In article ,
Larry Dighera wrote:

On Thu, 14 Dec 2006 07:35:35 -0600, Ross Richardson
wrote in
:

... lawyers are billing by the hour.

Most tort cases are taken on a contingency basis.

Those are the plaintiff's laywers who are working on contingency. The
defendant's lawyers are billing by the hour. They may be billing the
defendant, or they may be billing the defendant's insurance company, but
either way they're getting paid $100 each time they pick up the phone or
shuffle a piece of paper.

Insurance companies are pretty cold-hearted. They look at the "defend vs.
settle" issue from a pure risk management actuarial point of view. If they
settle now, it'll cost $X and they know it's done with. If they defend,
it'll cost $Y for sure in legal and administrative expenses, and the
potential and unknown liability will be on the books for years.

I was once a defendant in a personal property damage suit. My homeowners's
policy covered my defense. It was actually sort of interesting. The
insurance company sent me a letter that basically said, "We agree that your
policy obligates us to pay for your defense, but we do not yet agree that
we are obligated to cover the actual liability should the plaintiff
prevail".

That put me in an interesting position of still having some skin in the
game. By letting the suit continue, I still had a contingent liability; if
the plaintiff won, and the insurance company ultimately decided they were
not going to cover the lability, I might still be on the hook for damages.
The only way I had to erase the contingent liability would be to settle out
of my own pocket (which, of course would make my insurance company happy,
since they would then be off the hook). The suit was for $10k; a loss
would be painful but not catastrophic for me and I thought we had a good
chance of winning (a rational component of the decision). There was also a
purely emotional component involving inter-personal relationships that I
won't go into here (all the parties knew each other prior to the suit)
other than to say that I'd be damned if I was going to let that ******* get
anything out of me. That's the sort of bad decision-making that the
insurance companies don't let cloud their judgement.

My insurance company's main defense strategy after interviewing me and
deposing the plaintif (i.e. racking up some legal expenses) was to
counter-sue a third party. I wasn't particularly happy with the third
party they chose to go after, but my choice at that point was to go along
with it (since they were paying for the defense, they got to pick the
defense strategy) or settle out of my own pocket. I went along.

This third party of course had their own liability insurance (and much
deeper pockets than I do). Their insurance company sent me a remarkably
similar letter to the first one in which they in turn agreed to pay for my
defense but did not commit to accepting any ultimate liability.
Eventually, the third party's insurance company settled the case for about
half of what the plaintiff was seeking.

The case then took a bizarre turn when shortly (like about a week) after
they agreed to the settlement, the plaintiff died (reportedly of a brain
tumor). They made the payout to the plaintiff's estate.

Two friends of mine were co-defendants in the original suit. Unfortunately
for them, their insurance carriers didn't even agree to pick up their
defense costs. One of them hired their own lawyer and was out of pocket a
lot of legal expenses. The other decided to go it alone and handled his
own defense. Neither of the two insurance companies who defended me had
any interest in providing legal services to my co-defendants (nor would I
expect them to) but they did reap the benfits of the suit going away when
the third-party insurer paid off the plaintiff's estate.

I just looked up Circuit City (CC/NYSE). With a market cap of $4.14
billion, there were certainly some deep pockets involved. The $3.5 million
may well be below the deductable on their liability policy. This was a
decision made by laywers, accountants, and risk managers who are used to
dealing with very large numbers. Keep in mind there were 8 people on
board, so there's potentially 7 more lawsuits in the works. The story
isn't over yet.