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Cost control
Krystyna Ochota explains how litigation management services can help control the high cost of litigation.
April 2008
Recent studies show that the direct costs of the US tort system, which include judgments, settlements, attorneys’ fees and administrative expense, amounted to an annual total of $260 billion. The indirect costs, which include the direct costs plus healthcare expenditure, lost research and development opportunities, and lost stockholder value, have been estimated at $865 billion.* These staggering statistics underline the importance of investing the time to look at the litigation management services area of potential insurance carriers or third-party administrators (TPA).
The insurer or TPA of choice should have the appropriate resources to address litigation issues, consistent case-handling, negotiated market rates, and ongoing performance evaluations. A good litigation management programme facilitates obtaining the best possible outcome, at optimum value. With so much riding on the handling of any legal case that arises, it is important to have a knowledgeable and experienced team on your side that will work to optimise results and keep an eye on controlling expenses. We have found that a selection process integrating the following steps and elements is crucial. While not inclusive of every aspect of a selection process, and while not every one of these steps is necessary for everyone, we believe these steps will give the programme the greatest opportunity for success when tailored to the insured’s specific needs.
A strong litigation management programme encompasses expertise in a broad range of insurance products, consistent adherence to case-handling guidelines and protocols, and local expertise in the jurisdictions in question. To determine if an insurer or TPA has a strong programme, ask whether it has a managed approved panel that consists of in-house and/or outside firms. Also ask about its law firm selection process, which should include:
- A comprehensive request for proposal (RFP)
- Firm interviews, and
- Information gathered from the local bar association on the firm’s proven success and reputation in the specific area of expertise that your captive requires
Effective litigation management programmes identify the right level of expertise in specialty matters and have a team of attorneys, each of whom specialises in a specific area of insurance. Attorneys specialising in liability defence may not necessarily be good workers’ compensation attorneys; those skilled in statutory workers’ compensation may not have the specific expertise in US longshore or Jones Act claims. Creating specific panels with subject matter experts can provide the following benefits:
- Knowledgeable attorneys—both in-house experts and outside
counsel
- Cost efficiency—attorneys familiar with a specialty area can provide a more efficient defence than attorneys that learn as they go along
- Accessibility—being aware of and grouping firms by specialty area can
provide easy accessibility when a case arises, which can be important under tight timeframes (e.g. a severe transportation case).
A strong litigation management programme will have a well-defined set of litigation protocols and guidelines for attorneys to follow as well as an established quality control system to ensure adherence to those protocols and guidelines. The protocols serve to:
- Improve outside counsel accountability through agreements
guaranteeing protocol adherence
- Maintain effective and efficient communications by focusing their
reports on the specific areas that impact the claims and the action plan for next steps
- Reduce billing costs through uniform billing practices
- Allow flexibility to meet needs without infringing upon attorneys’ ethical obligations
- Limit unnecessary case activity
- Provide a road map to ensure quality assurance
- Provide consistency.
The legal team should work closely with the claims department to help expedite notification and handling of claims. It is important that the claims and legal teams agree on all decision points and, in the event of a disagreement, immediately confer to resolve the disagreements as efficiently as possible. Specific agreement areas include: a strategy plan, due dates for activities, timelines for discovery, and an expense estimate. With every update on litigation activity, claims and counsel must discuss the impact that the activity will have on the current strategy. While litigation strategies are subject to change, every agreement of discovery/ investigation or trial strategy requires reference to the previously established expense estimates—which are reasonable estimates of the legal fees and the anticipated incurred expenses.
During the selection process, ask the insurer or TPA about its litigation programme’s legal billing and audit capabilities. You will want the insurer or TPA to have a central billing unit to process legal and vendor bills and to determine if amounts paid are in accordance with approved rates and guidelines. This unit also manages all legal service vendor relationships related to billingissues and provides relief to the claims area byincreasing the accuracy of, and reducing the time spent, processing bills. A solid legal billing unit will also conduct regular audits in order to correct billing errors and improve billing practices.
A helpful legal bill review and audit programme will ask:
- Is there a duplication of effort?
- Are tasks being delegated to appropriate levels?
- Are the charges reasonable for the tasks that were performed?
- Are there unrealistic time increments?
- Are there charges for unapproved activities or expenses?
- Are they charging the correct/agreed to rates?
An effective billing management system adheres to billing guidelines that incorporate the ABA Uniform Task-Based Management system, employs an electronic billing system to facilitate bill review and audit, and uses an extranet to reduce businessinterruption related to billprocessing issues. A well-designed budgeting and billing system can provide clients and law firms with meaningful cost information on legal services and help maintain consistency with industry standards.
Once you have selected an insurer or TPA that has a litigation management department with these capabilities, the legal team should set performance metrics to tell you:
- How much time is being spent by the attorneys and the legal staff on
your behalf
- How many cases there are within the lines of insurance
- Closed case outcomes such as loss, fees and expenses
- Cost of defence as compared to the loss of dollars.
Performance of the litigation management department is evaluated in three important ways: quantitatively, qualitatively and by comparative analysis. Specifically, these look at:
- Quantitative analysis: total cost per case, cycle time, inventory, allocated
expense by firm, and timekeeping breakdowns
- Qualitative analysis: audits, closed case surveys, and customer
feedback
- Comparative analysis: provider, complexity, jurisdiction, litigation type,
provider type and task type.
A solid litigation management programme—rather than a mere vendor selection list—should be well developed and provide value-added services to help you achieve your risk management goals. The programme should seek to drive, in a cost-effective manner, solid, measurable litigation results.
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“What we aim to accomplish as an independent captive manager
the provision of the best service for our clients.” |
