GeoLegal Weekly #33 - New Legal Weapons

This week I'll tell you how I'm pursuing an insurance claim using AI and I'll contemplate what these tools mean for litigation more broadly.

Today, the rich and powerful have many advantages in the legal system. They can afford to understand the law, which enables them to create legal agreements like non-disclosures or mandatory arbitration clauses that are to their benefit. They can afford elite defense counsel for big ticket cases and they can build economies of scale to defend many smaller claims. They can afford lengthy legal battles, using procedural tactics to cause financial challenges for their opponents. They can afford expert witnesses and private investigators who can develop supporting evidence. They can pay spin-masters to tell their story. And, when all else fails, they can mobilize lobbying talent to try to change the rules.

This is why employees who may have valid claims against their employers are afraid to bring them. This is why wealthier spouses have the upper hand in a divorce; large companies have the advantage when in court with smaller companies; and debt collectors can take painful actions against their indebted clients. 

This is both a cause and a function of the so-called justice gap - the difference between the legal needs of citizens and the resources they have available. Legal aid funding in the US is roughly half of what it was in constant dollars forty years ago. 75% of civil matters in the US find one side representing themselves even though lawyers are nearly half a percent of the population. 

But technology has the potential to change all of this. The question is whether it will be used for good or evil or, less hyperbolically, justice or injustice. The answer is probably for both - sometimes at the same time.

A Crash and a Concussion

A car crashed into our family van as we were stopped dead on the offramp of the I-10 freeway in Los Angeles. My kids were asleep and didn’t really register the impact. My wife was startled but basically fine. My head flew back and hit the headrest. It immediately started to hurt.

Not what actually what the accident looked like, but the best DallE could do

The other driver apologized at the scene and said she took responsibility for the accident. Of course, there wasn’t much alternative given we were completely stopped but I appreciated her doing so. Over the course of the day, my head started to hurt more and more. An urgent care told me to go to the emergency room, where I failed to correctly give the receptionist my own phone number due to brain fog. The ER doctor diagnosed me with a concussion. An on-time follow-up a couple days later with my doctor sent me home with another medical report diagnosing me with a concussion.

I heard from the other driver’s insurance company soon thereafter. I wasn’t really thinking of taking any legal action so I provided them my emergency room report and the two doctors’ diagnoses. I assumed they would offer to cover my ongoing medical bills.

To my surprise, the insurance company attempted to pressure me to take a $600 settlement immediately via Venmo (“wouldn’t you like to have $600 right now?!”). That would have granted them a full release for about the cost of a normal doctor visit. I told them I didn’t yet know my medical exposure (though I assumed in America it was going to be at least 10 times their offer) and by the way my head was still hurting from the concussion and I was worried of lingering effects. The company attempted to use legal technology against me: They sent their full release offer via a well-known e-signature platform that automatically reminded me every single day to sign it. The pressure had begun.

I rested the next few days, which messed up my whole routine. My intermittent fasting was out the window and my writing came to a standstill. I had trouble concentrating and had to cancel a host of meetings. While I wasn’t necessarily seeking compensation for it, there was a very direct cost to me from the other driver’s negligence.

I’m not a very litigious person. I have a big scar on my foot from an exposed sharp edge in a hotel room as a child, which resulted in a claim against the hotel chain that was valid until I was 21. Since there wasn’t further damage beyond the scar, I never proceeded with any claim at all. My company Hence Technologies also does work with the insurance industry - work which I take pride in because I think insurance supports the public good by providing risk-sharing and risk-mitigation tools necessary to thrive in the crazy world we live in.

Thus, I most definitely was not gearing for a fight about my concussion: just pay my medical, fix my car and let me on my way. But then a letter arrived from the other driver’s insurance company.

“It was unlikely that there were any injuries related to this accident…if you continue to seek treatment, I will carefully review all medical expenses to determine if they are related to the accident, and any that are not will be your responsibility.”

Seriously? I had provided two separate diagnoses of a concussion and I was planning to just move on with my life. But this particular insurance company really was trying to create leverage for itself by trying to gaslight me into believing I wasn’t hurt. And by implying that I might want to think twice about seeking further medical treatment.

The insurance company’s behavior was logical for the current legal era, which we will soon be exiting. Most claimants would be persuaded to have $600 right now rather than get tied up with the legal system. Where an average concussion claim might be worth a few thousand dollars, it required wanting a fight and finding a lawyer who advertised on billboards to help you get that settlement. Those billboards, of course, aren’t free so the settlement would be a pittance once received. And it would be a lot of work and emotion in the process.

But technology is leveling the playing field. No longer would I need an ambulance chaser to negotiate my claim. Cars drive themselves nowadays so surely car insurance lawyers can be automated too.

It’s not whether you win or lose, but how you play the game

A friend of mine suggested I check out a company called ZAF Legal, which stands for “Zero Attorney Fees.” The company was a traditional injury law firm that was licensed in the state of Utah to provide an AI powered accident claim app. I answered a few questions about the accident, my symptoms, the name of the other driver and the like. Within minutes the system generated a demand letter I could send to the other insurance company. For free.

Suddenly, I was no longer encumbered by the decision of lawyering up or letting it go. Where I might otherwise not have pursued my claim, I was able to do so so easily that there was really no reason not to. To create my own leverage, I also was able to use ChatGPT to generate a full complaint I could have filed for me in a court of law if I so chose. Of course, I’d still need an officer of the court to file the claim but having a complaint in hand would also create leverage for me.

The upshot of this is not the outcome of the settlement which will be determined as we volley back and forth over the next two years-the length of time the state of California allows for resolution of a personal injury claim. Rather, the fact is that instead of folding, I’m fighting. I wouldn’t be doing that without technology. And this has profound implications for the way we think about the risk of legal action more broadly. 

AI for Every Claimant

What if every insurance incident resulted in a well-informed claimant accurately framing the value drivers of their case such that the insurance company on the receiving end had to take it into account? That’s the vision of Ty Brown, the CEO at ZAF Legal, whose AI helped me with my claim. 

ZAF has an interesting business model reflective of the economics of personal injury law. An AI tool is available for free to help anyone who shows up. Since very few insurance claims get litigated, the AI should support most claims by providing the claimant with facts and ultimately an output they can share with the insurance company. When a case actually requires legal assistance, then ZAF human lawyers can take over. ZAF provides a free public good and also gains a higher-quality pipeline.

The AI tool was developed to solve the real information asymmetry that exists between a regular person who hopes to never have to file an insurance claim and an insurance company who hopes to never pay more than it needs to. The AI helps the claimant understand their rights and frame it into a demand letter the insurance company generally must acknowledge. Part of that is a process of the AI estimating what their claims could be worth for both economic (car damage) and non-economic (sleepless nights) claims. Once a person understands that the claim is worth more than they expected, they may proceed further with the negotiation process than they might otherwise have. On the flip side, once they understand the claim is less than they might have expected, they may be more willing to accept a settlement without legal action. And, like me, they are better able to articulate the value of the claim in their demands and assessment of offers.

The insurance settlement process itself is not a legal process - it’s a negotiation to avoid legal action. In the current market, a claimant turns over their claim to a personal injury lawyer who will immediately threaten to litigate in order to build leverage over the claim and inflate the value of the claim, which is not necessarily better for society as a whole given that insurance prices go up when claims cost more than they should. 

In this scenario, the claimant approaches the insurance company with more of an optimization problem: You know you owe me some money. Here’s a demand that let’s you know I know you owe me money. Let’s cut to the chase and get this thing settled. That can result in justice for the claimants and even fewer cases going to court.

Robots fighting in court as an oil paiting, genreated by DallE

Let’s Fight

Technology is bringing the cost of legal down. Huge amounts of money flow in to legaltech for productivity and efficiency purposes, which will reduce the cost of traditional legal services over time. This will make it easier for those who use human lawyers to consume more human legal time. Already, companies like LegalZoom offer all you can eat subscriptions to legal advice; for instance, their Assist package is $199 for a year of unlimited 30 minute calls on new issues, a library of forms, and legal document review. That’s about the cost of a streaming music or movie service.

But the bigger disruption will be for people and use cases that can bypass those phone calls fully. Why not ask the same questions to an intelligent computer program that can answer them for me or take action for me?

Generative AI is increasingly able to provide the self-service legal work I am describing above. As the law becomes digitized - through products that ingest what the law is to tools that are built on-top of it to comb it for advantages - the cost of accessing and interrogating the law will eventually begin to approximate zero dollars. Yes, there are regulatory hurdles but I’m a believer they will be overcome. Soon, the cost of accessing emulations of the best arguments, complaints and templates for all forms of legal work will be negligible. It will be like building a playlist of your favorite legal hits.

This means that I’m more likely to threaten legal action or to stand up and defend myself than ever before. And so are others. That is a new world of risk.

Legal Empowerment and New Risks

I started off talking about the power asymmetry that exists in the current legal system - an asymmetry which business advantage counts on. But as my insurance example shows, self-service legal will enable customers - and some day your employees or competitors - to take legal actions that would not previously have taken. To the extent that legal is a defensive good, you’ll spend a lot more time engaging with those who are defending themselves - or paying out what can reasonably be claimed.

But there’s a further extension of this environment. The ability to generate legal action basically for free will put many on the path to take offensive action. Companies will soon be on the receiving end of an onslaught of legal actions taken by enemies who want to find weakness. After all, if it costs me nothing to flood you with legal actions, and there’s a big enough advantage for me, I just might do it.

As my colleague Dan Currell pointed out, the more positive spin is that technology will bring down the transaction costs of litigation, which should ultimately work for more just outcomes. Today, much of pre-trial settlement value is driven by expected transaction costs of litigation which can make meritorious claims and worthless claims worthy of a similar settlement value when transaction costs are high. As technology reduces the transaction cost of litigation, quality claims will be paid out quickly because the threat of pursuing legal action will increase - in effect, the claimant is no longer bluffing so if they would otherwise win in court, you might as well pay them something less now. But AI-powered defenses may be developed to counter bogus claims more cheaply as well, reducing settlement values as the claimant would know the recipient can easily throw the case over to the legal system where it would be assessed on the merits and thrown out.

That’s it for this week.

-SW