Are insurers prepared for the COVID-19-related litigation avalanche?

Litigation trends in a pandemic era

Let's look at a few high profile cases…

In New Jersey, courts have been ruling in favor of policyholders. For example, during Optical Services USA/JCI v. Franklin Mutual Insurance Co., the Superior Court of New Jersey ruled that according to state law, BI policyholders did not have to show evidence of physical loss or damage to receive coverage for COVID-19 related losses. Similarly, in North Carolina, a case against The Cincinnati Insurance Co. was granted summary judgment in favor of the policyholder based on the same premise that physical damage to the property was not required under the policy.

These verdicts should be concerning for insurers as a majority of BI claims have focused on filing for 'loss of property and property damage' due to COVID-19. Early wins for insurance companies were frequently from policyholders failing to provide sufficient evidence that the virus causes such disruption. Yet, with judges in various states making this redundant, it could change the outcomes for future cases.

This new wave of litigation is, of course, sounding alarm bells for insurers worldwide. At the forefront will be the likely impact on loss ratios should carriers lose significant cases. However, the industry shouldn't let this be the reason why they take their eye off the ball on the immediate costs of managing these cases. When you factor in the strain on existing resources that such an unprecedented amount of litigation could have, attention should focus on strategies that can help avoid an expensive administrative mess.

Managing external legal resources

To be able to endure the long-tail impact of COVID-19 litigation cases, insurers must start thinking of how they can appropriately manage their new caseloads. In many cases, this may involve increasing the use of outside legal or panel counsel, especially if internal resources are overwhelmed. In this situation, effective management of third-party resources becomes critical, so here are some practical steps on how to achieve this.

• Confirm service level agreements — If you're entering into a new relationship or significantly scaling up work with an existing vendor, you must take the time to negotiate service level agreements (SLAs). Start with the basics ­— turnaround times for specific requests, operating hours and reporting requirements. You should then confirm staffing requirements, such as ensuring only one attorney handles each deposition and motion and that the appropriate staff skill level is deployed for each task.

• Carefully consider fee structures — It's time to re-examine your fee structures to make sure you're getting the best price. It could be the case that you're currently being billed an hourly rate by your outside legal counsel, but if you're about to significantly increase casework referrals, then switching to other payment models, such as a project fee, could be more cost-effective. Also, bear in mind — the more work you're referring, the greater your buying power — so don't be afraid to negotiate a discount.

• Define cost control guidelines — This is particularly pertinent if you're working with new defense attorneys. State in writing the costs and expenses you will and will not reimburse, such as legal research and expert witnesses. Also, state which costs need to be pre-approved.

Keep internal processes up to speed

To stay on top of your litigation caseload, your external legal counsel must work seamlessly with your internal resource. This needs to cover all parts of the process, from case assessment and management, to legal bill review and reporting. Here are the key areas that you need to consider to manage this appropriately.

• Quick case assessment and management — The case manager should create a roadmap and a budget for each case and share it with all internal and external stakeholders. This will enable you to select the most appropriate law firm for each case and to provide timelines for key milestones, such as the initial review by the attorneys assigned to the case. Once the initial assessment is completed, the case manager should provide clarity on when a cost-benefit analysis can be completed to help inform whether to settle or defend the case.

• Good management systems are as important as good case managers — Even the best case managers can get overwhelmed if there is no effective system for them to work from. You may have managed up until now with spreadsheets and checklists, but manual processes do not scale effectively. As a minimum, you must have a central repository for storing documents for every case that both internal and external stakeholders can access, as well as contact details of all parties involved in each case and a shared calendar with key dates. A more advanced solution is to invest in management software that can pull this all together.

• Leverage data — Effective case management and decision-making at scale are extremely difficult without robust and reliable data. Case managers should be analyzing KPIs such as average time scales and resource spend when managing routine cases, hours worked per case per attorney, as well as results per attorney. This will greatly improve decision-making in terms of allocating the most cost-effective attorney to each case, as well as enabling a far more informed decision when deciding whether to settle or defend.

• Scrutinize invoices — Another vital asset in your cost control toolkit is your legal bill review process. The case manager, working either with an internal team of reviewers or with a legal bill review vendor, should scrutinize each invoice to ensure it abides by the billing guidelines set out in the SLAs. If there are items on the invoice you were not expecting, you should ask the law firm why the cost was included, and where appropriate, negotiate for the cost to be removed or reduced.

Given the incredibly uncertain trajectory of COVID-19, it's unclear when the surge of pandemic-related litigation claims will cease. However, while minds are understandably focused on defending cases that would have significant repercussions should insurers lose them, this shouldn't be a reason to allow litigation management costs to spiral and processes to be put beyond their breaking point. However, having robust contractual protections with external legal vendors and effective internal management processes, insurers can easily scale their litigation capabilities to face the new normal.

Gary Markham is the founder of AI-enabled predictive analytics legaltech company LSG, which provides enterprise-level litigation and panel counsel management software to insurers. Contact him at grm@lsg.com.

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