Reynolds had told Manhattan Construction about theproblem. Mr. Reynolds notified the insurance company, AlliedInsurance, of the lawsuit. Allied must defend Mr. Reynolds anddecide what action to take regarding the lawsuit. Some depositionsand a series of discussions took place between both sides. As aresult, John Campbell offered to accept a settlement of $750,000.Thus, one option is for Allied to pay John $750,000 to settle theclaim. Allied is also considering making John a counteroffer of$400,000 in the hope that he will accept a lesser amount to avoidthe time and cost of going to trial. Allied’s preliminaryinvestigation shows that John’s case is strong. Allied is concernedthat John may reject their counteroffer and request a jury trial.Allied’s lawyers spent time exploring John’s likely reaction ifthey make a counteroffer of $400,000. The lawyers concluded that itis adequate to consider three possible outcomes to represent John’spossible reaction to the counteroffer of $400,000: (1) John willaccept the counteroffer and case will be closed: (2) John willreject the counteroffer and elect to have a jury decide thesettlement amount: or (3) John will make a counteroffer to Alliedof $600,000. If John does make the counteroffer, Allied decidedthat they will not make any additional counteroffers. They willeither accept John’s counteroffer of $600,000 or go to trial. Ifthe case goes to a jury trial, Allied considers three outcomespossible: (1) the jury may reject John’s claim and Allied will notbe required to pay for damages: (2) the jury will find in favor ofJohn and award him $750,000: (3) the jury will conclude that Johnhas a strong case and award him the full $1,500,000. Keyconsiderations as Allied develops its strategy for disposing of thecase are the probabilities associated with John’s response to anAllied counteroffer of $400,000 and the probabilities associatedwith the three possible trial outcomes Allied’s lawyers believe theprobability that John will accept a counter of $400,000 is .10, theprobability that John will reject the counteroffer of $400,000 is.40 and the probability that John will, himself, make acounteroffer to Allied of $600,000 is .50. If the case goes tocourt, they believe that the probability the jury will award Johndamages of $1,500,00 is .30, the probability that the jury willaward John damages of $750,000 is .50, and the probability that thejury will award John nothing is .20. Managerial Report Perform andanalysis of the problem facing Allied Insurance and prepare areport that summarizes your findings and recommendations. Be sureto include the following items: 1 a decision tree 2 Arecommendation regarding whether Allied should accept John’sinitial offer to settle the claim for $750,000 2 A decisionstrategy that Allied should follow if they decide to make John acounteroffer of $400,000 4 A risk profile for your recommendedstrategy