An article on Law.com recently argued that insurance-defense firms are being “outgunned” because insurers suppress hourly rates, cut legal bills, and make it difficult for defense firms to invest in talent and technology.
I sympathize with defense lawyers. But there is another consequence the article doesn’t address.
Cheap defense labor makes it easier for insurance companies to force cases into litigation. We see this a lot in auto cases.
When an insurer can defend a lawsuit at artificially low rates, and then cut the lawyers’ bills even further, the economic consequences of refusing to pay a legitimate claim are reduced.
The insurers can deny claims, make unreasonably low offers, or force the plaintiffs to file suit because the resulting litigation is less expensive for the insurers than it would be if they paid their lawyers higher rates.
Meanwhile, the real costs are shifted to everyone else.
The defense lawyers carry enormous caseloads and struggle to retain talented associates.
The plaintiffs waits years for compensation.
Both sides incur unnecessary expenses.
The courts become more congested.
And then insurers complain that plaintiffs’ firms are investing more heavily in litigation.
If insurance companies promptly and fairly resolved the cases that should be resolved, perhaps their defense firms would not feel so overwhelmed or “outgunned.”
Some cases genuinely need to be litigated. Many do not.
Insurance companies should fairly compensate their defense lawyers.
But they should also stop using underpriced defense labor to subsidize the unnecessary litigation of claims that should have been paid before a lawsuit was ever filed.
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