The commodification of insurance defense practice

Drawing on a period of observation in an insurance defense law firm and a series of interviews with insurance defense lawyers in other firms, this paper presents an analysis of the work and relationships involved in insurance defense practice. The central argument of the paper is the insurance defense practice is viewed as a commodity by many, perhaps most, insurance companies. The result is to drive down the price for such services and to impose a variety of demands on lawyers providing insurance defense services that affect the work that the lawyers do. Specific topics discussed include fees and fee arrangements, working relationships between lawyers and insurance adjusters, marketing and client retention, and interactions between insurance defense lawyers and lawyers representing other insurers or plaintiffs. I. INTRODUCTION There is a vibrant and growing empirical (and theoretical) literature regarding the plaintiffs' bar in the United States.1 Much of this research has focused on the implications of the contingency fee structure for the work of lawyers representing individuals who pursue injury and other kinds of monetary claims. The interest in this work reflects both the growing political salience of the plaintiffs' bar and the argument that the contingency fee structure may create perverse incentives that produce significant conflicts between lawyers and their clients, and between lawyers and societal interests. In contrast, there is relatively little research, either empirical or theoretical, focused specifically on the lawyers who routinely stand opposite the plaintiffs' bar: the insurance defense bar. Laurence Ross has written a seminal book on claims adjusters.2 However, while Ross discusses the adjusters' relationships with claimants' lawyers, he does not discuss adjusters' relationships with outside counsel hired by the insurance company to represent insureds once a claim is in suit.3 There is also some theoretical and empirical literature related to hourly fee arrangements,4 which are the dominant way by which insurance defense lawyers charge for their services, but that literature does not focus on lawyers doing insurance defense work.6 And there is at least some recent interest in the implications, particularly the legal and ethical implications, of shifts in insurance defense practice toward alternative billing arrangements and the use by insurance companies of in-house or captive-firm counsel.6 However, none of the past work provides a good empirical or theoretical picture of insurance defense practice, either as it might have existed thirty to forty years ago or as it now exists. In this paper, I present an analysis of insurance defense practice using the heuristic of a commodity.7 Essentially, I argue that many, perhaps even most, insurance companies have come to view the more routine work of insurance defense as something to be purchased in a marketplace where there are a large number of interchangeable providers.8 Loyalty between buyer and seller, to the extent that it had been an important element of the relationship, has faded. Today, insurance companies frequently shop for the best deal, which may include producing insurance defense services in-house rather than purchasing those services from an outside firm.9 As is true of any commodity seller, insurance defense firms seek to differentiate their product from their competitors; how successful they are in doing so is hard to ascertain. Insurance defense firms also seek to maintain the kinds of person-to-person loyalties that were probably the mainstay of insurance defense practice thirty to forty years ago, but insurance companies increasingly have adopted policies and changed management structures and in so doing have made this personal loyalty much more difficult to maintain. The observation that insurance defense lawyers have less independence from their clients than might be expected given the professional ideal is consistent with Heinz and Laumann's recognition that lawyers working in the corporate services sector functioned more in line with a "patronage" image rather than the "collegiate" image of the autonomous professional. …