Expert Commentary

Litigation Management Can Destroy Promised Service

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 through "litigation management" is too expensive and can result in inferior service and greater indemnity payments.


Claims Practices
October 2003

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.


PROPERLY MANAGING LITIGATION MANAGEMENT
  1. Train claims staff.
  2. Pay claims staff enough money and benefits to keep them long term.
  3. Honor experienced people with more money and titles, and with less case load, so they can perform quality work.
  4. Instruct all claims personnel that they are expected to work with defense or house counsel as a team—not adversaries.
  5. Select defense counsel for their skill, knowledge, and experience—not their billing rate.
  6. Recognize that the duty of the insurer is to provide the best defense possible for the insured.
  7. It is not economical to save $10 on expense and pay an extra $1,000 in indemnity.

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.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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