Litigation is rarely cheap, but often necessary in the context of disputed insurance claims. Those who resist paying subrogation claims know that many insurers hesitate to file suit, hoping to “save money” on litigation costs. As a result, those same insurers frequently receive only partial recoveries, even on the strongest liability cases. Over the past few decades, insurers have worked tirelessly to find the perfect balance between litigation economy and quality representation. From in-house counsel to cost-control vendors and detailed litigation guidelines, the industry’s obsession with “managing” legal spending has become an end in and of itself, but that pursuit has come at a high but often unseen cost.
What began as a necessary discipline in the defense world has quietly spread into subrogation, where cost control too often outweighs value. Subrogation success, unlike defense work, is measurable and financial—dollars recovered versus dollars spent. But that clarity has led to a dangerous oversimplification: the belief that lower contingency fees automatically mean higher net recoveries. It sounds logical, even self-evident, but it’s a fallacy. After more than 35 years litigating subrogation cases across the country, we have learned that chasing low contingent fees is one of the most expensive mistakes an insurer can make.
A new breed of subrogation vendors, often lawyer-owned and driven by marketing over merit, have capitalized on this mindset. They promise cut-rate contingency fees—15%, 18%, 20%—with the illusion of savings. The idiom “built by the lowest bidder” applies perfectly here. Those rock-bottom fees guarantee that most files will be settled quickly, often for far less than full value, and that the more complex, higher-value files—the ones that should go to trial—never will. The vendor looks good in the short term, while the insurer’s portfolio of claims slowly depreciates in value.
This happens because people tend to substitute a simple question for a difficult one—a phenomenon well-known in cognitive psychology. The difficult question in subrogation is: Which representation will yield the greatest long-term return on our recoveries? But our brains instinctively replace that with the easier question: Which firm charges the lowest fee percentage? That substitution feels rational, but it leads to an irrational outcome. It’s like the classic “bat and ball” puzzle: “A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. How much does the ball cost?” Although $.10 is the answer that intuitively springs to mind, it is incorrect. If the ball cost 10 cents and the bat costs $1.00 more than the ball, then the bat would cost $1.10 for a grand total of $1.20. The correct answer to this problem is that the ball costs 5 cents and the bat costs — at a dollar more — $1.05 for a grand total of $1.10. This classic puzzle exemplifies how lazy thinking when it comes to low-ball contingency fee percentages from some subrogation vendors might seem satisfying and prudent at first; but result in significantly lower net recoveries in the long run. It is yet another instance where people instinctively answer what feels right rather than what is right—and end up wrong.
The subrogation math is deceptively simple. A $75,000 recovery on a $90,000 subrogation claim at a 1/3 contingency fee produces a $50,000 net return to the insurer. A $30,000 recovery on the same claim at a 15% contingency yields only $25,500—a result that looks cheaper on the subrogation department’s budget but costs the insurance company twice as much in real dollars. The lure of the lower fee percentage masks the reality of diminished recoveries. Like the “easy question” bias, focusing on the percentage instead of the performance produces an answer that feels right but is financially wrong.
The problem compounds itself when claims are triaged by cut-rate vendors who settle quickly and close files prematurely. When litigation becomes necessary, they are forced to find outside counsel willing to take the case at their discounted rate—and few qualified trial lawyers will. We frequently receive last-minute referrals of these abandoned cases, often with only weeks left before the statute of limitations expires. By then, the value lost far exceeds any perceived savings from the lower fee. The subjective nature of subrogation success allows a good file to be easily misrepresented as a bad file in order to justify a quick settlement. Unfortunately, it is often easier for subrogation claims managers to sell an 18% contingent fee than to assess the true recovery potential of a large case which is settling for little or nothing at all. Far too many in our industry go for the quick buck – skimming the cream while leaving behind a treasure trove of subrogation potential to slowly decay until statutes of limitations are mere weeks from running.
Not all vendors operate this way—some structure their contracts with escalating fees or fair litigation incentives—but they are the exception, not the rule. Before signing on with any vendor offering low contingent fees, insurers should demand transparency: How will the vendor fund litigation? Who will handle trial work? What percentage of cases actually go to suit? What are the average recovery ratios?
The truth is simple: Cheaper is rarely better. It’s just cheaper. The sign in my favorite ice cream shop says it best: “You can find cheaper ice cream somewhere else; if you want cheap ice cream, go there.” Litigation is not a commodity. It is a professional service that requires judgment, experience, and skill. Paying less for it doesn’t save you money—it costs you recoveries.
Subrogation success depends on the credible threat of litigation. Adversaries must know that the insurer’s representatives are willing and able to go to court—and win. The moment they see correspondence from a vendor, they know litigation is likely not coming. The “pointy end of the subrogation sword” must always hang over their heads. Experience, value, legal knowledge, communication, and persistence—these are the true currencies of recovery. Everything else is an illusion.
There are no shortcuts in subrogation. Like fast food, low contingency fees look appealing: quick, easy, and cheap. But the real cost—the lost recoveries, the weakened cases, the missed opportunities—never appears on the menu.
