It’s been a bit since I’ve written about how awful insurance companies’ first settlement offers are in serious injury cases. But I’m sure I’ve given a client the speech in the last 24 hours. I do it all the time.
The primary reason the first offer is usually far from the true settlement value of the case is that the insurance company is giving a gut check to the plaintiff, implicitly asking them whether they are willing to throw some punches to get the money they are entitled to get. Plaintiffs’ lawyers complain about this as if it is some sort of holy war between good and evil, as if insurance companies have some sort of moral obligation to offer the trial value to settle the case. I hate insurance companies and all, but I have to admit that if I were them, I would do the exact same thing. Their job is to make a profit for their shareholders, not offer third party plaintiffs what the insurance company really thinks the claims are worth. The game is the game.
But there is another reason the first settlement offer is wildly out of line with the true value of the case: most insurance adjusters are lazy (as are most plaintiffs’ lawyers, by the way). To get to the real value of a case, you have to peel that onion again and again. So they take just a cursory look at the case, knowing that even if the settlement offer is rejected, they have multiple more bites of the apple down the road. So think about it, what would you do if you were an adjuster in that environment? Dig real deep and risk that someone auditing your cases is going to say you overpaid for it? Or just kick the can down the road a little while? With GEICO and a lot of other insurance companies, you are not even kicking that can to yourself, another adjuster will get the file after suit has been filed.
Among the major insurance companies, State Farm and Allstate are the two that will often stick their feet into concrete on what they think the value of the case is. They tend to stick to their early values more than the others, probably because they rely on computer generated data to value claims more then many others. Why is this? Ever read or hear about the Checklist Manifesto? The idea of that book is that ER doctors looking at cardiac patients are better off using a checklist to evaluate risk of a heart attack or stroke then they are using their own independent judgment. Sounds crazy but some data seems to bear it out that you would be better off with a nurse with a checklist than an experienced board certified cardiologist in a lot of cases.
I like to brag on this blog and our website about the times Allstate and State Farm – particularly State Farm because it happens a lot – get it wrong and we hit in excess of their insured’s policy limits. There is an implicit, “they are so dumb, we are so smart” aroma to the whole thing, I’ll admit. “We got 35 times the settlement offer,” I like to brag. And I’m not going to stop, either. But that does not mean in the big global picture it is not a smart strategy.