Ten key industries were represented, led by financial services, manufacturing, and energy, followed by technology/communications, retail, insurance, education, engineering/construction insurance, and real estate.

The findings clearly demonstrate that litigation has become a major line item in insurance company budgets. Nearly a third (31 percent) of the insurance firms surveyed said that they spent at least $5 million on litigation, excluding costs of settlements and judgments, while 54 percent reported spending more than $1 million per year on business disputes.

Drop In Filings

As with most surveys, however, there's good news mixed in with the bad.

“The data this year point to a pronounced drop in new case filings, both against and by American companies, which is a reversal of the upward trajectory in the number of new lawsuits from our previous three surveys,” said Stephen C. Dillard, chair of Fulbright & Jaworski's global litigation practice.

Dillard speculated that a stable economic climate through the first half of 2007 — including a generally rising stock market — likely lessened the number of public company disputes (64 percent of firms represented in the survey are publicly held). At the same time, he noted that the ebbing of big corporate accounting scandals from earlier in the decade had brought a decline in securities class actions and other kinds of investor strike suits.

However, even with a reported drop in new cases, litigation remains a significant part of many corporate budgets. Almost 45 percent of all companies surveyed said their annual litigation spending is $1 million or higher. It gets spent quickly.

Eighty-three percent of in-house counsel reported at least one fresh case commenced against their companies in 2006-07, with 25 percent counting more than 20 new suits. Larger enterprises are targeted more often. Only three percent of billion-dollar companies managed to get through the past year without being named a defendant. Fifty percent were served with at least 20 new actions, including a third hit more than 50 times. Alternatively, 44 percent of companies under $100 million sailed through the past year without a single new suit.

The scale of the domestic litigation scene is even more apparent when total pending matters are taken into account. Only 10 percent of U.S. companies said they had no cases on their books in U.S. courts or regulatory agencies. A third of respondents are contending with more than 25 suits, including 18 percent looking at a domestic docket of at least 100 cases. Manufacturers are the overall case leaders; 41 percent have more than 100 pending U.S. matters. For insurers, 40 percent hit the 100-case threshold.

Sue, Then Settle

As they have in previous surveys, in-house counsel identified labor and employment matters as the most frequent source of lawsuits filed against them during the past year, followed by contract disputes and personal injury cases. Companies reported litigation across a dozen other categories, and nearly every industry group was a magnet for at least one type of dispute. Insurers had to defend more class actions than anyone else.

Despite a willingness to bring suit when necessary, companies tend to seek solutions to the cases they file. Fifty-six percent said they settled the majority or all of their new plaintiffs' litigation in the past year before going to trial. The energy industry saw the highest overall settlement rates (80 percent), followed by engineering, health care, and insurers.

Two items of particular interest: Smaller companies were less willing to settle than mid-cap or billion-dollar firms. Only a third said they resolve the majority of their cases, compared to two-thirds for large companies. And companies based in the Midwest settled more often than those in other parts of the country.

Keeping the Government Away

Thirty-six percent of in-house counsel said their business had been the target of a regulatory proceeding or investigation in the past three years, compared with 49 percent last year. The industry most sensing a spike was health care (42 percent), followed by energy and insurance.

Among government regulators, the Securities & Exchange Commission has been the most active regulator the past three years, followed closely by OSHA and, to a lesser extent, the EPA. A far higher percentage of smaller companies (62 percent) than billion-dollar firms (44 percent) reported being on the receiving end of an SEC inquiry in the past three years.

Records Retention

Maintaining a “paper trail” remains a challenge for businesses of all sizes. The average business retains documents for just two-to-three months; only 14 percent are backing up for one year or longer. Not a single sub-$100 million company responding to the survey maintains a back-up threshold of one year or longer, which could prove costly in the event of a court-ordered document request.

In one key aspect of records retention — responding to a preservation order or so-called litigation hold — businesses have taken heed. Eighty-nine percent of in-house counsel said their companies now have procedures to ensure preservation of all data that may relate to a legal or regulatory action. More than 80 percent of U.S. companies said they had reviewed their retention policies over the previous 12 months.

Capturing Workplace Data

As instant messaging gains widespread use at many companies — 53 percent of in-house counsel said employees use instant messaging (IM), while the rate among billion-dollar firms was 70 percent — businesses have the added burden of capturing and retaining those running online conversations in the event they are needed in a litigation hold instruction. The portion of companies logging employee IMs is considerable; 28 percent said they retain the messages as routine policy or in certain cases. For billion-dollar firms, the segment was 40 percent. While many companies may archive IMs for only several weeks or a month, 43 percent keep them for two months or longer, including 15 percent that hold them for at least a year. One-third of all companies permit employees to attach documents to instant messaging, which can take on added significance in light of the extended holding periods in place at some businesses.

Besides IMs, companies these days have to consider holding onto another ephemeral slice of office life — voicemail. Forty percent of in-house counsel said they have a retention policy for employee voice messages. As with IM, much of the phone chatter is saved for a month or less, but 31 percent of companies store their voicemails for at least two months, including nine percent with a one-year or longer hold policy. The retention protocols become even more complex when considering that 37 percent of companies said their phone systems allow voice messages to be forwarded to others via e-mail, creating a potentially huge web of vocal documentation.

Further complicating e-discovery and document retention practices is the line that employees regularly cross between their business and personal discourse. Thirty-seven percent of the Fulbright survey respondents said they allow employees to access outside e-mail accounts using company-issued computers. For billion-dollar companies, the allowance rate was 44 percent, and for tech shops, it rose to 61 percent. Meanwhile, 74 percent of companies let employees gain access to the corporate network from their home computers. The high degree of co-mingled communication could lead to unexpected challenges in a litigation context.

With data breaches and electronic security lapses becoming all too common, many companies have beefed up their privacy policies, yet only 39 percent of in-house counsel said their firms have in place a full-time privacy officer. Sixty percent said they have no current plans to hire one. Health-care providers have the highest level of privacy officers at 71 percent, followed by retailers (61 percent) and financial services firms (59 percent). Technology firms are quick to tout their robust privacy tools and practices, but only 35 percent have a privacy officer in place.

First Line of Defense

U.S. businesses have turned to a variety of specialized insurance products to try to mitigate their increasing vulnerability to litigation. General liability coverage remains the most common source of protection, with 58 percent of companies saying that it is their first line of defense in a lawsuit. More than 40 percent of counsel reported that they turn to D&O policies. Mid-cap and larger companies are increasingly turning to EPLI policies, which are not in favor among smaller firms. Companies also generally reported making use of E&O policies to cover litigation risks. A substantial segment of U.S. companies — 16 percent — said that they are now self-insured, compared to a third of U.K. companies taking the self-insurance route to hedge litigation exposure.

New ways of doing business beget new exposures, which beget new challenges, which beget new opportunities. “The lesson in our trends survey is that litigation can come from any direction, and companies need full peripheral vision,” Dillard said. And they also need deep pockets.

Founded in 1919, Fulbright & Jaworski L.L.P. is a leading full-service international law firm, with nearly 1,000 lawyers in 16 locations worldwide. More information is available at www.fulbright.com.