AI for the Defense: Should Insurers or Law Firms Pay?

The idea that AI tools can help plaintiffs’ lawyers to improve finely tuned litigation strategies that ultimately drive insurance company claims payouts is not new to insurance industry readers.

Nor is the suggestion that defense firms need to try to catch up with similar ammo.

But a study commissioned by the Claims and Litigation Management Alliance and conducted by Suite 200 Solutions probes a related topic that Carrier Management reporters hadn’t thought to ask our insurance industry sources in any of our previously published articles: Who should pay to even the score?

The claim and litigation executives who responded to more than 100 questions captured in the recently published “2026 CLM Litigation Management Study” were split right down the middle on two choices available to answer that particular question.

• Exactly 50% of executives said they believe law firms should pay for AI tools they use in defending liability insurance policyholders.
• The other 50% selected the choice, “Honestly, we are still figuring this out and have yet to arrive at a policy.”

Not a single respondent selected the option that claim organizations should “contribute to or pay for law firm AI tools,” the report indicates. A big “0%” is typed next to that possible answer to Question No. 84, specifically phrased, “Which statement resonates most strongly with you regarding who should pay for the AI-related software and tools used by law firms on your files?”

Related articles: Defendants, Insurers Risk Falling Behind on AI for Litigation; Negotiation by Design: Why Writing Beats Talking

Responses to additional questions provide further insights into the evolving dynamics of the situation.

Carriers asked whether defense firm partners are reaching out for help in defraying costs of AI-enabled technologies overwhelmingly said they have fielded no such requests. Only 3.4% said they were frequently asked for help, 13.6% said the requests came “sometimes,” while 83.1% have never been asked.

Another question about AI use left out the cost component: “How often would you say you’ve been approached by law firms requesting permission to use AI-related software and tools?” Just about half of the carrier representatives responding to the question (50.8%) said they’ve “rarely” (45.9%) or “never” (4.9%) been approached by defense attorneys to discuss their firm’s use of AI.

“Asking the constituency most dis-incented in an hourly billing model to adopt powerful and efficient tools seems like the absolute slowest path to adoption,” says the report, which also reveals that just 6.2% of carrier respondents, on average, acknowledged the use of any alternative form of billing in answer to a separate question in the survey.

“In an environment dominated by the billable hour model, … rising indemnity and expense figures, and a declining trial rate, who stands to benefit the most from this investment” in AI tools for defending lawsuits, asked Taylor Smith, President, Suite 200 Solutions, in an executive summary introducing the report findings. “Who benefits the most from having law firms that are more efficient and productive? Who benefits the most from tools that control indemnity costs better?”

Defense Spending vs. Indemnity Costs

Smith’s questions allude to some other headline numbers in the survey report:

• More than 8 in 10 executive respondents (80.6%) said that average indemnity payments on settled litigated files have risen in the past three years (since the prior study date). Only 11.3% said they stayed the same.

• More than three-quarters (75.8%) also saw an increase in defense costs—average legal fees and costs per litigated case—over the same time frame. This follows a similar result in the 2023 survey, when 76% also said average costs per litigated case had increased during the three-year period prior to that study.

• In addition, 85.2% of the participants in the 2026 study believe they have been facing an increased frequency of policy limit demands from plaintiffs’ representatives over the last three years. For the 2023 study, 72% had the same observation about the prior three-year period.

Interestingly, while this perception of increased policy limit demands is pervasive—with 85.2% of respondents reporting more demands—only a minority (36.7%) actually track the number of number of policy demands they receive.

Related to the growing levels of indemnity payouts and increasing defense cost burdens (legal fees and costs), the survey also captures the beliefs of claims and litigation executives about a potential relationship between spending more on defense and lowering indemnity payouts.

Since 2015, Suite 200 Solutions has asked this question: “In general, do you believe that spending MORE money on the defense of a lawsuit reduces the indemnity costs (verdict, settlement, loss costs) in that lawsuit?” Executives have consistently provided an overwhelming “No!” to this question in 2015, 2019 and 2023, with more than 80% of study participants expressing this sentiment. In 2026, however, this core philosophical approach softened, with only 63.9% of respondents saying “No.”

In particular, compared to the 2023 level of “No” responses (81%), the 2026 CLM report notes a 17-point decline. “We think this figure marks a meaningful departure from a core industry belief that has been remarkably stable for over a decade,” the report says. Said another way, “for the first time in 11 years of studies, more than 1 in 3 executives now believes that ‘spending more money on the defense of a lawsuit reduces the indemnity costs,'” the report says.

“I’m pleased to see this philosophical orientation shift,” Smith told Carrier Management. “Deploying legal services strategically and intelligently can, in fact, affect the outcome of the case,” he said. Smith noted that he has used those earlier results to help defense firms appreciate the buyers’ perspective when it comes to purchasing legal services.

“All defense lawyers naturally assume that if you buy more of their services, they have a greater opportunity to impact the outcome of the case. But the carrier’s motivation has been not to buy more of their services—as they haven’t been convinced of the correlation between more services and improving case outcomes. These survey results suggest that perception is changing.”

Now, climbing indemnity costs are helping carriers to recognize that they need help, Smith said, offering his own broad takeaway from the survey overall. He highlighted responses to one particular question about friction points between carriers and counsel to support the inference. “The No. 1 friction point now is [that carriers] need more accurate exposure analysis from law firms. Billing compliance has dropped now to No. 5,” down from a long-held No.1 spot previously.

“What is No. 1 for us is we need help with the indemnity,” Smith said, restating the response.

“Historically, claim leaders have said, ‘We know cases better than [defense firms] do. We know case values better…. We know how to negotiate better than they do. We see more cases,'” Smith reported. “My perception is that’s not working anymore. If I’m in the carriers’ shoes, I’m thinking that may all be true, but we could use a little more help.”

The shift in carrier thinking is positive in Smith’s view. “We are part of a “multi-player team challenge,” he said, referring to a team that includes the insured, defense counsel and the carriers that must coordinate.

“That’s a big theme of a lot of these findings—that we just have to get our team to act together in order to combat a common opponent, the plaintiff bar.”

What’s Up With TPLF?

Other responses described in the 2026 report reveal that, as was the case with limits demands, carriers are not tracking how many cases against their policyholders involve third-party litigation funding.

“This is notable given that TPLF is recognized as an emerging industry threat. Litigation-funded cases behave differently—they are less likely to settle early, more likely to be driven to trial, and may involve different economic incentives for the plaintiff’s attorney,” the report says.

Still, 83.3% of the 2026 CLM survey respondents who answered a question about whether they had “an established process for identifying or attempting to identify” files with TPLF involvement said they did not. Likewise, 86.4% said they don’t keep track of TPLF-impacted files when they have identified funded cases.

It’s noteworthy that the first question on this topic refers to “identifying or attempting to identify” the TPLF-influenced files (emphasis added). Industry trade groups point to the lack of transparency of third-party financers in litigation as a pressing problem and have been regularly pushing for state and federal legal reforms to require disclosure of funding arrangements.

Related articles: APCIA Backs Federal Bill to Require Litigation Funding Disclosure; 5-Year Cost of Litigation Funding to Commercial Insurers Could Top $25B

“I think that it absolutely is a disclosure issue,” Smith said, noting that only some states require it. “The broader point is, as an industry, if we’re not even measuring [TPLF] when it does exist, then it invalidates our ability to point to it as a source of our distress.”

“I would like to see it tracked on every file, whether [the case] is in a disclosure state or not,” he added, explaining that defense counsel can solicit that information informally from plaintiff counsel.

In fact, TPLF “is increasingly becoming a core component of how cases are getting settled,” Smith affirmed, offering an example of what he says in an increasingly common negotiation dynamic.

“The defense team will get a call from the plaintiff attorney, who will say, ‘I need 100K, not because the case is worth 100K [but] because that’s the amount of the loan that my client has taken out to finance this lawsuit…”

“It’s now being disclosed by plaintiff attorneys in the efforts to get more money than the case is worth,” he stressed, noting that plaintiff attorney follow-up often goes something like, “If you can’t give us 100K, even though the case is worth only 30K, we’re going to roll the dice and take it to trial and see what a jury does.”

“TPLF changes all the economics in cases,” he said, noting that, in response to this trend, he is seeing more and more discussions about guidelines that instruct defense counsel to ask whether there is third-party litigation financing on every case.

“If we know TPLF is on the table, it may be helpful to both the plaintiff and the defense side to achieving earlier resolutions” Smith said.

About the Study

The 148-page 2026 CLM Litigation Management Study describes answers to 126 survey questions designed by a steering committee of 35 Members (30 claims and litigation executives of insurance companies and five representatives of law firms). While questions discussed in this article mainly came from sections of the report devoted to costs, plaintiff dynamics and billing policies, other sections discuss changes in adjuster caseloads, the use of panel firms, chief executive scrutiny of litigation management effectiveness, talent shortages for insurers and defense firms, measures of law firm performance, carrier-defense firm relationships, the use of litigation service providers, and the level of negotiation skills of claims professionals and defense attorneys.

More than 70 chief claim and litigation officers took the survey, although not all participants answered all questions. The report notes, however, that participation was strong, with most participants answering a high percentage of all questions.

Some of the questions in the study were open-ended rather than multiple choice, including one that asked respondents to identify a trend or behavior of the plaintiffs’ bar that represents a new challenge or threat to the insurance industry. AI adoption by the plaintiffs’ bar and time-limited policy limit demands emerged as the two top concerns, according to CLM, noting that these were mentioned with equal frequency and often together as a dual threat.

According to the report writers, respondents described AI not merely as a drafting tool but as a strategic weapon that is used to monitor defense behavior, build carrier intelligence databases, generate voluminous demand packages, and drive case selection.

The story originally appeared in our sister publication Carrier Management.