In fact, the top problem making litigation cost management difficult is this “misalignment of economic models,” the panelists said. Law firms, they agreed, look to maximize legal activity to protect revenue streams, while carriers and risk managers look to minimize legal activities to contain expenses.

Still, this doesn't change the reality that many law firms, particularly “Mom and Pop” outfits, have failed to keep up technologically, thereby limiting productivity and hiking legal expenses for no good reason, the panelists said at a session in Orlando during last month's 56th annual Florida Workers' Compensation Educational Conference. The meeting was sponsored by the Florida Workers' Compensation Institute, in partnership on a national track with The National Underwriter Company (which publishes this magazine).

Indeed, the panelists listed “delayed technology implementation” as one of the key elements hamstringing efforts to get legal costs under control. “We are building a 'Star Wars' Death Star at 'Plan 9 From Outer Space' rates,” said the panel's moderator, H. George Kagan, an attorney from West Palm Beach, Fla., referring to a situation in which attorneys plan to incorporate technology, but don't commit the dollars necessary to upgrade with state-of-the-art systems.

The irony of the situation was not lost on the panelists, who agreed that defense attorneys are even further from the cutting edge on automation than the insurance industry, which has often been cited as the poster child for the technologically-challenged.

One possible way to resolve this paradox and spur investment by law firms in technology is to experiment with “more contingent fee billing, especially on big cases,” according to William Paccione, second vice president and Southeast regional claims manager for Genesis Underwriting Management Company in Atlanta. “The question is not how many hours the legal team worked, but how much they saved the client.”

Mr. Kagan, who conceded that “attorneys prosper the more hours they bill,” said that while “anything that can break that spell” would be welcome, “the devil is in the details” when it comes to altering traditional billing practices.

Whatever the solution, the panelists agreed that workers' comp defense attorneys are going to face increasing pressure to control legal costs, not only from insurers, but from risk managers with growing retentions to defend.

Ironically, however, increased scrutiny by risk managers with large-deductible plans could raise rather than lower legal costs by placing duplicative reporting demands on defense counsel, the panelists warned. Indeed, “serving two masters–the insurer and the policyholder” is as tricky as “playing three-dimensional chess,” said Mr. Kagan. “We feel like the child in a divorce. Both Mommy and Daddy want our complete and undivided attention and loyalty.”

The “extraordinary shift in risk-sharing” in workers' comp toward self-insured retentions, added Mr. O'Connor, has created a new dynamic. “Clients feel compelled to manage that deductible level, which creates tremendous duplication,” he said, urging insurers and risk managers to “avoid conflicts and keep their focus on the common enemy–the [plaintiff] attorneys.”

Legal cost management will only become more complex with the growth of professional employment organizations, to which firms outsource staffing responsibilities, said John Dubreuil, vice president of claims at the Professional Business Owners Association in Sarasota, Fla.

“With PEOs in the picture, you now have three players in a tug of war with the law firm” on a workers' comp claim, said Mr. Dubreuil, who is a consultant.

The panelists also agreed that “activity shifts” from insurers to lawyers are fueling the growth in legal costs, with paralegals often handling claims investigative work normally done by an adjuster.

“The real question is why is this happening?” said Mr. Paccione. “For one, the training of adjusters is not what it used to be. For another, the margin of profit is so slim that claims people are being forced to handle enormous claims loads, leading to an activity shift because claims adjusters just don't have the time to handle all these tasks.”

Mr. O'Connor added that “law firms are telling me that 10 years ago claims files were six inches thick. Now they are half-an-inch thick, leaving the lawyers and their staff to fill it out so it's in shape to litigate.”

Other legal cost drivers cited by the panelists include:

The difficulty of managing fees paid to third-party vendors hired by attorneys for research, expert testimony, surveillance and other tasks.

The failure to pursue alternatives to litigation. The panelists agreed that often the best thing a defense attorney can do for clients is to keep them out of court.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 21, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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