There is no question that many lawsuits end in a settlement because both parties are discouraged by the fear of litigation costs. In 2012, however, defense costs seem to be a factor of decreasing significance in settlement negotiations. Most large car insurance companies like State Farm and Allstate have “captive” staff counsel offices in major metropolitan areas. Bizarrely, for those who note details like conflicts of interest, these defense lawyers are actually employees of the insurer. They are paid a salary and defend against car accident lawsuits brought against that carrier’s insureds. The cost savings to the insurer resulting from this approach is obvious. These lawyers (and their offices and staff) are a fixed cost, so adding one more case to defend does not make a big dent to the carrier’s costs, or its settlement analysis on any particular case. More importantly, litigation costs make no dent psychologically in the eyes of the insurance companies.
Okay, but what about smaller insurance companies or cases where the large insurance company does not use, for whatever reasons, outside counsel? Even when the insurance companies are required to hire private attorney, the cost is not what it used to be. Insurance defense lawyers are getting squeezed in this modern economy. For many accident claims, competition for insurance defense work is intense and it pushes, as you learned in Economics 101, costs down considerably. Insurance defense lawyers are now competing on price to get a significant volume of work from a particular insurer. It is not unusual for experienced defense attorneys to do this kind of work for hourly rates below $150 per hour.. or less. Often defense firms will even handle small claims for a flat rate to guarantee a steady volume of work. When a defense can be obtained so cheaply, defense costs are unlikely to significantly affect settlement. (The good news for plaintiffs’ personal injury lawyers in all of this? Insurance companies focus on costs, not quality of their lawyers. This gives smart plaintiffs’ lawyers a real edge.)
The game changes a bit for more complex cases involving death, catastrophic injury, or product liability, defense costs may be an issue. These claims often require more skilled counsel than the run of the mill motor tort, and have higher trial costs dues to the array of costly experts required. In cases like these, defense costs still remain a factor in insurers’ settlement evaluations. But the take home message is still clear: don’t expect the insurance company to want to settle a case merely to avoid costs.
This post is written by Ron Miller who is a personal injury lawyer who handles serious injury accident, malpractice and product liability cases in Maryland.