This week, Jay Feinman, a Distinguished Professor of Law at Rutgers University, was a guest blogger at the TortsProf blog (one of my favorites, and not just because friend and fellow UT alum Bill Childs is one of the authors). In his guest post, Professor Feinman explained one of the shifts in the insurance industry that helps explain why personal injury victims need lawyers:
All of these ideas are based on the assumption that insurance works — that companies assess risks, insureds purchase policies against those risks, and the companies pay claims that are within coverage. Unfortunately, the facts about insurance are increasingly at odds with this assumption. Most companies pay out claims most of the time, of course. But more and more, insurance companies deny valid claims in whole or in part and force policyholders and tort victims to litigation to obtain the benefits to which they are entitled.
The economics of insurance creates this potential for opportunism. Every dollar a company does not pay out in claims is a dollar it keeps in profit. Outright denials, reduction of the amounts paid, and using litigation to diminish and deter claims potentially provides a greater benefit to a company than it loses in disappointed customers and negative reputational effect.
Insurance companies have always been subject to these temptations. Since the early 1990s, however, the strategy has become more systematic and institutionalized across auto, homeowners, and disability insurance and extended even to commercial lines.
The claims department has become a profit-center rather than solely the place that honors the company’s promise to pay what it owes, no more but no less.
Professor Feinman’s statements echo what I’ve been preaching on this blog and website for quite some time. When I started practicing a number of years ago, attorneys and adjusters would work together to exchange information and come up with a fair value of the claim. Some of the time it didn’t work and suit had to be filed, but most of the time, it worked.
That’s no longer the case. In many cases, trying to settle a case pre-suit is a waste of time and effort. We are having to file more and more cases and push those cases harder before the insurance companies come to the table with reasonable offer. Sadly, the real victims are the personal injury victims. They not only have to wait longer, but requiring litigation makes the cases much more expensive to pursue, and those expenses come directly out of our clients’ pockets.
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