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Study Of “Settlement Mills” Shows Insurers Like Them

Publication Date: 
December 03, 2010
Source: 
Forbes Blog
Author: 
Daniel Fisher

A study on the high volume of "settlement mills" by Assistant Professor of Law, Nora Freeman Engstrom, is featured in this Forbes Blog post by Daniel Fisher:

An intriguing law-review article on high-volume “settlement mills” has implications beyond the tawdry business of extracting cash for questionable car-accident injuries.

In the article, “Run of the Mill Justice” ($3.50 for a pdf download), Nora Freeman Engstrom of Stanford Law School actually interviewed lawyers and paralegals at settlement mills as well as studying their not-infrequent disciplinary files. What she found would look quite familiar to anybody involved in the securities class-action business: A small group of specialized players who engage in repeated rounds of the same game.

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These lawyers have no intention of filing suit. (Engstrom cites one Louisiana firm that tried four cases in a year and lost all of them, before deciding that was no way to make money in the law.) What’s more, she suggests, insurance adjusters know this. So they are more than willing to pay hundreds of questionable soft-tissue claims at $2,500 or $5,000 a pop to insure that the truly dangerous accident case, the kind the right jury might decide was worth millions of dollars, gets settled along with the rest.

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There are winners and losers in this game, Engstrom writes. The winners are the settlement-mill lawyers, who make nice incomes despite having subpar legal skills, and the people with soft-tissue claims that probably wouldn’t withstand close scrutiny but make a couple of grand just to go away.