Alternative Fee Program Data Shows As Program Matures, Clients Realize Savings On Outside Legal Expense

efficiency

Here is an actual set of alternative fee numbers I’ve just happily provided to update one of the insurance clients I represent, demonstrating that an alternative fee program is saving them money on outside legal expense.  Real money.

Listed below are data for seven insurance related  cases I am handling under a monthly flat fee program (with a cap on the number of months the flat fee can be charged, so as to encourage efficiency).  First a look at the numbers, and then a few quick observations.   Only the case names below are changed to protect identities.  The numbers are 100% actual  and show actual flat fees paid by the client versus what they would have paid under an hourly rate agreement.  Green numbers in the Net Diff. column represent savings to the client.

Case            Hourly Fees      Flat Fees       Net Diff.

Smith        $17,218.50       $25,350.00       $8,131.50

Jones         $30,433.00        $13,650.00     -$16,783.00

Ajax           $2,212.50         $2,775.00         $562.50

King          $4,781.00          $1,950.00       -$2,831.00

Queen       $2,157.50         $895.00            -$1,262.50

Western   $4,074.50         $2,925.00         -$1,149.50

Atlantic   $351.00            $2,775.00        $2,424.00

Total         $61,228.00     $50,320.00     -$10,908.00

Client Savings:            -17.8%

Before the observations, a caveat:  This data, at any given time, is a snapshot in the life of an assignment, and/or group of assignments.  The data changes, but as the assignments mature in terms of their life cycle, a clear picture emerges:

  • Overall the client savings in this alternative fee program approaches 20%.  As the data set increases, the savings  ratio will stay relatively stable, but the real dollars saved in outside legal expense will grow, and grow, and grow.  A company with a million dollars a year  in outside legal expense based on hourly engagements would spend only $821,846.21, a savings of nearly $200,000.00.
  • The insurance clients are “winning” more fee agreements than they are not “winning.”  This is a sign that the alternative fee program is rightly priced so that it is both 1.) an real financial benefit for the client, and 2.) not a financial hardship for the outside law firm.
  • The program retains extreme flexibility, as each assignment is quoted independently (although the quotes generally do cluster closely for similar type cases) and either side retains the right to seek adjustment as the matter proceeds.  Clients also reserve the right to request the traditional billable hour arrangement for any case which they feel does not suit the alternative fee program.
  • There are and there will be outliers in any alternative fee program.  But as you can see from the data, the outliers are rare — in the two cases with  more than a $5,000.00 difference between what the client paid and what the client would have paid, one benefitted the client, and one benefitted the law firm, but the client benefitted twice as much as the law firm when the two outliers are aggregated.  Win-win-win.
  • The program provides simultaneous double benefit to the participating client:  1.) the client gets the benefit of outside counsel with local knowledge and expertise;  and 2.) the client secures this quality at less than hourly rate pricing.

I cannot think of any CEO’s, CFO’s or any other XXO’s who would not like their General Counsel to approach them with an immediate simple way to give their outside legal expense a 20% haircut, while at the same time retaining the right to assign any matter under a flat fee or traditional billable hour arrangement.

I also cannot think of a General Counsel for whom I have ever worked who would not want to take the alternative fee arrangement mechanism I’ve  outlined above for a spin, if it meant retaining the desired law firm at reduced cost.  There is literally nothing to lose except 20% off your outside legal expense budget.

CJH

 

Pa. Supreme Court Holds No Fiduciary Duty Created By Purchase of Insurance From Ameriprise Financial

AAEAAQAAAAAAAADYAAAAJDg4MzI3Mzk0LTJkYWYtNDNlOC1hNGMzLTE4ZGE3OGRlMGNiMw

PITTSBURGH, June 20 – The Pennsylvania Supreme Court has ruled that Ameriprise Financial owed no fiduciary duties to two insureds who consulted with an Ameriprise financial adviser following a cold call  and purchased life insurance and annuity products from the insurer.

In Yenchi v. Ameriprise Financial, Inc., Mr. and Mrs. Yenchi sued Ameriprise, American Express Financial Services Corporation, American Express Financial Advisors Corporation, IDS Life Insurance Company, and an agent, Holland, after having their purchases independently reviewed.  The Yenchis’ complaint, filed in November 2003, asserted claims of negligence/willful disregard, fraudulent misrepresentation, violation of the Uniform Trade Practices and Consumer Protection Law (“UTPCPL”),  bad faith, negligent supervision, and  breach of fiduciary duty.

The trial court granted the defendants’ summary judgment motion which argued that no fiduciary duty existed.  The Superior Court reversed, however, and the Defendants appealed to the Pa. Supreme Court which granted allocator on the issue of whether a fiduciary duty existed between  the Yenchis and the Defendants.

In finding no fiduciary relationship existed, Justice Christine Donahue wrote that not all insurance transactions impose fiduciary obligations upon the insurer:

The record here establishes that the Yenchis made the decision to purchase Appellants’ advice and financial products. Reliance on another’s specialized skill or knowledge in making the purchase, without more, does not create a fiduciary relationship. We acknowledge that the Yenchis may have become comfortable with the Appellants’ expertise before deciding to purchase the 1996 whole life insurance policy, which is to be expected when making a financial decision. It is part of the development of any business relationship — consumer or otherwise. It   does not, however, establish a fiduciary relationship. There is no evidence to establish that the Yenchis were overpowered, dominated or unduly influenced in their judgment by Holland.

The Yenchis never ceded any decision-making authority to [the advising agent]Holland. Over the course of the relationship, they followed some of his recommendations and rejected others. Prior to the proposal for the whole life policy at issue, Appellants proposed a different whole life product that the Yenchis did not purchase. As to advice accepted, the Yenchis purchased the 1996 whole life insurance policy and the 1997 deferred variable annuity. They began saving money in an investment certificate and opened an IRA account. On the other hand, they rejected other recommendations, including, in particular, Holland’s advice in 1998 to increase their life insurance to the $300,000 level, deciding for themselves that the 1996 whole life policy was a sufficient amount of life insurance for their needs. The evidence does not establish that the Yenchis were subject to any overmastering influence by Holland. They maintained and exercised decision-making control over their financial matters. No confidential relationship was ever created.

Yenchi v. Ameriprise Fin., Inc., No. 8 WAP 2016, 2017 Pa. LEXIS 1405, at *23-25 (June 20, 2017)