Settled out of Court

The Social Process of Insurance Claims Adjustments

H. Laurence Ross

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351491310
• Edition: 2
• Topic: Commerce
• Subtopic: Assurance

This book is concerned with the legal system as it operates for ordinary citizens on a day-to-day basis. It emphasizes that the impact of law on behavior is based on social and institutional influences and the principal institution of the law in action is not trial, but settlement out of court.

1. Introduction

THIS IS A book about law, though it seldom mentions courtrooms, judges, pleadings and motions, or even juries and verdicts. This book is concerned with the law in action, with the legal system as it operates for the ordinary citizen on a day-to-day basis. The principal institution of the law in action is not trial; it is settlement out of court.

A fact that may seem as strange to the first-year law student as to the layman is that most of a citizens rights and duties, though based in law, are determined without reference to any court by a set of personnel quite different from those to be found in a courtroom. Although all rights properly called legal could be asserted and adjudicated in a court, on the whole it is the smallest percentage that in fact are thus determined. One reason we fail to realize this is that we overlook the legal relationships involved in many of our ordinary social transactions. For instance, all our purchases, including that of a drugstore Coke, are embedded in the context of a commercial law that bristles with explicit and implicit rights and duties on the part of buyer and seller, the breach of which creates a claim for one or the other party. The regulations applicable to the conduct of business are so numerous and pervasive that their violation is virtually a way of life to the ordinary businessman. To drive without breaching the ubiquitous standards of the law of negligence is virtually impossible, and the same law attaches to every roller skate on a sidewalk, every grape seed in the aisle of a supermarket, and every Oriental carpet on a polished floor. That legal rights and duties are involved in these everyday transactions and occurrences is virtually never recognized except when something unexpected disrupts routine.

Not only is the existence of ordinary legal relationships generally unrecognized by the layman; even when the unexpected happens, and the legal basis of a relationship is bared, the formal machinery of the law is seldom involved. It could not, indeed, become so involved without a revolutionary increase in the scale of such machinery. In the criminal law, for instance, it is estimated that only one-seventh of all felony prosecutions in the United States end in jury trials. For the State of California, 99 per cent of traffic violations, 95 per cent of other misdemeanors, and 76 per cent of felonies are disposed of before trial.¹ If every defendant were to have a formal trial, the number of courts, juries, judges, and related personnel would have to be increased extravagantly, and the resultant cost would be a social burden of remarkable proportions. Likewise in the civil law: even in New York City, a remarkably litigation-conscious jurisdiction, 98 per cent of bodily injury negligence claims are terminated without adjudication by a court.²

Where are these other decisions made? Who, other than judges and juries, determines the legal rights of the vast majority of citizens? In answer to these questions, a large and diverse array of personnel and forums could be cited. Perhaps the first to occur to the lawyer would be administrative tribunals, which resemble courts in many aspects, but which tend to operate less formally, with a different and less adversary procedure, more lenient rules of evidence, and more specialized decision-makers. The number of commissions, agencies, and panels making legally relevant decisions almost certainly exceeds the number of courts and is an important factor in determining legal rights. According to Kenneth Culp Davis, in the year ending in June, 1963, there were 7,095 trials in the United States District Courts. In that same year, over 17,000 cases were closed by agency decision on merits after hearing and preliminary decision, an additional 17,000 were closed by agency final decision on merits without preliminary decision, and a further 16,000 were closed by preliminary decision alone. However, even these formal administrative decisions, like the decisions of courts, formed only a small proportion of the total number of cases filed and disposed of. The Securities and Exchanges Commission, for example, had only 175 formal cases in the year ending June 30, 1963, but passed upon 1,157 registration statements and issued 30,000 advisory letters concerning the laws it administers. The Federal Communication Commission had only 226 formal cases but licensed over 735,000 transmitters. The Immigration Service had less than 14,000 formal cases but granted or denied almost 700,000 applications.³

Formal decision-making procedures, be they applied by courts or administrative agencies, are thus shown to be quantitatively unimportant in the working out of legal rights and duties. To be sure, formal decisions are qualitatively important, for they set standards which informal decisions are expected to follow. However, informal decisions are responsive to other considerations as well, and they cannot be understood as mechanical applications of the formal rules. As Glendon Schubert says:

The proper subject of study is not “law” in the classical sense of verbal statements purporting to rationalize the content of constitutional and statutory documents, or appellate court opinions. Inquiry [ought to focus] on what human beings, cast in socially defined roles in certain characteristic types of decision-making sequences which traditionally have been identified as “legal,” do in their interactions and transactions with each other.”⁴

To understand the legal system and the nature of rights and duties, it is not sufficient to know the formal rules; one must know the law in action. The same principle holds for reasonable criticism and proposals for reforming the law. In the words of the now well-known “Michigan study” of automobile accident victims:

The impressive fact remains that a substantial majority of “serious” cases, and the great mass of all cases, were terminated without court intervention. . . . If the handling of the great mass of injury claims is to be improved, it is the adjustment process rather than the judicial process which will have to be changed.⁵

The perspective described here has been applied in some notable studies of the criminal law.⁶ I believe that the present study represents the first effort to apply it to the law of negligence.

I have said that this is a book about law. It is also a book about sociology, the science that studies man and his institutions, of which the law is a part. In this book I wish to stress the sociological insight that rules are in part a function of the apparatus that applies them. It follows that the term “law” may have at least three distinct meanings, corresponding to three modes of application:

First, law can be understood as those rules that are enunciated by legislators and by appellate judges. These are the rules that appear in print, in newspapers and law books, and that are learned by rote, plus or minus some comprehension, by law students. This understanding is certainly that of most of my fellow students from law school days, and I dare say of many of my teachers as well.

Second, law can be understood as those rules that arise in the course of applying the first-level laws in the situation of a trial court. Many students of jurisprudence have taken this position, most notably (and with considerable overstatement) Jerome Frank.⁷ This law of the lower court, particularly the law of the jury, is based on the law of the higher court, but with important and meaningful differences. The differences are not merely a function of the jury's lack of expertise, as Frank at times seemed to imply. The differences have now been documented in some detail by the Jury Project of the University of Chicago, and have been shown to have a distinct logic of their own.⁸

The literature of jurisprudence has less often been concerned with a third meaning of law, which concerns those rules that arise in the course of applying the formal rules in private negotiated settlements. Holmes’ revolutionary thought, that law is what the courts will do, did not go far enough. Quantitatively speaking, even trial courts are trivial mechanisms for determining legal relationships. The rules of the third level, the law in action, are not completely independent of the first and second levels, but, being further removed from the appellate courts in time, space, procedure, and personnel, they are more subject to distortions, modifications, and even negations of the formal rules than are the rules of the second level.

Students of trial court law have found it to be bent from the formal law in the direction of a sense of fairness brought to bear by the judge or jury in the individual case. The departure from formal law may be greater in cases decided by a jury, but it occurs as well in disputes decided by a judge. Where the unqualified formal rule strikes the decision-maker as unjust, his application of the rule bends it in the direction of his idea of justice, whether by distorting the facts of the situation so that the rule appears to give good results, or by overriding the rule and hiding behind a screen of rationalization or the silence of the jury room.⁹

Law in action, as exemplified by the situation at hand—the adjustment of claims by representatives of insurance companies—involves additional sources of distortion of formal rules, virtually ignored by the students of courtroom law. These are the formally irrelevant situational pressures on the negotiators. The key role in this situation is that of the adjuster, who is typically a low-level employee of a large formal organization. (Sociologists customarily speak of such large, rule-oriented organizations as “bureaucracies,” following Max Weber; the term as used here in the technical sense is not pejorative.¹⁰) In addition to his personal views of justice and equity, the adjuster brings to his work the pressures he feels in his role as an employee. Both intended and deliberate company policies on the one hand and unintended and “accidental” pressures on the other affect the adjuster's performance and modify the outcomes of his negotiation of legal claims.

An important consequence of this fact is that the law as it is experienced by the average man exercising his legal rights out of court is a different institution from the law obtaining in the courtroom, just as that in turn differs from the law of the casebooks and of the appellate courts. This book will explore these differences in the particular matter of the law of negligence in automobile accidents. It will further attempt to explain the source of the differences in terms of the attitudes and opinions of the parties to negotiation, the social pressures on these parties, and the advantages and disadvantages conferred upon the parties by the peculiar institution of negotiation. An additional goal of this book, based upon the foregoing analyses, will be to evaluate the law of negligence both in terms of its relationship to the standards of formal law and in terms of how well it fills the needs that it could in fact fill in an automobile-based society. I write this book with the knowledge that its particular topic is of great practical importance today, and with and, to my way of thinking, a shallow conception of negligence the belief that much of the current debate is based on a formal law. Many critics of the current system, I believe, write in ignorance of the fact that the law in action is much broader and more benevolent than they assume from a reading of the formal law. On the other hand, many proponents of the status quo strike me as being just as ignorant of the differences between formal law and law in action as are the critics, and their defenses seem more reasonable when applied to a law that once—or never—was, than to the system as it now in fact works from day to day. I hope that the description and explanation of the law in action contained in this volume will add clarity to the currently heated discussion of the virtues and defects of the negligence law, and that it will add a realistic dimension to the proposals made for its modification or replacement by a different system.

Method

The study was undertaken with the generous support and cooperation of three major American insurance companies. The bulk of the research was done in cooperation with a large and well-known company which will here be called Acme. Acme is a very old, established stock (as opposed to mutual) insurance company which writes all lines of insurance. Although it is not primarily concentrated in the automobile field, it has a considerable business in this line. Acme is representative of such familiar companies as the Travelers Insurance Company, Aetna Casualty and Surety Company, and the Hartford Accident and Indemnity Company. The findings developed in interviews and observations at Acme were verified by repeating the work with two very large “mass-market” insurance companies, here called Mid-West and Great Plains. Both of these companies are quite prominent in the automobile insurance field, and seek continued expansion in this line. These companies sell directly to the public, rather than through independent insurance agents, and partly in consequence their rates are somewhat lower than Acme's. A significant part of automobile insurance today is being handled by companies like these, such as Allstate Insurance Company, Government Employees Insurance Company, and Farmers Insurance Group.

I began my work by interviewing adjusters and their supervisors. The interviews were lengthy, lasting as long as two hours, and covered the following topics: the informant's past career and future plans, his feelings about his work, his manner of going about such things as investigation and evaluation of claims, the techniques of negotiation with claimants and their lawyers, his treatment of the problems posed by uncertain liability, and his opinions of the negligence law and proposed changes. Other topics were covered as they arose, and no set pattern of questions was routinely followed. The interviews were recorded on a tape recorder and were transcribed. In this book, excerpts from the interviews are presented as illustrative materials, but during the research they also served as sources of hypotheses which were further tested in additional interviews and in the statistical analysis reported in Chapter 5. A total of 67 adjusters were interviewed, in six different locations. All men who worked in the Long Island, New York and Harrisburg, Pennsylvania offices of Acme were interviewed. At Mid-West and Great Plains, the comparison was between employees in the central Pennsylvania and the Philadelphia area offices. Thus, for each company, approximately half the interviews were done in a metropolitan region and half in a rural and small-city region. It was expected that variations in the work of the adjuster might appear in the regions studied, as the areas differed considerably in the average value of claims (and consequently the price of insurance), the proportion of claims represented by attorneys, the reputed honesty and “claims consciousness” of typical claimants, the fees charged by physicians, and other factors. This expectation was confirmed in the interviews, the regional differences surpassing the differences observed between companies.

The interviews were supplemented by observations of the adjusters at work. In both offices of Acme, and in the Philadelphia office of Mid-West, several adjusters agreed to my companionship as they made their rounds of work. My general procedure was to accompany a man on whatever tasks he happened to have scheduled for the day. I took notes on what I saw, and discussed them with the adjuster as we drove in the company car from appointment to appoint...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Foreword
• Preface
• Acknowledgements
• Table of Contents
• Chapter 1. Introduction
• Chapter 2. Adjusters and Others
• Chapter 3. Investigation and Evaluation
• Chapter 4. Negotiation
• Chapter 5. Recovery
• Chapter 6. Implications
• Chapter 7. Epilogue
• Index