Back in the mid-1990s, many of the major insurance companies hired a special consultant to advise them how to make more money for their stock holders. These consultants came up with a game plan to cut down on the cost of their defense attorney’s fees per case. One of the recommendations was instead of paying the defense attorneys hourly, which is for every hour worked times $200 per hour = their charge, to a fixed fee basis. This means that the defense attorneys will receive $2,000 for stage 1, another $2,000 for stage 2, $3,000 for stage 3, and then approximately $1,000 per day for going to trial. The result is that instead of it costing the insurance companies between $50,000- $100,000 to take a case to trial, they can usually try a case for around $12,000. The insurance companies then use the savings to litigate more in an attempt to save themselves more money by doing more discovery, which would allow them to get more into the backgrounds of their insurers or the injured parties.
One of the ways they were able to get the defense attorneys to agree to a fixed fee, instead of an hourly rate, is that many of the defense lawyers working for the insurance companies did all of their work with only one or two insurance carriers. They could not afford to lose even one carrier’s business, as it would cause them to take a minimum 50% reduction of their income. Thus, many insurance companies figured out that the defense attorneys were practically hostages to the carriers they worked for, and told them this will be how they will get paid.
Because of this, insurance companies have caused a much higher percent of cases to go to litigation. Once the insurance companies have gone through the discovery process, many times they will then make a reasonable offer, but only once they reach mediation. The major downside to clients is that it may take more of their time in preparing for deposition, answering interrogatory questions (which are questions about their background, which doctors they saw in the past, which doctors they have seen since the crash, etc.).
If you have any questions regarding your case going to litigation, what it entails, or what you would need to do, please call Christopher Ligori and Associates at 877-444-2929.