Zealous and Cost-Efficient Legal Defense in Insurance Matters

The economy has been stalled for years, and every business, including insurance, is looking to cut costs and provide services timely and cost-efficiently. Meanwhile, a 2009 litigation trends survey of corporate counsel in the United States found that there is an expectation of increased litigation in the coming year because of, but not limited to: 1) the increased costs involved with e-discovery and other discovery devices; and 2) cost-recovery efforts against businesses in an effort to make-up for bad business deals.

The prospect of increased litigation focuses the payor on more cost-efficient legal services in an attempt to balance the goals of zealous and cost-efficient legal representation.

The model for this analysis is well-known in the insurance industry. Businesses purchase liability policies from insurance companies. When a claimant asserts a claim, the insured submits the claim to the insurer, which may retain an outside law firm to defend the insured in the lawsuit or other legal proceeding.

Defending a lawsuit for an insured can be a lengthy, frustrating and expensive process. The insured’s business may be disrupted because principals need to spend time assisting defense counsel.

This assistance typically includes 1) providing factual and documentary support to defend the claim, and 2) attending meetings, depositions, mediation and other important events related to the suit. The insured also may become frustrated with the time and expense required to resolve a lawsuit, particularly if the insured has a large retention or deductible obligation that must be satisfied before the insurer becomes responsible for defense and/or indemnity obligations under the insurance policy.

The insurer must establish a reserve for all claims early in the process that takes into account the: 1) substantive strength or weakness of the claim; 2) cost to defend the claim; and 3) potential indemnity payments by the insurer upon settlement or jury/judge award after a trial. The insurer and insured may be disappointed if defense counsel’s projections about the outcome and defense cost are inaccurate and the cost to the insurer exceeds original estimates.

Prompt and Efficient Resolution

In cases that are not dismissed at summary judgment, and in which a decision is made by the insurer and insured to settle the case short of trial, defense counsel’s role is to: provide the insurer and insured with a durable case budget; efficient management of associates and experts; and early notification of the insured’s potential exposure and the risks, costs and benefits of trying to resolve the case or proceeding to trial.

Budgets

Reliable litigation budgets provided shortly after receipt of defense counsel assignment are necessary for the insurer. Without a reliable budget, the insurer cannot make informed judgments about whether to defend or resolve a claim at an early stage, before substantial legal fees and costs have been incurred by defense counsel. Budgets vary, so each budget must reflect the reality of the case and must explain why it is larger (or smaller) than similar cases.

Partners and Support Staff

Another consideration in completing a case budget is the division of time between partners, associates and paralegals/clerks. Many activities should only be handled by partners and senior level associates: trials, mediations, important court appearances, defense of client depositions and preparation of exposure assessment reports. Other activities should be delegated to associates: document privilege review, attendance at non-critical fact witness depositions, preparation of draft pleadings and other motion papers (subject to partner review) and attendance at minor court appearances.

A balance needs to be struck between these activities and the partner in charge is responsible for the result.

Partners are also in charge of the timely submission of a litigation budget to the insurer. Partners should be prepared to commit to staying within a budget unless unexpected circumstances dictate that the budget be modified.

Third-Party Vendors

Management of expert witnesses is another important duty of defense counsel. Defense counsel must provide experts with a clear scope of services and all information necessary to complete their evaluation thoroughly and cost-efficiently. In exchange, the expert must commit to and comply with a not-to-exceed budget.

After the scope has been provided by defense counsel and the expert has been given two to four hours to review the case, the expert should be asked to commit to a not-to-exceed budget (expert budget). The proposed scope and expert budget should be sent to the insurer for review and approval before the expert proceeds with services. Defense counsel also should provide the insurer with rationale as to why an expert is necessary at that stage of the proceedings.

Summary Judgment Motions

Motions for summary judgment are a great litigation device. A successful summary judgment motion will lead to a lawsuit’s dismissal and termination. In most cases, especially when the grounds for summary judgment are strong, no steps should be undertaken to try to settle the case until the summary judgment motion has been decided by the court. In some cases, an effective strategy can be to file a motion for summary judgment and then mediate or make other efforts to settle the case before the motion is decided.

Mediation

Mediation should be considered in almost every case that cannot be resolved via motion for summary judgment (unless a decision has been made to try the case). Mediations allow parties to consider the possibility of resolving cases before trial in a confidential setting. The process is non-binding and allows parties to evaluate the strengths and weaknesses of their cases with an experienced, neutral third-party. Mediation also allows an insurer to evaluate the presentation of claimant’s counsel and witnesses. Even if the mediation is unsuccessful, defense counsel can ascertain information that can be used in the insured’s defense. It is the rare case that does not call for a mediation process.

In tough economic times, insurers are looking for new ideas to reach prompt and cost-efficient resolutions. However, absent an early comprehensive investigation, substantive case budget and litigation plan, the insurer will not have enough information to make an informed judgment on how to proceed. The defense counsel’s role is to ensure that a zealous and cost-efficient legal defense is pursued. Defense counsel tools and techniques will assist insurers in making informed and timely economic decisions in every case.