Saturday, March 31, 2012

Litigation Management: Are Defense Litigation Budgets Billable??

A huge part (maybe too much, but that’s the subject of another post) of litigation management is cost control. One key tool in controlling costs is requiring that outside counsel submit periodic budgets. Some of these budgets may be quite detailed and involved.

Further, budgeting is not a one-time discipline. Ideally, budgeting is a recurring discipline on defense counsel’s part. The adjuster or client should have an initial budget within, say, 90 days of the assignment to counsel, at least. Further, budgets have a limited shelf-life, too. Like potato chips, just one won’t do.

Circumstances change which can render a budget out-dated. Responsive and astute counsel should be attuned to this, reporting not only on the changed circumstances, but the implications that those changes have on (a) case value and (b) cost of defense. Sometimes Budget A is predicated on the Judge ruling one way and Budget B is predicated on the Judge ruling another way. Having both scenarios budgeted for helps the insurer or client make both tactical and strategic decisions regarding defense versus resolution. Further, budgets help insurer and clients fine-tune Expense reserves.

In short, defense counsel may have considerable time wrapped up in preparing budgets. A good budget, done right, requires thought … and time! Attorneys may fully intend to bill for such time.

A potential friction point, though, comes when counsel includes in the bill time charged for budget preparation. Some insurers and clients balk at this line item in a bill, thinking that this is something counsel just ought to do anyway and not bill for. Some may refuse the pay any charges related to bill preparation.

Defense counsel bristles, feeling that this is a justified billable task. The insurer or client feels that the lawyer is over-reaching. It can become a distracting frictional issue, even if the amounts in contention are not huge.

Tip for insurers and clients: If you do not intend to pay for budget prep-time, so note this in advance with your client guidelines.

Suggestion: A fair approach and reasonable middle ground, in my view, is to include in litigation guidelines verbiage to the effect that, “We will pay for reasonable time spent preparing a budget. Generally, though, we do not expect counsel to spend more than one (1.0) hour on this task. If you feel more time will be needed, please discuss with us beforehand.”

Tip for counsel: If the client has given you guidelines, read through them carefully! Don’t assume that all guidelines are created equal. If there is anything that is problematic from your standpoint – such as no billing for budget prep – discuss that up front before accepting the assignment or agreeing to be placed on an approved panel. Either negotiate, in a friendly way of course, some leeway here, agree to absorb this time or respectfully decline the assignment.

Litigation is enough of a battle without distracting side-skirmishes with counsel over billing for budgets. Budgets are meant to curb costs, not hike them! Deal with the issue up-front so it is out of the way at the outset of the assignment and avoid it festering during the life of the case.

Sunday, March 25, 2012

Kill Them With Kindness … but Still Deny The Claim

[NOTE: “The Claims Coach” welcomes a guest post by good friend and fellow claims professional Nancy Germond, the founder of Insurance Writer, a Phoenix, AZ risk management and communications consulting firm. A second-generation insurance professional, Nancy has authored scores of risk-management articles and white papers. Nancy holds a Master’s degree in Sociology and the AIC, the ARM, the ITP and the SPHR designations.]


Few claims professionals enjoy disclaiming coverage or denying liability. Our lives as claims handlers would be much easier if our insureds’ policies covered any loss they sustained. There is an art to writing the disclaimer or denial which can make life easier for the writer. This method also helps the recipient understand why your company will not provide coverage or accept liability. We call this approach “Kiss ‘em, kick ‘em, kiss em.”

Begin your letter with a sentence—a “kiss.” This wording thanks the insured for choosing your company or praises the claimant for his or her cooperation. Use language like this:

“We appreciate the confidence you placed in our company when you purchased your coverage and your cooperation throughout our investigation of this matter.” Even if the insured was unhelpful, use language that affirms the insured’s role in the insurance contract, such as, “We appreciate your patience during this process.”

To the claimant, you may say something like this: “Thank you for your assistance during our investigation of this matter. We appreciate your patience while we determined the facts of the incident.” This “kiss ‘em” approach affirms the insured or the claimant and stresses the positive, even though you may deliver bad news.

Next, in two or three sentences, outline the events that occurred. Here is some sample wording. “This loss occurred on February 24, 2012, when your employees moved a piece of merchandise by hand truck from your vehicle into the claimant’s location in Henderson, Nevada. This property was in your care, custody, and control while your employees unloaded this equipment from your truck. You described this merchandise as ‘a late-model Kenmore refrigerator.’”

You may want to explain where you obtained the information you rely upon for your decision. For example, “According to the information you provided to our independent adjuster on June 1, 2011, this loss occurred ….” This allows insureds or claimants to correct any misunderstandings they believe you have about the event.

Next, you must gently “kick” your insured or the claimant. After outlining appropriate language that precludes coverage, write a sentence explaining why you disclaim coverage or deny liability. Try language like this:

“Because you were in control of your customer’s refrigerator and due to the foregoing ‘care, custody and control’ exclusion in your policy, we regret that we cannot extend coverage in this matter.” For a denial, wording like, “Due to the extreme weather conditions at the time, we cannot accept liability for your fall.”

End the letter with a final “kiss.” Try language like this:

“While we regret we are unable to pay this loss, we value your trust in our company. If you have any additional information that you feel may alter our decision, feel free to contact me.” If you are writing to the claimant, try something like this:

“While we cannot extend coverage in this loss, we hope that you make a speedy recovery.”

Always add language inviting the insured or claimant to contact you if they have additional information that may alter your decision. Use wording like “If you have any facts that you feel may change our decision, please feel free to contact me.”

This simple wording helps place the responsibility on the insured or the claimant to take further action if circumstances change or they have not previously provided all the facts. This simple affirmative sentence can help prevent misunderstandings and reduce the risk of a successful bad faith claim. It may also help you if these letters become evidence in trial. A well-written letter speaks volumes about your credibility as a claim professional.

Writing the perfect disclaimer is a delicate balance of clearly outlining what the coverage states and how it does or does not apply to the loss facts. Too much explaining can cloud the issue, which can be problematic if you must defend your coverage decision. Writing the perfect liability denial is a bit simpler, especially when you can help point the claimant toward the appropriate party.

For example, in a sidewalk case, the city may be responsible for maintenance in that area. You can furnish a phone number, mailing address or even a hyperlink to a URL where the claimant can download a municipal claim form. Pointing the claimant in the proper direction can help prevent a lawsuit and prevent legal spend.

The “kiss ‘em, kick ‘em, kiss ‘em” approach respects the ongoing relationship you have with your insureds and can help them accept the disclaimer more positively. For claimants, remaining firm but polite and helpful can reduce the chance of the claimant filing suit.

Tuesday, March 6, 2012

“Where's my adjuster?!?!” Internalizing Claims for Better Access

[This continues our series examining some of the reasons that clients – risk managers, self-insureds, etc. – bring the claims function in-house. This is not to “bash” TPA’s or insurer claim departments. We are simply recapping various motivations that drive clients to bring the claim function in-house, either totally or partially. In future posts, and in the interest of even-handedness, we will examine the DIS-advantages flowing to these same entities from internalizing the claim function.]

Risk managers often get frustrated in trying to connect with their adjuster handling a file. Phone calls are missed. Phone tag takes the place of genuine communication. Phone tag can even give way to email tag! The adjuster may be on the road, on vacation, at an offsite training session or otherwise inaccessible. With an outside adjusting service (or in dealing with an insurer claim department), all the client can do sometimes is keep on trying and waiting .. and waiting .. and waiting.

With in-house adjusters, however, the client has a greater degree of access to the claim staff when needed. To get an opinion regarding a case, to get a quick update or to make a request, one need only walk down the hall and ask the adjuster. Admittedly, in-house adjusters are not going to be around all of the time. Still, it is one thing if a client needs to get in touch with you, and another thing if your boss needs to talk with you.

To the independent claims adjuster, the client is really the risk manager's entire company. In a sense each operating unit of the company is a client, with its own agenda. A company can benefit when individual managers have direct access to in-house adjusters.

This kind of ready access is less realistic when an outside adjuster is charging by the minute. Cost effective use of outside adjusting services requires that referrals be channeled through one person, rather than having each department make adjusting assignments willy-nilly. Sadly, the lack of direct communication prevents the type of give-and-take dialogue that often resolves problems. Such dialogue is more frequent with in-house adjusters.

Where I live in the Washington DC area, the lobbying industry is big business. Part of what clients get when they hire a lobbyist is “access.” In this context, it is access to the corridors of Congress and the top government decision-makers.

In the realm of risk, clients also seek access. Internalizing the claim function can enhance such access without the need to hire expensive lobbyists!