Why Insurance Companies Prefer Settlement Mills over Boutique Law Firms

Nora Freeman Engstrom, a professor at Stanford Law School in Palo Alto, Calif., recently conducted a study that suggested that insurance companies prefer working with “settlement mills” rather than boutique-style law firms. The logic behind the reasoning for this is quite simple, but was also rather shocking in terms of the suggested financial interests that these two industries – insurance companies and settlement mills – have in common.

What Is a 'Settlement Mill' Law Firm?

A settlement mill refers to a particular type of law firm that can essentially be characterized as having a foundation that revolves around its ability to be efficient. They take on as many personal injury cases as possible without necessarily vetting the merits of the case, and are generally more focused on the quantity of cases rather than the overall quality of the cases.

According to Engstrom’s analysis, settlement mills and insurance companies share two areas of common interest: speed and certainty. Even if it means paying out settlements on marginal cases, insurance companies understand that closing a case as quickly as possible is the most profitable solution for their bottom line. And even more so, settlement mills enjoy cooperation from the insurance companies to the point that they often agree to settle cases at a discounted value.

Clearly, no part of this business relationship – which is plenty profitable for both the insurance companies and settlement mills alike – represents the best interests of the plaintiffs. And because of this conflict of interest, many personal injury victims may agree to settle a case through the advice of their attorneys without ever being aware that the true value of the case may be much higher than the agreed-upon settlement.

Engstrom goes on to shed some more light on what is often a misleading approach to providing legal representation to personal injury victims, explaining that these firms use particular advertising tactics to attract accident victims who may be unsophisticated in the legal industry. Attorneys who work for settlement mills often have very little – if any at all – trial experience, and typically have no intention of ever bringing a case to trial. Needless to say, it makes an insurance company’s job much easier when they know the attorney is willing to roll over just for the sake of closing a case as quickly as possible.

In this vicious cycle, there are two entities that benefit in the end: insurance companies benefit from paying less on claims, and lawyers who work at settlement mills benefit from taking a nice percentage of the settlement without having to do much actual legal work at all. And while the insurance companies and attorneys are working behind the scenes to satisfy their own interests, the injured person simply goes along for the ride without ever actually knowing the true value of their case.

Settlement Mills are Profitable, Growing

The financial benefits of running this type of law firm are no secret, which is probably one of the biggest reasons that there has been such a significant increase in the number of these types of law firms. They plaster their misleading messages all over TV and radio advertisements in hopes that injury victims will not know the difference. Davis Law Group, P.S. founder Chris Davis says these settlement firms are hurting the industry and negatively affecting the way consumers view personal injury attorneys.

“This is a perfect example of why many attorneys in the industry are viewed as simply motivated by profit,” says Davis, who has served as the firm’s principal attorney since it was founded in 1994. “It really gives consumers a negative impression of an industry that should really be acting in the best interests of the victims.”

Davis says the best way for accident victims to ensure that they do not unknowingly hire a settlement mill to represent them for a personal injury case is to ask questions and take the time to educate themselves about the personal injury process. Some of the questions that accident victims should ask before agreeing to hire an attorney include:

  • “How many years of experience do you have with handling personal injury cases?”
  • “What percentage of your overall caseload is dedicated to personal injury claims?”
  • “How many times have you taken a case to trial in your career?”

If you feel uneasy about the attorney’s answers to any of these questions, it may be a good idea to consult with another attorney or do some online research to see what previous clients have said about their experiences with that particular firm. Knowledge is power when it comes to your personal injury case, and since you only have one chance to pursue a claim it is important that you hire the right attorney for your case from the beginning, rather than having to switch attorneys down the road.

Source: Study of 'Settlement Mills' Shows Insurers Like Them (Forbes.com article)

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