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Claims Management 03

Litigation Management—Crucial but Confusing

February 1, 2010

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Article by: ARMC

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Litigation management is a term that is thrown around a lot these days. Insurers and third-party administrators assure their customers that litigation management is a standard claims service that they provide. Many of the latest and greatest risk management information systems include a litigation management module as part of their suite of offerings. 1

While it is very catchy and sounds like an important thing to do, the question is … what exactly constitutes litigation management?

Basic Litigation Management

Many years ago, the term "litigation management" referred to a loose collection of initiatives intended to control legal costs. There was an effort to keep adjusters in control of their claims even when litigation was initiated so that adjusters—not attorneys—were the deciders about whether to settle or litigate.

Alternative dispute resolution (ADR) was introduced to bring litigation to a conclusion through mediation or arbitration, thus avoiding lengthy and costly litigation. Another element was the requirement that only preapproved outside counsel with negotiated hourly rates could be used for defense work. The review and approval of legal bills by adjusters has also been a litigation management practice from the beginning.

Of all of these initiatives, the greatest emphasis was placed on adjusters keeping ownership of their claims from cradle to grave. Adjusters were repeatedly warned not to abandon claims to defense counsel. They were taught that attorneys are trained to complete discovery and litigate, but have far less experience than adjusters with pricing and settling claims. They were cautioned that defense counsel might be inclined to fully complete the discovery process prior to being ready to consider settlement, even when the facts were clear and the information necessary to price the claim was available. Admittedly, this paints defense attorneys with a wide negative brush, but that's the way the training was and to some degree still is.

Other Definitions

One reason there may be confusion about the definition of litigation management is that it can mean different things to different people. It may mean one thing to a risk manager or a claims adjuster, but it can mean something very different to the legal community.

When attorneys think of litigation management or matter management, they likely think of a means of organizing huge mounts of information associated with their litigated case. They need a way to assemble all of the information that is gathered during the discovery process and fit it together so it can be logically presented at trial. Various software products have been developed to help manage the large or complex cases that might involve multiple defendants, mass torts, or multiple jurisdictions. These systems can intake huge amounts of data and allow it to be sorted, stored, and accessed by multiple authorized parties. The software can also weed out redundant material to make the review of the case material more efficient.

If you've ever seen the huge numbers of boxed documents associated with a big legal case, you can understand the need for a solution to keep everything straight. It's just unfortunate that the solution takes the same name as the claims initiative intended to manage litigation costs!

Evolving Litigation Management

Returning now to the world of claims management and coming forward toward the present, we find that what constitutes litigation management has been changing over time. One area that has changed is the scrutiny of legal bills. Where historically adjusters were responsible for reviewing the bills to make sure the charges were related to the correct case and that the time expended by the attorneys appeared to be reasonable, an industry has now developed around the auditing of legal bills. There are firms who derive a substantial income by cutting legal bills through the detection of patterns of excessive charges and by eliminating charges when they find the inappropriate utilization of legal staff or multiple attorneys billing for the same service. These firms also screen bills for duplicate time entries.

The problem with this approach is that it is very adversarial and could lead to the severing of relations with a very capable law firm. A more enlightened approach to litigation management is to proactively communicate the expectations and requirements for the defense firm up front to avoid problems when the services are billed.

Comprehensive Litigation Management Policy

So what are the elements of a comprehensive litigation management program for the well-run claims operation of today? In the claims area, litigation management has come to mean a comprehensive policy to control litigation costs. It still means making the right decisions about when to settle and when to litigate. It still means making use of ADR to bring certain claims to a head prior to spending enormous amounts of time and money getting to a trial date. However, when litigation is the right choice (or perhaps the forced choice), there should be an explicit set of performance and billing guidelines for defense counsel to follow.

The first step is to select a panel of capable law firms that are willing to accept and abide by a set of guidelines. The next step is to negotiate and memorialize an agreement that sets the ground rules. The performance and billing policy should contemplate the following areas:

  1. Hourly rates. Negotiate rates for the partners, associates, and paralegals that will be involved with the defense work.
  2. Alternative fees. It may be possible to get away from hourly billing for certain bundled legal activities that can be paid on a flat-fee basis. For instance, a flat fee could be established for answering a straightforward lawsuit and issuing the initial discovery.
  3. Litigation plan and budget. A full litigation plan and budget (detailed activity list with time estimates and cost) should be provided within perhaps 30 days of the filing of an answer to a summons and complaint. The plan and budget should be revised whenever there are developments in the case that impact the proposed strategy and/or fee estimates.
  4. Staffing/utilization of staff.
    1. Generally, it should be expected that staff with the appropriate level of skill and efficiency will be matched to the necessary tasks.
    2. Only one attorney should handle depositions, motions, etc., unless additional staff is preapproved.
    3. Multiple parties billing for intraoffice meetings should be rare and will only be allowed if the meeting is absolutely necessary and provides value to the defense of the claim.
  5. Communication/direction.
    1. The case manager must approve major strategic and settlement decisions.
    2. The case manager must approve the number of depositions initiated by defense counsel and the retention of experts.
    3. Defense counsel shall provide copies of all significant documents, motions, court rulings, and scheduling orders.
  6. Billing.
    1. Monthly invoices are required with a separate invoice for each lawsuit. (Some organizations may prefer quarterly invoices over monthly invoices.)
    2. The invoice should contain a detailed description of the tasks performed and should indicate the name and billing rate of the person rendering the service along with the date the work was performed and the amount of time billed.
    3. Time should be billed in increments not exceeding 15 minutes. (Organizations could certainly choose another increment such as 6 or 10 minutes.)
    4. Invoices should show current fees being billed as well as provide the aggregate total of the fees to date.
    5. All invoices will be reviewed for reasonableness prior to payment.
    6. Defense counsel must agree to cooperate if an audit is undertaken.
  7. Expenses.
    1. Charges for messengers, faxes, etc., must be at cost with no mark up.
    2. Reasonable copying costs will be reimbursed, but the cost per copy and the number of copies must be specified on the invoice.
    3. Costs that are normally considered overhead, such as secretarial work or clerical tasks, will not be paid.


Litigation is a very expensive business to begin with, but if not properly managed, legal costs can become enormous. In my claim auditing work, I have seen many egregious examples of unmanaged litigated claims. In one case, a single attorney billed a total of 24.3 hours in small increments for 1 day's work on a single case. The bill was paid without any sort of question by the TPA. No one took the time to add all of the entries together to see that the amount billed was an impossibility for a 1-day period.

In another case, I found $30,000 paid in legal expenses on an auto liability claim where the policy limit was $25,000 and the case was settled just prior to trial for the longstanding demand of $5,000. Somehow, the adjuster couldn't justify settling for $5,000 (until the bitter end), but was perfectly content to let the legal bills exceed the full policy limit available for the claim.

Beyond isolated examples of inflated legal fees, there can be a larger issue when or if litigation expenses creep up over time and become a larger and larger percentage of the total dollars spent on insurance claims. Reasonable protocols that are part of a comprehensive litigation management program can help guard against outrageous individual legal bills and can also keep legal costs under control in general.

Litigation management does not mean that only the firms with the lowest hourly rates should be on the approved list. More expensive firms that work efficiently may well have a final billed amount than a firm with low hourly rates who inflates their hours. The key is to find quality firms and get them to accept standardized billing protocols that will keep legal costs under control while also keeping claim costs down through superior litigation results.

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.


1 The Albert Risk Management Consultants claims management team (Glenn Brown, Lisa Hartman, William Quinn, Jr., David Ackerman, and David A. Tweedy) contributes articles on claims topics.