In the first article in this series addressing why settlement offers in car accident and personal injury cases have declined, we examined one of the insurance industry actions that has systematically resulted in lower offers for settlement. That tactic, "reducing" the medical costs through the application of computer programs, is but one strategy the insurance industry has deployed to alter the landscape of claims.
Another part of the insurance industry strategy was the hiring of their own lawyers or "house counsel" offices. Historically, a lawsuit was filed after negotiations between the injured parties attorney and the assigned insurance adjuster over settlement reached impasse. The insurance company would then send out the defense of the lawsuit to any of a number of private law firms that specialized in defense of such cases.
That firm would bill out their time on an hourly basis and that was the dynamic for decades. This in turn led to a calculus concerning settlement of cases that worked something like this. Final adjuster offer before lawsuit $10,000.00. Final injured victim lawyer demand $18,000.00. Projected costs of private defense lawyer $4000.00.
The injured parties lawyer would often suggest that the insurance company put up "defense costs" which they would save if the case were not litigated and a settlement of $14,000.00 would result.
The insurance industry realized that one way to reduce their costs per claim would be to reduce the cost of defending cases. This could be accomplished several ways. One, they could beat on their existing lawyers to either charge less per hour or to take cases for a fixed fee or two, eliminate the need for private lawyers altogether.
The latter seemed a pipe dream at its inception as it brought the insurance companies into conflict with their historic allies, private defense lawyers, who stood to lose business and were also mainstays of the bar associations that sought to oversee the practice of law.
So the multi-billion dollar insurance companies hatched their plot, establishing house counsel operations, hiring their own lawyers to whom they paid salaries and attempting to drive down the cost per case of litigating personal injury cases. The private defense lawyers did not take this lying down. They sought to shut down house counsel operations as the corporate practice of law and initially had some success.
The staid, legal culture of the 1970s and 1980s was the backdrop for this battle and gradually the state bar associations fell into general agreement that house counsel operations were permissible as long as the attorneys could provide their clients independent legal advice and along as the insurance companies do not have undue influence on litigation and settlement decisions.
The defense lawyers lost a huge and lucrative book of business and the insurance industry reduced per case cost, eliminating settlements contemplating defense costs. The existence and increased pervasiveness of house counsel offices resulted in defense lawyers bidding on ever shrinking quantities of cases. Hourly rates were slashed and lawyers began taking some cases on a fixed payment per case.
Initially, case values were only moderately reduced in part because experienced adjusters continued to evaluate cases in the same manner they always had and in part because they had less confidence in the new house counselors as opposed to the highly experienced private lawyers they were accustomed to using.
This phenomenon gradually became evident to the bean counters in the insurance companies and mandates came down from on high to reduce substantially, private counsel cases and increase house counsel cases. This required a leap of faith and a tolerance for bad results.
This is not to suggest that house counsel lawyers are less effective than their private counterparts but that the push to use house counsel has gradually overwhelmed their capacity to perform effective defense.
For example, Robert Clark tried a case with a highly experienced member of a major insurers house counsel office. The case was one of both contested liability and contested damages and the pretrial offer was zero dollars. The insurer paid top dollar for its medical expert neurologist and felt confident in a defense verdict or a limited plaintiffs verdict.
The jury began deliberating at 3 pm and was sent home for the evening at 6 pm. Mr. Clark pointed out to the defense lawyer that a three hour deliberation meant that an easy defense verdict would not be forthcoming the next day. Mr. Clark suggested that the insurance company might wish to reevaluate their zero dollar offer overnight and try and settle the case.
The next morning the defense lawyer indicated he has six hundred dollars to offer. This was of course the equivalent of offering zero given the fact that both sides had expended thousands of dollars on bringing doctors to trial and conducting depositions. The jury came back and within fifteen minutes asked for a calculator! This caused the defense lawyer to have conniptions and to hit the phone in search for settlement authority.
This insurer has an intentional structure wherein obtaining significant money required reporting to multiple levels of management, a time consuming task. The adjuster on the case had authority to offer something on the order of $5,000.00. Their supervisor could put up $10,000.00. The claims manager had independent authority of say $25,000.00
By the time the jury returned a $156,000.00 verdict house counsel could offer $5,000.00 and the at-fault driver personally owed $56,000.00 more than his $100,000.00 liability policy. Was the at-fault driver told he might ending up holding the bag to the tune of $56,000.00 before the trial? One thinks not.
Ultimately, the verdict was paid by the insurance company but one imagines the at-fault driver was pretty concerned when a verdict significantly exceeding his policy limits resulted without any consultation with him about making a settlement offer calculated to protect him and satisfy the injured victim.
That has become more routine. Insurance carriers are multi-billion dollar behemoths and the quaint notion that they should fully inform their policyholders of their litigation and settlement strategies is just that, a quaint notion.
The net effect of this strategy has been to drive down the cost of defending lawsuits but also has overwhelmed house counsel offices. Both Allan and Bob had the privilege of working in Geico's original Washington, D.C. area house counsel operation. In those halcyon days the caseload was eminently manageable. We were able to meet with the Geico insureds who were our clients to prepare answers to interrogatories, to prepare for depositions and to prepare for trial.
We advised our clients on our efforts to settle the cases and the adjusters assigned to the claims listened to our views of the value of cases and what would be needed to settle such cases. We were able to settle all but the most far fetched and when we went to trial we had ample time to prepare.
This is no longer the case at any house counsel office. Allan and I speak to members of the different house counsel offices regularly and they all report too many cases, too many trials and too little time to prepare. We send out interrogatories in every case and find that no house counsel office can ever respond in a remotely timely manner.
Scheduling depositions or trial dates is almost impossible as the lawyers are massively overbooked and on the few occasions that we receive answers to interrogatories, they are filled with improper objections rather than the information that is required to be provided by the court rules.
When we go to court we see the same members of house counsel offices every day trying multiple cases. The judges know them all because they are constantly in court trying personal injury cases. Their office voicemails routinely suggest their persistent absence from their offices and thus an inability to return your call for the foreseeable future.
We have good relations with our courthouse opponents and are sympathetic with their professional plights but our clients cases are often unnecessarily delayed by the systemic overuse of house counsel offices. It is understandable why insurance companies might overuse their house counsel, when the goal is reducing per case cost but this has resulted in far too many cases being thrown into the legal system and that has insidious effects too.
Tomorrow: how the rise of house counsel use has overwhelmed the courts, emboldened inadequate pre-lawsuit settlement offers and subverted well meaning judges.
