A recent report from the Ward Group identified that while claims litigation frequency has declined, the cost and expense per case has increased. A successful program has to balance how best to spend defense costs while minimizing settlement payouts. Every firm must establish guidelines and best practices when working with its defense counsel, to ensure that claims are resolved before trial—and there are many opportunities to do so. Learn six best practices that keep costs in check when managing a litigation program.

1. Establish Rapport

The No. 1 way to manage your claims litigation? Avoid it altogether.

Handle the claim and the claimant with care, and you may save yourself a future lawsuit, says Gary Jennings, CPCU, ARM, principal with the consulting firm Strategic Claims Direction. “I have found—especially in the workers' compensation world— that employees or claimants often go to attorneys for information because they have not gotten what they need from the claims handler or adjuster.”

Jennings recommends that a risk manager or claims handler develop a good rapport with the claimant and let him or her know every time there is a new development. Touch base with the claimant's medical provider to learn if he or she has a disability, and if so, acquire the permanent impairment rating. In some states, this entitles the claimant to a settlement. Tell the claimant what that is, and the claim may disappear.

2. Be Proactive, Not Reactive

Just because a claimant has retained an attorney doesn't mean the file has to go through litigation. Take a proactive approach to claims handling, instead of reactive, says Chris Tidball, SCLA, SSBB, senior director of casualty solutions at claims management firm Mitchell International, because there is still opportunity to reach a settlement with the claimant's attorney.

The claims handler or adjuster should use his or her experience to investigate the claim, arrive at a settlement, open the door to negotiations and conclude the case.

“Adjusters should ask questions up front,” Tidball says. “Talk to a prior insurance company, friends and neighbors. Canvass the scene and take photographs. Review medical bills for upcoding, unbundling and modifier abuse. Perform a liability assessment.”

Software aids in this investigation. Mitchell International's ClaimIQ assists adjusters in identifying and assessing comparative negligence. It also provides adjusters with guidance to evaluate and negotiate claims. Mitchell's Decision Point identifies deceptive medical billing practices.

Tidball knows firsthand that the proactive approach works. Early in his career, working as a claims adjuster an at auto insurer, he received a claim from a woman who was involved in an auto accident with one of his insureds. The woman alleged that she sustained back and neck pain, which prevented her from working.

Tidball ran a background check, where he discovered the woman's occupation—as an exotic dancer. “In the state of Florida, you have to have an occupational license to take your clothes off in front of people,” Tidball says. “A neighbor told us where she worked. We dispatched surveillance to get footage of her working in the club. We called her attorney and set up a meeting.

“We played the tape and she was dead to rights. The claim went away for literally no cost.”

3. Select the Best Fit

Despite best efforts, litigation can still proceed and you will need to hire a defense lawyer. Perform proper due diligence and ask prospective defense counsel:

What is your breakdown of litigation between auto, workers' comp and professional line?
How many cases do you bring to trial in a given year, and what is your success rate in those cases?
How do you manage a file? Do you use a partner for depositions or associates for discovery?
What are your rates?

There are no right answers to these questions, but only wrong actions if you choose to work with a poor match. “Do they specialize in what you want?” asks Marc Lanzkowsky, senior director of global insurance services for FTI Consulting. “Are you going to get the work you need? You wouldn't want your ophthalmologist performing gastric bypass on you; this is about doing due diligence.”

Blair Dawson, a partner specializing in professional liability for Lloyd's at Karbal Law, agrees that careful examination is necessary when choosing a lawyer, especially for those inexperienced in litigation, who may be impressed by big, flashy firms with hidden agendas.

“There was a law firm on the West Coast—now defunct—that did a tremendous job marketing itself. The firm charged rates that far exceeded its competition, which reinforced beliefs that they were the go-to firm,” she says. “The law firm over-billed, used partners on matters that could have been pushed to lower-level associates, and took a circuitous litigation route that incurred unnecessary fees for work that did not further the case. By the time you realize that the fees incurred are exorbitant, it is often too late for successful litigation as the opposing side is drawn into responding to the long and expensive defense strategy.”

4. Preparations and Expectations

Adjusters must lay out expectations to their attorney. Ensure that the defense counsel creates an initial report and litigation plan, in writing, within 30 days of assignment. This allows for budget expense. The Defense Research Institute recommends that an initial report for insurance claims litigation include:

A summary of the allegations in the complaint, the factual basis for the litigation, a summary of the information developed during the preliminary investigation and a preliminary evaluation of liability and damages.
A litigation plan that details:
- Significant activity that the attorney will initiate (investigation, motion, discovery, legal research)
- Discovery and motions that are likely to be initiated by the other parties
- Estimated completion dates for each activity
- Estimated expenses for each activity
Potential for early settlement and recommendations for arbitration, mediation or direct settlement
Trial date estimate.

Don't hand off the claim to the defense attorney just because the case has gone into litigation, Jennings cautions. All instructions—for depositions, mediation and settlements—should come from the claims or risk manager, who acts as quarterback and calls plays for the defense counsel. He further recommends to pre-negotiate all rates.

Retaining control is necessary for cost management, Lanzkowsky says. “You don't want your defense counsel taking 30 depositions on a broken finger claim as a result of a bus accident.”

The adjuster, risk manager or claims manager should decide what vendors they need for successful case litigation. These include court reporters, investigators, experts, medical records retrieval specialists, subrogation recovery specialists and independent adjusters. Carriers may strike deals for volume discounts with these vendors, Lanzkowsky says, especially national insurers that require vendors with a large geographical reach.

It's necessary to hash out case analysis, target dates, strategy and case values before a problem occurs during litigation. “I can only recall one instance where defense counsel, the insured and I were so far apart on strategy that the defense counsel withdrew from representation,” Dawson says.

5. Keep Costs in Check

Review counsel's monthly billings and ask for a separate line for each activity and a description of what work was done. Most tasks can be completed in increments of a few minutes, such as .1, .2 or .25 of an hour. Verify that the billing is consistent with your budget.

Auditing ensures that attorney fees are kept in check. Software, such as LexisNexis' CounselLink and Wolters Kluwer's TyMetrix, track legal bills and flag fees that are outside pre-set parameters for hours worked in a day, copy fees, and rates for partners, paralegals and associates.

At a previous employer, “one of our defense counsels was working on a case when his roof collapsed over his kitchen, in a rainstorm, on top of his table where he was doing work,” Lanzkowsky recalls. “And he submitted a bill to us for the roof repair. He didn't get paid.”

Mediation, which can occur pre-suit, post-suit and pre-trial, reduces defense counsel fees. Every case should be evaluated based upon the lowest cost to disappear. “Is it better to pay a $10,000 settlement now with minimal legal fees or $8,000 in six months with $5,000 in legal fees?” Tidball asks.

6. Trials: Still Time to Settle

Pre-trial mediation serves as the final chance to settle a claim. It's also an opportunity to plant a seed of doubt in the plaintiff's mind, Tidball says.

“I have gone in front of the jury with the best case in the world, and they have said, 'Pay up.' I have gone in front of a jury with a shaky case and we get a defense verdict. Any team can beat any team on any given Sunday,” Tidball says. And because of that uncertainty, Tidball theorizes that 95% of cases get resolved before trial—and sometimes, the deadline is close.

“We were about to start a two-week trial in Michigan, which concerned a dump truck accident where someone lost a finger,” he recalls. “We took the position where we admitted economic damages, but didn't owe pain and suffering. We settled on the courthouse steps.”

But in the supposed 5% of cases where there is a trial, preparation is key. Have defense counsel prepare a pre-trial suit evaluation report that details procedural background, anticipated jury or panel composition, summary of facts and expert testimony and the settlement range.

Next page–Horror story: When defense drops the ball

When Defense Drops the Ball

Chris Tidball, who has spent more than 20 years managing litigation groups, recalls a claim that was in litigation, where his defense attorney made what Tidball calls an innocent mistake. “Once we were sitting in a deposition for a man with a herniated disc caused by an auto accident. Our insured had rear-ended the claimant. The claimant wanted the policy limit and we said no because we thought it was a pre-existing condition.

“The claimant and his wife were sitting in the room, with their attorney next to her. My attorney asks the claimant, 'Can you tell me about your rape conviction?' You can't even imagine the looks on their faces. My attorney continued, 'It was on such-and-such date, you were arrested for sexual assault.' And I'm sitting here looking through my notes, because this is news to me. And I tell my defense counsel that we have to go outside.

“I tell him, 'No, it's our insured who had the rape conviction.' So we go back in and apologize profusely and we ended up paying more than the claim was worth to make it go away. We just disclosed to them something they didn't know, and never in a million years could we take that risk of the claimant giving that information to a jury.”

Special Reports /

On the record: 6 Strategies to manage claims litigation

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