Injured? Avoid High-Volume Settlement Mill Attorneys

I’ve long warned injured persons about hiring lawyers who engaged in a high-volume mill practice. Now, a Stanford law professor has taken a hard look at settlement mill law firms. Professor Nora Engstrom has authored Run-of-the-Mill Justice in the Fall 2009 issue of the Georgetown Journal of Legal Ethics.

“Over the past three decades, no development in the legal services industry has been more widely observed and less carefully scrutinized than the emergence of firms I call “settlement mills”—high-volume personal injury law practices that aggressively advertise and mass produce the resolution of claims, typically with little client interaction and without initiating lawsuits, much less taking claims to trial. Settlement mills process tens of thousands of claims each year. Their ads are fixtures on late-night television and big-city billboards.”

In her article, Professor Engstrom interviewed forty-nine past and current settlement mill attorneys and non-attorneys to find out how they worked.

First, what is a settlement mill? Professor Engstrom says they generally have ten characteristics:

(1) They are high-volume personal injury practices. Conventional personal injury attorneys have around seventy cases open at any one time and serve approximately 110 clients per year. Settlement mill attorneys often triple that — juggling 200 to 300 open files on any given day. (Our firm tries to limit ourselves to twenty to twenty-five open cases at any one time.)

(2) They engage in aggressive advertising from which they obtain a high proportion of their clients. Most conventional firms rely on referrals from other attorneys or prior clients, but in settlement mills, almost all cases come from advertising. For settlement mills, obtaining a client via an attorney referral is said to be somewhere between rare and unheard of.

(3) They epitomize “entrepreneurial legal practice.” At settlement mills, it is assumed that claims will be straightforward. Standardized and routinized procedures are then designed and employed in keeping with that assumption. Efficiency trumps process and quality. Important tasks are delegated to non-lawyers. Factual investigations are short-circuited or skipped altogether. And negotiating with insurance adjusters and brokering deals is prioritized over work that draws on specialized legal education.

(4) They take few — if any — cases to trial

(5) They charge tiered contingency fees, fees that increase once cases are filed. While  this sounds good in theory, many attorneys used these increased fees to bully clients into accepting settlements.

(6) They do not engage in rigorous case screening and thus primarily represent victims with low-dollar claims.

(7) They do not prioritize meaningful attorney-client interactions. Attorney-client interaction is minimal and, when it does occur, tends to be paternalistic rather than participative. Except for agreeing to accept the ultimate offer, clients play little role in the dispute resolution process.  Clients met with their lawyers when the retainer was signed at the beginning of the representation and when the settlement check was delivered at the end.

(8) They incentivize settlements via mandatory quotas or by offering negotiators awards or fee-based compensation. These requirements and rewards put the focus on the number of files closed or the aggregate returns, as opposed to obtaining a fair value for each individual client.

(9) They resolve cases quickly, usually within two-to-eight months of the accident. Studies suggest that, even if no lawsuit is filed, around one year elapses between the accident and the settlement if a claimant is represented by counsel. At settlement mills, in comparison, cases are sometimes resolved in little as two months and usually within eight.

(10) They rarely file lawsuits.

So what’s the problem with the mills? Professor Engstrom concluded that those with meritorious claims likely get less than they would if not for settlement mills. Why? First, fast settlements depress the value of the claims. Second, settlement mills rarely file lawsuits, and the acts of not filing is correlated with lower settlements. Third, settlement mills commonly impose quotas or incentives on negotiators, which put the emphasis on turning claims over, rather than maximizing their value. Fourth, attorney reputation for going to trial affects bargaining. Because settlement mills have a reputation for avoiding trial, they have less leverage in their dealings with insurers and are less likely to obtain top-dollar.

What did the attorneys say? Professor Engstrom quoted one defense lawyer as saying that he was personally aware of cases I think were settled for $10,000, $15,000, $20,000 less because the adjuster knew the attorney handling the case was a settlement mill.

Even the settlement mill lawyers confirmed they were leaving clients’ money on the table. Former settlement mill lawyers reported that offers they received for comparable cases improved upon departing the settlement mill and joining a more conventional law firm.

You need to learn from this study.  If you or a loved one is hiring an attorney following an accident, I urge you to consider what a settlement mill firm might do to the value of your case. I also encourage you to purchase Professor Engstrom’s article for the $3.50 purchase price. If it helps you make an informed decision on hiring an attorney, it will be money well spent.