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 litigation 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. Here, six best practices that keep costs in check when managing a litigation program.
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.”
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.”
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 lines?
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. “Are you going to get the work you need?” asks Marc Lanzkowsky, senior director of global insurance services for FTI Consulting. “You wouldn’t want your ophthalmologist performing gastric bypass on you; this is about doing due diligence.”
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.
Don’t hand off the claim to the defense attorney just because the case has gone into litigation; 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.
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, tracks 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.
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 make it 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.
Trials: Still Time to Settle
Any team can beat any team on any given Sunday, and because of that uncertainty, Tidball theorizes that 95% of cases get resolved before trial.
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.
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.”