How to Run the Business Side of Personal Injury Practice

Tenth in a Series of Quarterly Columns
 *****
 
When Business and Politics Collide:
Origins of the Tort Wars
 
by
William L. Speizman
America's #1 Business Consultant to the Plaintiffs' Bar
 
 
I haven’t met an attorney who wasn’t hoping to graduate from law school and “just practice law and earn a good living.” Unfortunately, and like it or not, practicing law also entails dealing with all the details of running a small business. Over the past 25 years, political battles with insurance companies and their allies have also drawn members of the plaintiffs’ bar away from the practice of law--and made it more difficult for them to earn a good living.

In On War (1832), Carl von Clausewitz pointed out that the study of history can make an enormous contribution to the winning of wars. In this column, I want to provide some details of the early years of the Tort Wars.
Like so many things, the attacks on the plaintiffs’ bar began in earnest in California. Living in Los Angeles, and working exclusively with personal injury attorneys since July 1986, I witnessed some of the earliest battles in the Tort Wars.

Bates v. State Bar of Arizona
In 1977, SCOTUS handed down the Bates decision. It had two profound effects on the plaintiffs’ bar, one direct, the other indirect.

Direct Effect. Bates bulldozed the barrier that precluded members of the learned professions from using mass media advertising to build their practices.

Slowly at first, then gaining momentum in the early 1990s, Bates created a competitive frenzy among members of the plaintiffs’ bar. What had been a legal services marketplace where there was plenty for every provider, by 1997 had been transformed into a near zero-sum game.

Indirect Effect. Insurance companies make most of their money by investing their capital reserves and the premium dollars they collect before they have to pay them out on claims. Historically, there have been instances when insurance companies have sold policies at a loss just to obtain more premium dollars to invest.

In 1989, I met a fellow at a conference who was a supervising adjuster in State Farm’s Santa Monica office. After I told him of my work with personal injury attorneys, we decided to have lunch so we could compare notes across the barbed wire.

During the meal, I repeated what a number of my clients had told me: 50 percent of accident victims did not hire attorneys and dealt with insurance companies directly. Mike, the adjuster, responded, “That used to be true, but 89.5 percent of all claims come into our office with an attorney attached.”

Imagine the impact on insurance companies’ cash flows and investment returns when lawyer representation surges from five out of ten claims submitted to nine out of ten, an 80 percent increase. That increase was a major impetus for the "No-Fault" campaigns the insurance companies undertook beginning in the 1980s.

Thus, by 1989, Bates v. State Bar of Arizona had turned a market where there was plenty for everyone (the reservoir of 50 percent of claims to which attorneys were not attached) into a near zero-sum game with a 90 percent market saturation. Also, indirectly, Bates had disrupted the insurance companies’ pre-1977 business model to their detriment. Insurance company executives decided to do something about it and so began the Tort Wars.

Proposition 104: California
"No-Fault" Battle--Part I

$55 million is the amount the insurance companies spent to pass Prop. 104, the "No-Fault" measure on the November 8, 1988, California ballot. The California Trial Lawyers Association (CTLA) spent $7 million to defeat it. CTLA (now Consumer Attorneys of California) won.

A main reason for CTLA’s victory in the Prop 104 "No-Fault" contest was the unity the Association was able to engender among its members, many of whom had been at each others’ throats competitively in the preceding six years. Two of the things CTLA did to create that unity are of particular interest.

First, in California, as in many jurisdictions, there was a division within CTLA between attorneys in two types of law firms: Gatekeeper Practices (GPs)-- law firms that got the bulk of their cases through marketing efforts targeted at the public; and High End Referral Firms (HERFs)--law firms that got the bulk of their cases as referrals from GPs and attorneys in other fields whose clients, and clients’ friends and loved ones, got injured.

In state and national trial lawyers associations, members of these two camps, GPs and HERFs, have squared off against each other from time-to-time. The insurance companies tried to set the two camps at loggerheads, divide et impera, in the run-up to Election Day.

The insurance companies offered a deal to attorneys in the HERFs. If they stayed out of the fray, the insurers promised that they would not mount an attack on the HERF attorneys’ livelihoods. The insurance companies assured the HERFs that they only wanted to eliminate the small, soft tissue injury cases not the big cases that the HERF lawyers handled.

As some of the HERF attorneys were nibbling at the bait, lawyers in the largest California GP law firms got wind of what was going on. Those largest GP law firms were the 28 heaviest television advertisers in the state. Lawyers from those firms let it be known that if the "No-Fault" proposition were defeated, any HERF attorneys who had sided with the insurance companies and sat out the battle would not receive any further referrals from the 28. Because campaign contributions to the “No on Proposition 104” effort were part of the public record, the 28 had the means to carry out their threat. The HERF attorneys fell into line and there was unity across CTLA’s GP/HERF divide.

Second, in the summer of 1988, CTLA held an unprecedented meeting of those 28 top television advertising law firms. The attendees entered into an extraordinary two part covenant. First, they agreed that for 90 days prior to the election, none of them would run television commercials. Second, they agreed to expend their media buying budgets to run “No on Proposition 104” advertisements during those three months. None of the 28 law firms breached the agreement.

Thus, the California Trial Lawyers Association was able to create unity and solidarity in the spirit of Ben Franklin’s statement at the signing of the Declaration of Independence, “We must all hang together, or assuredly we shall all hang separately.”

Insurance Companies Respond to
Their Loss on Proposition 104
This next part is my conjecture: After their election defeat, the insurance company executives went back to their conference rooms and asked themselves, “What can we do to prevent trial lawyers from defeating us again?” Someone came up with a brilliant solution--choke off the revenue of the plaintiffs’ bar. So began the low-ball and slow-ball tactics which spread across the country in the early 1990s. Low-ball meant decreased revenues for trial lawyers and slow-ball, forcing cases into litigation, meant increased operating expenses. Not only did this strategy dramatically reduce the coffers of the plaintiffs’ bar, it added to the amount of cash the insurance companies held and the amount of time they held it, which meant more money to invest and more cash flow for them.

While they fleshed out details of their plan, insurance company executives decided to try bringing "No-Fault" to California by other means.

The 1989 Effort to Pass Legislation:
California "No-Fault" Battle-- Part II
In 1989, the insurance companies had a "No-Fault" bill introduced in the State Legislature. The choke point was the Senate Judiciary Committee. There, three Senators were the keys to getting the bill to the floor.

CTLA came up with a plan to kill the bill in the Committee. They would facilitate the sending of low-cost political telegrams from CTLA members’ clients who were constituents of the three Senators. The telegrams would ask the Senators to vote against the bill. CTLA asked its members to contact their clients who lived in the Senators’ districts and obtain permission to send and pay for the telegrams on their behalf. It was a good plan, but with a near fatal flaw.

For the plan to work, each CTLA member had to match the zip codes of his or her clients to the zip codes in each of the Senators’ districts. To facilitate members’ efforts to do that, CTLA issued maps showing the zip codes fully or partially encompassed by each of the three Senate districts.

This solved half the problem. Each attorney still had to go through his or her rolodex, or open and closed files, and search for current and former clients with a zip code in one of the Senators’ districts. The telegrams had to go out within days, but few law firms could spare enough staff to search their records and find clients living in the targeted zip codes.

In the end, approximately 435 “No to ‘No-Fault’” telegrams were sent to the three Senators. As it turned out, that was enough to keep the bill bottled up in the Judiciary Committee where it died. No further attempt has been made to pass "No-Fault" in California.

The most instructive facet of this second defeat of "No-Fault" was that of the approximately 435 telegrams that did the trick, roughly 385 came from just three of CTLA’s thousands of members.

For several years, as part of a word-of-mouth marketing program I was conducting for each of those three attorneys, I had been printing and mailing client newsletters for them. The three attorneys had heavy concentrations of clients in the districts of the three Senators. Once I had the CTLA map showing the zip codes that fell into those three Senate districts, I turned it over to my mail processing vendor who had the three attorneys’ updated mailing lists in secure storage. Within hours, he provided me with print outs of the names and addresses of each of the attorneys’ clients who were constituents of the three Senators. With these narrowed lists, the attorneys were able to locate the telephone numbers of their clients in the three Senate districts quickly, call them and secure permission to send telegrams on their behalf.

What these three attorneys had been doing in their own self-interest to market their practices simultaneously functioned, as it turned out, as a powerful weapon for CTLA in its "No-Fault" battle with the insurance companies.

Lessons
1. Fight to establish, then maintain, internal political unity as, for example, the California Trial Lawyers Association did in getting the 28 television advertisers to withhold their commercials for ninety days.
2. Remember the thousands of people that members of the plaintiffs’ bar have helped over the years. They aren’t just clients; they are constituents of elected officials. If you keep in touch with them long-term as a way of marketing your practice, you have the means to communicate with them for political purposes when the need arises.

Conclusion
The Tort Wars have been tough and the battles continue. But today, as in the 1980s, the plaintiffs’ bar can be victorious. In November 2008, Michigan elected a new Supreme Court Justice and reduced the Court’s conservative majority to a minority. While in control, the conservatives had rendered decisions with some of our country’s most draconian consequences for accident victims.

The Tort Wars may match the other side’s Goliath against the plaintiffs’ bar’s David--but you know how that confrontation turned out the first time.
 
[If you have a topic you would like me to address, please contact me at 800-695-4091 or wlspeizman@gmail.com]

Copyright 2009 William L. Speizman
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