Posts Tagged ‘Defendants Insurance Company’

Anatomy of a Personal Injury Lawsuit

March 3, 2010

Insurance is the key ingredient in a law suit.
Is there insurance to cover a settlement or jury verdict? How much insurance? Who controls the insurance -the insurance company or the insured? Even the particular insurance company covering the loss makes a difference. Each of them have their own personalities and levels of competence or incompetence. The adjuster’s experience and expertise is usually very important. Can they recognize a serious case and give it the attention it deserves or are all her cases handled on an  assembly line basis with her operative word being “NO.”

For that matter, do you understand the business plan of insurance companies?  If you do not then you are missing the vital story between the lines.

An adjuster does not get rewarded for giving out money. The claims department is the tail o f the insurance dog. The real business acumen and financial expertise are  found in the underwriting department (where a value, in dollars, is put on every case) and the investment department. The finance  part of the company is where the real business of investing premiums and profiting from this investment activity is carried on. Profit is not earned from merely collecting the premiums.

A claims department is a necessary evil in order to have the opportunity to collect premiums, invest the money and hold onto the money for as long as it can in order to maximize the return on investment. This is why most serious cases settle at the courthouse steps. The insurance company would rather keep the money it has set aside for the particular case (underwriting) invest the money along with the premiums and only consider paying out in a settlement after earning as much as it can from its investments in stocks and bonds.

A very succinct explanation of these investment decisions and practices was recently discussed in the annual 2009 letter of Warren Buffett. He is chairman of Berkshire Hathaway. It is one of the biggest companies in the U.S. and owns some of the largest and most financially successful insurance companies in the world. This is what he has written on page 6 of the annual report released last Saturday:

“Insurers receive premiums up front and pay claims latter. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect now, pay later model leaves us holding large sums-money we call ‘float’ -that will eventually go to others.

Meanwhile,we get to invest this float for Berkshire’s benefit. Though individual policies and claims come and go, the amount of float we hold remains remarkably stable in relation to premium volume.  Consequently, as our business grows, so does our float.

If premiums exceed the total of expenses and eventual losses, we register an underwriting profit that adds to the investment income produced by the float. This combination allows us to enjoy the use of free money and better yet, get paid for holding it. ”

No wonder adjusters are encouraged to just say no. The strategy is to keep the money as long as it can, invest it and simultaneously use time and delay as a bludgeon to wear down the resolve of the plaintiff and his attorney.

There is a very clever method to their madness.

Casualty insurance companies and their claims adjusters are not encouraged to fairly , justly and reasonably settle meritorious accident claims.  If they did there would be less float to invest and less investment income to earn.

by Arthur F. Licata,

Listed as a New England Super Lawyer, see October 2009 Boston Magazine, and