Wednesday, November 21, 2007

Two-Faced Legal Fee Management? Defense Counsel vs. Coverage Counsel Costs

A common complaint leveled against insurance companies is that they pay one (low) rate for their defense counsel and another (higher) rate for their coverage counsel. The idea is that insurers skimp on legal services when it’s their insureds whose fate is on the line but spare no expense when their own hides are at stake in a coverage or bad faith dispute. The undercurrent is that insurers are being inconsistent if not two-faced by observing two separate tracks of rate structures.

One claims specialist recalls a meeting of claims executives years ago wherein the subject for discussion was attorneys' fees (as it often was and is). One vice president (and pundit ) was overheard remarking, "You care about 'how much' when it's the insured who is being defended, but when it's YOU who's the defendant, or the subject of a subpoena, then you care about 'how good.'"

Let’s look at this knock on insurers, though. First, comparing general insurance defense counsel with coverage counsel may not be an apples-to-apples comparison. General insurance defense counsel often defend policyholders against garden-variety kinds of claims that many (many) law firms could handle competently, by contrast, there are not nearly as many coverage lawyers around. The two kinds of practice call for somewhat different skill sets, and their respective supply and demand curves are different.

Let’s also note that most litigated coverage cases involve larger stakes than the run of the mill litigated case (exceptions abound). Second, the macro/precedent impact of a coverage matter – broader impact on other cases and policies -- makes the consequences more sweeping. Third, coverage expertise is often more specialized than general litigation defense, commanding premium rates.

Just as partners in firms are paid more than associates for a host of (legit) reasons. Partners are more specialized and more seasoned. They are in greater “demand” due to their business development skills. Thus, they are paid more than associates. Does this suggest that law firms are two-faced or inconsistent?

The quip from the Claims VP is telling and perhaps somewhat tongue-in-cheek, but nevertheless there is nothing inherently two-faced or nefarious (nor surprising) that coverage counsel often command higher rates than run-of-the mill defense attorneys, no disrespect intended to the latter either.

In some cases, defense counsel possibly should command equally high fees or even higher fees than coverage counsel. On balance, though, a fee disparity here may be rational and have a legitimate rationale.

1 comment:

Kevin said...

as an insurance attorney who practices both defense and coverage (most) law, I very much appreciated the article and its reasoning. You are among the few who, at least in writing, recognizes that different skill sets, aptitudes and ability come into play in these two areas of the law. I previously practiced in a large firm and learned from the attorneys there how each and ever attorney at the firm could handle any coverage matter as well as any other attorney, and that all it involved was writing a simple letter. I ultimately had the chance to see an opinion that one of my co workers wrote on a coverage case. For some reason that opinion made me realize that they were all wrong. But perhaps I was wrong there. After all, what could be more on line than a three and one half page single spaced one paragraph letter that recited the facts in detail and simply added that it was the author's opinion that coverage was owed.

There are great costs in coverage work and the hourly rate is only part of that problem. The other part is that when such a case is assigned to us we take it from ground zero, and thoroughly marshall all the fact before going through the entire policy. As offensive as it may be, we have found that this is the only way to engage our brains in order to identify more issues than the claim professional might believe exist. More significantly, is the value of knowing where all the nuts are buried so that, especially in cases that at first blush appear to be dead in the grave, novel approaches can be developed and then packaged in a awy that leads adversaries to conclude that it is so obvious and to blame themselves for not seeing that clear point before.

Putting such efforts under a microscope just does not work. I believe that the best way to reduce fees for coverage work is to trust your instincts. If you do not believe a bill is legitimate, then use someone else the next time.

I have a particularly harsh experience on this line. I was handling a coverage case and the insurer went to an in house legal fee review process. I received my check and noticed that one of my reports had been reduced by the person shose job it was to save on legal fees. This bothered me because I had personally reviewed the invoice before it went out, and had personally written the report so I knew it was accurate. I called the auditor and asked what in the report made her believe that we had excessivly billed her company. She insisted that she was correct but would not answer my question. Finally, she admitted that she had not looked at or read the report. Daggers driven through my heart, respect for the way this was being handled gone. They were invited to reassign all the files to other coverage attorneys, and there are scores of very qualified ones here in Buffalo. They did so and I hope that the comparison of the amount that they saved by cutting the bill on that report still resulted in a positive outcome for the company after new counsel worked through and became familiar with the new files. I do not know how many files were transferred, but I do remember the triggering reduction took my entry for the preparation of the report down from the original amount of time of approximately 0.4 hours down to 0.3 hours.

From my perspective, once the trust and allegiance of one of us to the other is gone, it is very hard if not impossible to keep working on coverage issues that require thoroughness, astuteness and creativity. Question me on what I did and why I did it and why I took so long? Absolutely, it helps us both. But, if we are to keep working together, it just seems wrong to call me a liar