Insurance is all about protecting yourself, but it seems thereis no getting around lawyers, lawsuits, and litigation.

A recent survey released by the international law firm Fulbright& Jaworski, LLP reveals that a staggering 93 percent of U.S.insurance companies faced at least one new lawsuit in the pastyear; an unlucky third (33 percent) faced more than 20 new actions.And big dollars go with those big percentages. More than one-half(54 percent) of the insurance companies surveyed reported facing atleast one $20 million suit.

The Fulbright & Jaworski annual litigation trends surveytakes a macro look at the landscape for business disputes in theU.S. and U.K. The survey reports on findings from multipleindustries, as well as breakdowns by company size and region. Datagathering spans numerous topics, from the most prevalent types oflawsuits that businesses face to what new legal burdens areimpacting their budgets.

Performed during May and June of 2007 by Greenwood Associates, amarket analysis and business research firm, the study is thelargest of its kind, gathering information from more than 250 U.S.in-house corporate lawyers. An additional 50 U.K. law departmentsparticipated.

Ten key industries were represented, led by financial services,manufacturing, and energy, followed by technology/communications,retail, insurance, education, engineering/construction insurance,and real estate.

The findings clearly demonstrate that litigation has become amajor line item in insurance company budgets. Nearly a third (31percent) of the insurance firms surveyed said that they spent atleast $5 million on litigation, excluding costs of settlements andjudgments, while 54 percent reported spending more than $1 millionper year on business disputes.

Drop In Filings

As with most surveys, however, there's good news mixed in withthe bad.

“The data this year point to a pronounced drop in new casefilings, both against and by American companies, which is areversal of the upward trajectory in the number of new lawsuitsfrom our previous three surveys,” said Stephen C. Dillard, chair ofFulbright & Jaworski's global litigation practice.

Dillard speculated that a stable economic climate through thefirst half of 2007 — including a generally rising stock market —likely lessened the number of public company disputes (64 percentof firms represented in the survey are publicly held). At the sametime, he noted that the ebbing of big corporate accounting scandalsfrom earlier in the decade had brought a decline in securitiesclass actions and other kinds of investor strike suits.

However, even with a reported drop in new cases, litigationremains a significant part of many corporate budgets. Almost 45percent of all companies surveyed said their annual litigationspending is $1 million or higher. It gets spent quickly.

Eighty-three percent of in-house counsel reported at least onefresh case commenced against their companies in 2006-07, with 25percent counting more than 20 new suits. Larger enterprises aretargeted more often. Only three percent of billion-dollar companiesmanaged to get through the past year without being named adefendant. Fifty percent were served with at least 20 new actions,including a third hit more than 50 times. Alternatively, 44 percentof companies under $100 million sailed through the past yearwithout a single new suit.

The scale of the domestic litigation scene is even more apparentwhen total pending matters are taken into account. Only 10 percentof U.S. companies said they had no cases on their books in U.S.courts or regulatory agencies. A third of respondents arecontending with more than 25 suits, including 18 percent looking ata domestic docket of at least 100 cases. Manufacturers are theoverall case leaders; 41 percent have more than 100 pending U.S.matters. For insurers, 40 percent hit the 100-case threshold.

Sue, Then Settle

As they have in previous surveys, in-house counsel identifiedlabor and employment matters as the most frequent source oflawsuits filed against them during the past year, followed bycontract disputes and personal injury cases. Companies reportedlitigation across a dozen other categories, and nearly everyindustry group was a magnet for at least one type of dispute.Insurers had to defend more class actions than anyone else.

Despite a willingness to bring suit when necessary, companiestend to seek solutions to the cases they file. Fifty-six percentsaid they settled the majority or all of their new plaintiffs'litigation in the past year before going to trial. The energyindustry saw the highest overall settlement rates (80 percent),followed by engineering, health care, and insurers.

Two items of particular interest: Smaller companies were lesswilling to settle than mid-cap or billion-dollar firms. Only athird said they resolve the majority of their cases, compared totwo-thirds for large companies. And companies based in the Midwestsettled more often than those in other parts of the country.

Keeping the Government Away

Thirty-six percent of in-house counsel said their business hadbeen the target of a regulatory proceeding or investigation in thepast three years, compared with 49 percent last year. The industrymost sensing a spike was health care (42 percent), followed byenergy and insurance.

Among government regulators, the Securities & ExchangeCommission has been the most active regulator the past three years,followed closely by OSHA and, to a lesser extent, the EPA. A farhigher percentage of smaller companies (62 percent) thanbillion-dollar firms (44 percent) reported being on the receivingend of an SEC inquiry in the past three years.

Records Retention

Maintaining a “paper trail” remains a challenge for businessesof all sizes. The average business retains documents for justtwo-to-three months; only 14 percent are backing up for one year orlonger. Not a single sub-$100 million company responding to thesurvey maintains a back-up threshold of one year or longer, whichcould prove costly in the event of a court-ordered documentrequest.

In one key aspect of records retention — responding to apreservation order or so-called litigation hold — businesses havetaken heed. Eighty-nine percent of in-house counsel said theircompanies now have procedures to ensure preservation of all datathat may relate to a legal or regulatory action. More than 80percent of U.S. companies said they had reviewed their retentionpolicies over the previous 12 months.

Capturing Workplace Data

As instant messaging gains widespread use at many companies — 53percent of in-house counsel said employees use instant messaging(IM), while the rate among billion-dollar firms was 70 percent —businesses have the added burden of capturing and retaining thoserunning online conversations in the event they are needed in alitigation hold instruction. The portion of companies loggingemployee IMs is considerable; 28 percent said they retain themessages as routine policy or in certain cases. For billion-dollarfirms, the segment was 40 percent. While many companies may archiveIMs for only several weeks or a month, 43 percent keep them for twomonths or longer, including 15 percent that hold them for at leasta year. One-third of all companies permit employees to attachdocuments to instant messaging, which can take on addedsignificance in light of the extended holding periods in place atsome businesses.

Besides IMs, companies these days have to consider holding ontoanother ephemeral slice of office life — voicemail. Forty percentof in-house counsel said they have a retention policy for employeevoice messages. As with IM, much of the phone chatter is saved fora month or less, but 31 percent of companies store their voicemailsfor at least two months, including nine percent with a one-year orlonger hold policy. The retention protocols become even morecomplex when considering that 37 percent of companies said theirphone systems allow voice messages to be forwarded to others viae-mail, creating a potentially huge web of vocal documentation.

Further complicating e-discovery and document retentionpractices is the line that employees regularly cross between theirbusiness and personal discourse. Thirty-seven percent of theFulbright survey respondents said they allow employees to accessoutside e-mail accounts using company-issued computers. Forbillion-dollar companies, the allowance rate was 44 percent, andfor tech shops, it rose to 61 percent. Meanwhile, 74 percent ofcompanies let employees gain access to the corporate network fromtheir home computers. The high degree of co-mingled communicationcould lead to unexpected challenges in a litigation context.

With data breaches and electronic security lapses becoming alltoo common, many companies have beefed up their privacy policies,yet only 39 percent of in-house counsel said their firms have inplace a full-time privacy officer. Sixty percent said they have nocurrent plans to hire one. Health-care providers have the highestlevel of privacy officers at 71 percent, followed by retailers (61percent) and financial services firms (59 percent). Technologyfirms are quick to tout their robust privacy tools and practices,but only 35 percent have a privacy officer in place.

First Line of Defense

U.S. businesses have turned to a variety of specializedinsurance products to try to mitigate their increasingvulnerability to litigation. General liability coverage remains themost common source of protection, with 58 percent of companiessaying that it is their first line of defense in a lawsuit. Morethan 40 percent of counsel reported that they turn to D&Opolicies. Mid-cap and larger companies are increasingly turning toEPLI policies, which are not in favor among smaller firms.Companies also generally reported making use of E&O policies tocover litigation risks. A substantial segment of U.S. companies —16 percent — said that they are now self-insured, compared to athird of U.K. companies taking the self-insurance route to hedgelitigation exposure.

New ways of doing business beget new exposures, which beget newchallenges, which beget new opportunities. “The lesson in ourtrends survey is that litigation can come from any direction, andcompanies need full peripheral vision,” Dillard said. And they alsoneed deep pockets.

Founded in 1919, Fulbright & Jaworski L.L.P. is a leadingfull-service international law firm, with nearly 1,000 lawyers in16 locations worldwide. More information is available atwww.fulbright.com.