A Casual Day for Expense Management

At such points, adjusters often feel as if they are caught between the technical demands of the policy and imperatives from on high to trim expenses, as opposed to doing what is needed to appease customers. This can school them to pick their battles wisely without running afoul of company policies and sound claim practices.

Policyholder requests to hire counsel pre-suit are more frequent in commercial-line liability claims than in personal-line cases or property losses. These requests are not uncommon in product and professional liability claims, some general liability claims, or director and officer matters. Claim professionals are likely, at one time or another, to be faced with such requests. Risk managers probably are going to make such requests or demands in selected cases.

Risk managers may have many reasons for wanting insurers to hire lawyers at pre-suit stages. The matter may "smell like" a legal situation warranting counsel. For example, if a company receives a subpoena for documents, or a corporate representative must appear next Tuesday for a deposition. The risk manager also may think it inevitable that the case will enter litigation, either due to grandiose plaintiff demands or the insured's objection to settling.

In some cases, risk managers see that everyone else (including claimants and potential co-defendants) has lawyers and fears that they will be disadvantaged by sending "just an adjuster" into the fray. Often, risk managers lack confidence in the abilities of adjusters or insurers' claim units, or may think that hiring an attorney will send a tough message to the other side, squelching the claim or dampening expectations.

Adjuster Reservations

Claim people often resist policyholder urgings to hire lawyers before lawsuits are filed, especially if the insurance policy contract does not contain any obligation to do so. In some cases, adjusters may question the need to pay lawyers to do claim adjusting work and the resultant accumulation of allocated loss adjusting expenses. Bringing in lawyers also may result in a loss of adjuster control, requiring the management of one more outside vendor or constituency.

By hiring counsel, adjusters run the risk of sending the wrong message to opposing side: that the claim must be a big deal for counsel to be involved at this stage. They also are reluctant to set precedents that insureds may cite in future situations.

Corresponding advantages can flow from the hiring of counsel at the pre-suit stage, however. Policyholders and insureds can articulate these readily. Benefits include insureds' peace of mind; preserving the investigation as attorney/client privileged work product; and expertise about legal ramifications, including nuances of local laws and judicial trends in specific locales. Not least, of course, is that deft handling may lower the odds of cases' ever going into suit

Adjusters often resist going to the time and expense of hiring attorneys before lawsuits have been filed. Claim people can smell a boondoggle from a mile away, and hiring lawyers to do glorified adjusting work smells like a boondoggle.

Nevertheless, some situations may warrant this unusual step. These would include cases in which insureds get subpoenaed on claim-related matters. How adroitly the subpoena is handled may determine whether the policyholder is eventually sued. In product liability cases or fire claims involving cause and origin, a scheduled meeting or inspection of a device or accident location may warrant attorney involvement.

If the claim seems to be the tip of the iceberg on a precedent-setting situation, adjusters will want to exercise extreme care in how the early cases are handled. It also may be obvious that a case is likely to enter litigation anyway, so adjusters will have to select counsel sooner or later. Cases in which exposure plus expected legal fees are projected to be well within a policy holder's self-insured retention also may be suitable for attorney involvement.

Getting to Yes

Claim representatives can navigate diplomatically through this emotionally charged issue using different approaches. In some cases, adjusters can promise to take matters under advisement. This may buy time within which to make a fully informed and reasoned decision.

An important principle is for the claim person to reflect on the request, not reflexively react or get mired in a test of wills with policyholders. It is better to make case-by-case decisions rather than to issue a doctrinaire policy of never paying for pre-suit counsel retention.

Furthermore, adjusters should seek professional advice by bouncing the idea off their supervisors to assess their companies' practices and philosophies regarding these requests. Is there an over-arching reason why pre-suit counsel retention might ultimately benefit not only the policyholder but the insurer too? A decision that is correct technically may still lose a valuable piece of business due to hard feelings and ruffled feathers from a fractious claim exchange.

Another obvious choice in some situations is for the claim representatives to tell policyholders that the latter can retain counsel at their own expense and option. Then again, the adjuster can approve pre-suit counsel retention, but only from an insurer-approved panel. An approach used by some insurers whose policies have self-insured retentions is to say that insureds can select counsel pre-suit, but that the insurer will reimburse insureds for the expense only if and when counsel succeeds in resolving the case within the self-insured retention.

Risk managers should prepare to make cogent cases to adjusters as to why this gesture is warranted. They should involve insurance brokers to lobby with underwriters, adjusters, and other upper level decision-makers. In addition, this can and should be a claim issue to discuss at renewal and at the placement of coverage: that there may be infrequent situations where the insured wants counsel before a lawsuit is filed. Will this be a problem? The risk manager could offer to split the cost of pre-suit counsel retention. In other cases, the insured may feel so strongly that it foots the bill on its own, perhaps reserving its right to seek later reimbursement from the insurer.

Is pre-suit counsel retention premature or a sage investment in case defense? It is tempting to offer the lawyerly reply, "It depends." Managing risks and litigation can warrant adjusters' coloring outside the lines and hiring lawyers before the sheriff appears with the Summons and Complaint. In other cases, pre-suit counsel retention may be an extravagant gesture.

Looking at each case on its merits will help reduce, but not totally eliminate, friction between risk managers and adjusters on this issue. Even if your office has gone business casual, there are still some days when it makes sense to wear a suit.

Kevin Quinley, CPCU, is senior vice president for Medmarc Insurance Group in Chantilly, Va. He can be reached at kquinley@medmarc.com.