Legal Ethics and Settlement Mills

by RyanD on October 19, 2012

Everyone has seen their television advertisements: angry-looking attorneys, who promise to sue drunk drivers, get you the money you deserve from your accident, or to “make the big insurance companies pay.” While most such advertisements undoubtedly represent legitimate law firms that put the best interests of their clients first in personal injury cases, a growing number of such ads represent attempts to recruit new clients for law firms that can be best described as “settlement mills.”

What is a settlement mill?
A “settlement mill” is a law practice that routinely settles its clients’ personal injury claims for a fraction of their actual compensation value in favor of a rapid settlement with the defendant’s insurance carrier. Since the vast majority of such firms work on a contingency fee basis, their lower fees are offset by a greater number of claims settled in a given period of time.

How can I spot a settlement mill?
The term “settlement mill” was coined by Dr. Nora Engstrom who, writing in the
Georgetown Journal of Legal Ethics (“Run-of-the-Mill Justice” Fall, 2009), identified several “warning signs” that should alert potential clients that they may be dealing with such firms. These include:

● A high-volume personal injury practice, often handling several hundred injury cases at a time.
● Rely on aggressive advertising campaigns to get new clients.
● Rarely file lawsuits or take very few cases to trial.
● Practically all client contact with the law office is through office staff or, at best, paralegals.
● Clients play a minor role in resolving injury claims.

What do settlement mills have to do with legal ethics?
The operations of “Settlement Mills” raises number of issues ranging from legal questions such as “when does an inadequately-supervised paralegal cross the line into the unlicensed practice of law?” to violations of the attorney’s ethical obligations to protect the best interests of his client.

As to the former issue, the American Bar Association has traditionally left such decisions to the discretion of state licensing agencies. It has, however, held the position that a paralegal that actively participates in settlement negotiations without direct supervision by his or her employer has indeed “crossed the one” into the unlawful practice of law. The ethical issues raised are far more fundamental.

Since it is central to the philosophy of legal practice that an attorney must act with the best interests of the client as his or her sole motivation, does the practice of settlement based on how quick the attorney will receive his or her compensation violate that ethical duty? It would seem that way. Even under the least strict definition of “ethical duty,” the routine use of such decision processes is sufficient for scrutiny by the appropriate state bar.

To summarize, “settlement mills’ are law offices that routinely settle personal injury claims on the basis of how fast an insurance carrier is willing to pay a claim and thus allow such firms to collect their contingency fees. Since these offices operate without protecting the best interest of the client, they violate both national and state ethical conduct standards and may be in violation of some state laws. Consumers who feel that their personal injury claims may have been handled by a “settlement mill” law practice are urged to contact their state or local bar associations in order to have their suspicions investigated.

This article was written on behalf of featuring Matthew Faler, a consumer bankruptcy attorney who strives to protect your best interests while maintaining a high level of ethical standards.




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