Measuring Counsel Performance Key to Carrier Cost Control Efforts

Insurance companies striving to control litigation costs should always review how well their outside attorneys perform and not just how much they charge, according to experts.

Though billing is easy to measure, it may not accurately reflect the true cost to litigate a file using a particular firm, according to Steven Donnelly, an attorney for Liberty Mutual in Loveland, Ohio. That’s because a firm with lower billing rates might take twice as long to complete tasks than a higher rate firm.

“Insurance companies can get off track because they focus on the billing rate,” Donnelly said.

William Mitchell, founding partner of Cruser and Mitchell, LLP, based in Norcross, Georgia, agrees performance reviews are important and further recommends that client carriers negotiate litigation services and costs up front.

“My question to clients is, ‘The last time you went to buy a car, did you drive it off a lot and drive it around for a year before you called the car dealership and say, “Hey, by the way, how much is the car I’ve been driving for a year?” Absolutely not, you negotiate the value and price of the car before you purchase it,’ and litigation services are no different,” Mitchell said.

Reviewing four characteristics — efficiency, quality of work, customer service and billing practices — helps identify missed cost containment opportunities, according to Donnelly, who is the in-house manager of the litigation management unit for Liberty Mutual’s Regional Companies.

Once retained, Mitchell proactively seeks out a carrier’s case goals. “The first question I ask any client new or old is: ‘What is your litigation philosophy and what are we trying to do in this case?'”

Donnelly likes measuring efficiency using the closing ratio, which gives him an immediate snapshot. “I’ll take…every file that was opened at one point in time during the month and I’ll take the closed number and divide it by those opportunities,” Donnelly said.

“Runway mode” is how much legal allocated loss expenses (ALE) is being spent per open suit over any given period of time. “Usually, I’ll look at it monthly. So that’s ALE divided by pending plus closed. That tells me how much it costs to have one file open at that one firm for one month,” said Donnelly.

While closing a litigated file economically and efficiently is important, it doesn’t mean settling every case.

Mitchell learned early on that some firms are proactive about finding ways to get out of cases early and inexpensively. “The quicker and more efficiently you can move cases, is always in my opinion the most prudent choice for a defendant,” Mitchell said.

By guiding clients effectively throughout the course of a case, Mitchell said he has been successful in getting some lawsuits voluntary dismissed.

The second characteristic Donnelly looks at is work quality.

“One of the challenges with managing a firm is that you don’t really know what’s going on in their file,” Donnelly said. “You’re kind of dependent upon them to tell you what’s going on. …There are firms out there that aren’t going to tell you when something bad happens until they absolutely have to.”

Mitchell agrees. “What those law firms are missing is if the case turns bad on you because you don’t get dismissed quickly and efficiently, suddenly you might be paying more.”

Donnelly cites an example where counsel may have missed a deadline, knowing the court order could easily be vacated or an extension granted without the carrier ever hearing about it.

“I used to practice law in Cook County [Ill.]. A default in Cook County, to vacate it is a routine thing. You don’t even have to appear before the judge. You just file a motion and then, assuming there’s no objection, it gets vacated,” Donnelly said.

Insurance companies may never hear about these instances, unless the default can’t be vacated and payment has to be made.

Evaluating trial reports submitted by a firm can help identify problem areas, according to Donnelly. “One of the things I think is important, whether it’s settlement or trial results, when you’re looking at the quality is being able to make a comparison of what their recommendations were and what their outcome is,” Donnelly said.

A report with recommended settlement values at specified times throughout a case helps adjusters evaluate claims and set reserves. “To me, that gives a good indicator of how well the firm and the attorneys in the firm understand the exposure that you’re facing and the issues of the case and the likelihood of success,” Donnelly said.

Mitchell’s procedure mirrors Donnelly’s. “Within 45 days we give the client … our litigation plan which will tell them the good, the bad, the ugly about the case and specifically tell them chances of winning on motion for summary judgment (MSJ), chances of winning a trial and value of the case and verdict range.”

In addition, Mitchell offers a scorecard to his client carriers that summarizes the case and includes resolution dates, recommended versus actual settlement amount, and estimated legal fees versus actual fees billed. “It covers the duration of case, meaning from date it was assigned to date resolved and/or dispositive motion filed,” said Mitchell.

According to Donnelly, adjustor and insured surveys are good ways to measure the third characteristic, customer service. “You’d be surprised at how frequently an insured will get back to you because they’ll get one-on-one experience with the lawyers.”

A short survey provided to an adjustor with questions on how responsive the lawyers were, whether the adjustor was bullied to raise his offer when there wasn’t a change of circumstances, and if the attorneys complied with the litigation guidelines can help identify problem firms, Donnelly said.

One aspect where Mitchell differs is in who should provide the performance report. “Compel your law firm. Let them do the work for you…six different people might be sending you work and they might be sending you three or four cases a year, so they don’t realize there is 30 or 40 cases being sent globally to see what the numbers look like,” said Mitchell.

The fourth characteristic Donnelly looks at is a firm’s billing practices.

“What’s the percentage of the bill that’s getting written down? What’s the percentage of entries that are actually written down and then, also, what’s the overall percent that you’re writing down relative to the total bill amount,” are questions Donnelly said he looks to answer.

Mitchell recommends that insurers hiring outside counsel for the first time request five jury verdict forms over the last two or three years to confirm the firm and attorneys are trying cases.

“Number one, you have to hire people who tried cases,” Mitchell said. “Number two, ask for five voluntary dismissals or early settlements that occurred two or three months, four months into the case because that’s evidence that these guys are thinking of creative ways to economically and efficiently get you out of a case.”

“Third, if you can, somewhat micro-manage them the first couple of cases and…develop a plan and be very active in the plan… because the first question could be: ‘Is there a way to get out of this case early and economically?'” added Mitchell.

“Lastly, until you know and trust your legal counsel I would be involved in all initial discussions about settlement. Settlement negotiations are a dance and words mean a lot, so if you’re not firsthand listening to those words you have to rely on whomever is reporting those words to you and you better fully trust that they’re reporting the words in an accurate way.”

Managing the bill review process can be tedious for a claims department handling multiple claims in multiple jurisdictions. Rather than expend the manpower internally, some insurers rely upon outside vendors like Acuity Management Solutions to manage the task.

“An insurance company…has law firms all over the country. It’s really difficult for them to manage the invoicing process. What our system [e-billing tool] does is it breaks it down for them, it allows them to report on every task that the law firm bills. This allows them to actually look at that data,” according to Debra Weaver, vice president of sales and marketing for Acuity. “They’re defining better ways of managing cases so that they can cut the costs.”

Acuity is totally web based, so there’s no software that needs to be downloaded. “They simply log in with a user ID and password,” Weaver said.