As an insurance coverage, insurance claims, and insurance bad faith consultant
I am totally conflicted about the subject of “litigation management” since the
insurance executives that attempt to manage litigation with inexperienced, untrained,
and incompetent claims people make much work for my consulting and expert witness
business.
At one time in my past, I operated a small law firm with eight lawyers working
for me and a total staff of 23. I now operate with one paralegal/bookkeeper/daughter
and am much happier. Managing lawyers is as easy as herding cats. If the lawyer
is as intelligent, knowledgeable of the law, and an effective advocate—the type
of person an insurer wants representing its insured—an adjuster trying to "control"
this person is as effective as a team of Cub Scouts trying a frontal military
attack on a Special Forces "A" team. It's no contest.
The Team Approach
Lawyers are "managed" by experienced and intelligent claims people by establishing
a team effort. The claims person and the lawyer are part of a team whose sole
purpose is to provide the most effective defense to the insured or the insurer
the lawyer is retained to represent. The adjuster does the work that he or she
is best equipped to perform: investigation, witness interviews, records collection,
etc. The lawyer does what lawyers do: files pleadings, deposes witnesses, appears
in court, analyzes legal issues, evaluates the options available, and makes
recommendations based on experience and training.
A claims person intent on "managing litigation" must remember, "There Ain't
No Such Thing as a Free Lunch" (TANSTAAFL). Lawyers, like claims people, do
not provide free services. A "cheap" lawyer is probably priced above his or
her worth. Insurers who pay a reasonable fee for the services of their lawyer
usually get value for their money. If they do not, they fire the lawyer and
get a better one who does give value for money paid.
A Personal Example
I was once solicited by an insurer who wanted to give me a great deal of
work, but I needed to use a software program of their choice for billing and
could bill no more than $125 per hour. I told the claims person that the price
was $100 an hour less than my normal billing rate. I told the adjuster, however,
that if the insurer could promise me 2,000 hours a year of legal work, I would
hire a young lawyer who would bill $125 an hour.
I also told her that what took the young lawyer 10 hours to do, would take
me, because of my experience, only 30 minutes, and asked if the insurer would
prefer to pay me my regular rate. The adjuster replied, no, $125 an hour was
the limit payable and they would prefer that I hire the young lawyer. I told
the adjuster to never call me back because I did not want to work, as a lawyer,
for an insurer that thought $1,250 for a task was more cost effective than $112.50.
Litigation Mismanagement
Litigation management is important to the insurance industry but not in the
method it is being applied. Adjusters who can't multiply and divide, let alone
understand litigation, are driving skilled defense lawyers to the plaintiff's
bar. The dedicated defense lawyer is more often than not found representing
plaintiffs and filing bad faith actions against the insurers who helped them
hone their skills.
Now, because Ebenezer Scrooge is operating claims management, skilled, experienced
defense lawyers have found better ways to make a living. Audits operated by
nonlawyers destroyed relationships of long-standing by allowing auditors to
call lawyers liars, cheats, and frauds when all they did was defend the insured
as the insurer asked. Every claims manager or vice president of claims who wants
to know why defense costs go up and results at trial or at settlement conference
is miserable need only look in the mirror.
The average claims representative in the United States is a 23-year-old female
graduate of a liberal arts college with 2 years' experience. That experience
will usually make the adjuster a claims supervisor attempting to train from
ignorance even younger and more innocent claims people. Training at insurers
is negligible, if not nonexistent.
Adjusters are managing litigation who don't know what a cross-complaint or
counter claim is, let alone what is needed to bring a successful motion for
summary judgment. They are told lawyers take depositions to build up their attorneys'
fees rather than to obtain enough evidence from the plaintiff and independent
witnesses to defend the insured.
These adjusters have never attended a deposition. They don't know the rules
of evidence. They have no idea what a "chain of evidence" is nor have they ever
heard of spoliation of evidence. They interview witnesses with "cheat sheets"
from which they never deviate. They expect lawyers to defend lawsuits with both
hands tied behind their back and for discount fees. They want Nordstrom's work
for a Wal-Mart price.
Insurers have forgotten, if they ever knew, TANSTAAFL. They want free legal
advice and never recognize that free legal advice is worth exactly what is paid
for it.
Murphy once said that "Everything that can go wrong, will." Everyone dealing
with litigation management of insurance defense counsel realizes that Murphy
was an optimist. If insurers really want to manage litigation they should immediately
start, and continue, the following.
- Train claims staff.
- Pay claims staff enough money and benefits to keep them long
term.
- Honor experienced people with more money and titles, and with
less case load, so they can perform quality work.
- Instruct all claims personnel that they are expected to work
with defense or house counsel as a team—not adversaries.
- Select defense counsel for their skill, knowledge, and experience—not
their billing rate.
- Recognize that the duty of the insurer is to provide the best
defense possible for the insured.
- It is not economical to save $10 on expense and pay an extra
$1,000 in indemnity.
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Conclusion
The prudent insurer recognizes that what it sells is a service. It cannot
provide the promised service with incompetent, untrained, or inexperienced personnel.
Saving money on personnel is too expensive: TANSTAAFL. If it pays for good people,
the insurer will save money on the bottom line by paying less in indemnity.