Case Update - Significant Changes to 998 Statutory Offers to Compromise 

A significant new California Supreme Court decision just came out, regarding 998 offers -- Madrigal v. Hyundai Motor America (Mar. 20, 2025, No. S280598) ___Cal.5th___ [2025 Cal. LEXIS 1454]. All Counsel and Risk Management professionals should be aware of this case, since it can impact what kind of language is necessary in a settlement agreement, and when costs are recoverable.

Madrigal held that the cost-shifting provisions of section 998 apply not only when a party obtains a less favorable verdict than what was offered — they also apply when a party obtains a less favorable settlement. Madrigal says this can be applied in favor of both plaintiffs and defendants.

Example 1 – Defendant serves a 998 offer of $50k. The offer expires and after further discovery, the parties settle for $25k. Plaintiff is then liable to Defendant for all costs recoverable under section 998 after the date of the offer. 

Example 2 – Plaintiff serves 998 offer to settle for $50k.  The offer expires and after further discovery, the parties settle for $100k. Defendant is then liable to Plaintiff for all costs recoverable under section 998 after the date of the offer.

Madrigal also says that this is something the parties can contract out of with their settlement agreement language. As such, this case probably will not create any issues for clients if counsel uses strong release language that explicitly releases liability for all fees and costs. However, it is prudent to take a careful look at all release language regardless, to make sure there’s no argument that Plaintiffs could subsequently recover costs under section 998.

Another possible repercussion of this decision is that it could sometimes create an opportunity for defendants to recover costs against plaintiffs after settlement, if plaintiffs are not careful to include settlement language which releases plaintiffs from liability for any of the defendant’s fees or costs.