§ 42.004.Awarding Litigation Costs

The operative provision, and its arithmetic is precise.

If a settlement offer is made and rejected and the judgment to be rendered will be significantly less favorable to the rejecting party than was the settlement offer, the offering party shall recover litigation costs from the rejecting party.

"Significantly less favorable" is defined rather than left to judgment. Where the rejecting party is a claimant, the test is an award less than 80 percent of the rejected offer. Where the rejecting party is a defendant, it is an award more than 120 percent.

The margins build in a tolerance in both directions. A claimant who recovers 85 percent of what was offered pays nothing, and neither does a defendant against whom judgment is 110 percent of their offer — so a party is not penalised for a reasonable misjudgment.

"Shall recover" makes the award mandatory once the margin is crossed.

Three limits then confine the amount, and each matters.

Only costs incurred after the rejection are recoverable. The chapter penalises the decision to continue litigating, not the litigation that preceded the offer.

The award may not exceed the total the claimant recovers or would recover before adding a claimant’s cost award or subtracting a defendant’s as an offset.

That cap is the chapter’s principal protection. A claimant who wins something cannot end up owing money, however far short of the offer the recovery fell.

A party entitled to fees and costs under another law may not recover litigation costs in addition, and post-rejection fees under that other law are excluded from the judgment amount when making the comparison.

The second of those prevents a circularity — a fee award inflating the judgment and so defeating the comparison that would have produced cost-shifting.

Costs awarded against a claimant are given to the defendant as an offset against the recovery rather than as a separate judgment to collect.