Monday Morning Wakeup Call: A Note No Law Firm Has Ever Sent To An Insurance Company Client (Until Now…)

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The following is a true account — only names have been withheld to protect the identities of the parties.  My identity is left in, because — well, because I’m the guy who writes this blog, and because I’m trying to sneak a pat in on my own back, maybe.  Indulge me for three minutes.

There is a demand in the client marketplace for law firms to get beyond the billable hour.  But there is also fear and  trepidation of the unknown, on both sides.  Cutting edge law firms must, therefore offer not only  innovative pricing alternatives, but also metrics and data with those alternatives, to show the client that it is benefitting from the new arrangement.  Even beyond that, the law firm must show the client how much it is benefitting compared with the old way of doing things.

So without further adieu, here is an actual email which left my office last Friday afternoon.  On the surface, it is a routine update to an insurer I represent about the metrics of an alternative fee program we developed and implemented to align with their business goals.   But read on nevertheless, there is news here :

Hello All,

The most recent metrics on our flat fee program with you are showing us you are currently realizing about an 8-10% savings on all open matters, compared to the traditional hourly arrangement. We’d actually like to see you do a little better than that, and get you closer to 15% and higher.

So please get ready to read something no law firm has ever written to you before….Beginning next month we are cutting the flat monthly fee payment on all open matters by $125 to make sure the flat monthly fee program delivers better value to you, and moves us closer to  hitting that benchmark of at least 15% in reduced outside  legal expense.

You do not have to do anything on your end. You will simply see the reduced payment on your next round of invoices. And remember, the more you utilize the arrangement, the more cost control you are going to have over your outside legal expense. We will continually monitor and feed back the data and make sure you are receiving value in the alternative monthly flat fee program.

Thank you, as always, for your business.

CJ

This actually happened last Friday, and as it did, three things occurred to me about delivering value and better pricing models to corporate clients in an increasingly competitive business environment:

  1. Lawyers must make a leap.  Nothing is fatal.  Nothing is irreversible.  Everything is adjustable.  You will never remove 100% of the variables, and if you wait for that point to get started, you will simply never start, and  clients will be working with law firms which have started.
  2. Measure What You Are Doing.  This does not require floors and floors of mainframes and data analytics personnel.  Track a few items:  what your client is paying under an alternative fee deal, and what your client would have paid had the engagement been hourly,  for example.  Compare those two numbers, and… Presto!  You are now in the analytics business.
  3. Share What You Measure With Your Client.  If your alternative fee arrangements are helping your clients improve their bottom  line and helping them meet their goals, you would be foolish not to give yourself the free advertising you get by sharing that data.  And if the numbers aren’t working out, the only way you are going to adjust it and keep a happy client is to show them the data to discuss making an adjustment about which both sides feel good.

Let me close by asking the question I am certain you would like to ask me right now:   are you some kind of idiot?  Losing money on a client as it is, and making a decision to lose it faster? That’s very, very, bad business.

I am NOT a philanthropist, and despite what my kids might tell you, I do not believe myself to be stupid.  So what am I really doing here?  Think big picture for a minute  and let’s  revisit the most important win-win sentence of the note I sent:

“And remember, the more you utilize the arrangement, the more cost control you are going to have over your outside legal expense.”

Clients will not do business with you unless you are helping them with their bottom line.  It is written nowhere, however,  that this exercise  has to be is a zero sum game with one winner, and one loser.  In today’s business environment, lawyers and law firms have to find ways to create two winners, starting always with the client, and working outward from there.

It can be done.

 

The Montana Supreme Court Just Made It Much Harder For Insurers To Litigate The Value of UM/UIM Claims

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HELENA, Oct. 24 – While disclaiming it was creating a new concept of insurer bad faith in the state, the Supreme Court of Montana just announced a bright line rule in first party UM/UIM litigation that discourages insurers from contesting in good faith the value of an insured’s injury, and rolls back the American Rule which requires that each litigant bear his or her own attorneys fees.

In Mlekush v. Farmers Ins. Exchange, 2017 MT 256, a unanimous Montana Supreme Court held that an insurer contesting an insured’s claim for UM/UIM dollars must reimburse the insured for attorneys fees if the insured goes to trial and recovers an amount in excess of the insurer’s last offer.  Justice Michael A. Wheat wrote for a unanimous court:

“[w]e hold that, when a first-party insured is compelled to pursue litigation and a jury returns a verdict in excess of the insurer’s last offer to settle an underinsured motorist claim, the insurer must pay the first-party insured’s attorney fees in an amount subsequently determined by the district court to be reasonable.   To be clear, if a first-party insured goes to trial and obtains a verdict in excess of the insurer’s last offer, this constitutes prima facie proof that the insured was forced to assume the burden of legal action to obtain the full benefit of the policy, thus obviating the need for an inquiry as to whether or not the insurance exception applies. However, in cases in which the policy limits are tendered prior to a verdict being returned, the district court may consider the entirety of the litigation to determine ‘whether, and to what extent, [the] insured was forced to assume the burden of legal action in order to recover the full benefits of the insurance contract.'”

Mlekush v. Farmers Ins. Exch., 2017 MT 256 (Oct. 24, 2017)(Wheat, J.)

Editor’s Note:   While the Court took steps to walk back from any suggestion it was creating new bad faith law, the opinion essentially creates  a rule of strict bad faith liability for any insurer who takes a UIM claim to trial and the jury awards more than the insurer’s offer.  The opinion is wholly  silent, of course on whether an insurer is entitled to recoup attorneys fees from the insured if the jury awards an amount less than the insurer’s last offer, and despite the symmetry of it,  it is probably not reasonable to assume such a corollary would ever be endorsed by the Court.  

 

Dickie, McCamey & Chilcote’s Insurance Law Practice Group Named One of the Nation’s Best for 2018

U.S. News Best Law Firms

Dickie, McCamey & Chilcote, P.C. received six national practice area rankings in the 2018 “Best Law Firms” list published by U.S. News & World Report and Best Lawyers®, which included the firm’s Insurance Law Practice Group.   The  firm’s inclusion in these rankings reflects the high level of respect a firm has earned from leading lawyers and clients in the same communities and practice areas for its ability, professionalism, and integrity.

The U.S. News – Best Lawyers “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of evaluations from clients, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. Clients and peers evaluated firms based on the following criteria:  responsiveness, understanding of a business and its needs, cost-effectiveness, integrity, and civility, as well as whether they would refer a matter to the firm and/or consider the firm a worthy competitor.

About Best Lawyers®
Best Lawyers is the oldest and most respected peer-review publication in the legal profession. A listing in Best Lawyers is widely regarded by both clients and legal professionals as a significant honor, conferred on a lawyer by his or her peers. Our lists of outstanding attorneys are compiled by conducting exhaustive peer-review surveys in which tens of thousands of leading lawyers confidentially evaluate their professional peers. Lawyers are not permitted to pay any fee to participate in or be included on our lists.

About Dickie, McCamey & Chilcote, P.C.
Dickie, McCamey & Chilcote, P.C. is a nationally-recognized law firm providing comprehensive legal expertise in a multitude of practice areas. Headquartered in Pittsburgh, Pennsylvania, and founded more than 100 years ago, the firm serves industry-leading clients across the country from offices throughout the mid-Atlantic region in Pennsylvania, Delaware, New Jersey, New York, North Carolina, Ohio, South Carolina, West Virginia, the Southwestern region of California, and the Rocky Mountain region of Colorado.

CJ Haddick is the Director In Charge of the firm’s Harrisburg, Pa., office, and he heads Harrisburg’s Insurance Law Practice Group.  Reach him at chaddick@dmclaw.com or 717-731-4800. 

October Bad Faith Case Roundup

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Discovery

Claims Files / Reserve History

Parisi vs. State Farm, 2017 US Dist. LEX, 162161 (Western District of PA, Oct. 2, 2017) (Gibson, J.)Court ordered in camera inspection of State Farm’s claims file including portion of the file designated “free-form attorney” to make determination of whether or not information contained is protected by the attorney-client privilege or attorney work-product doctrine.   Court also held reserve history of claim is discoverable.

Pleadings

Adequately Pleading Bad Faith/Handling UIM Claim

Thomas vs. Protective Insurance Company, 2017 US Dist. LEX 166955 (M.D. Pa. Oct. 10, 2017) (Caputo, J.) – The Court denied Protective’s Motion to Dismiss Plaintiff’s Amended Complaint pursuant to F.R.Civ. P. 12(b)(6) finding that Plaintiff sufficiently stated bad faith cause of action when making specific averments concerning insurer’s conduct of handling UIM claim.  Plaintiff specifically alleged Protective’s failure to investigate, failure to communicate, failure to evaluate, and misrepresentation to the insured as well as violation of Pennsylvania Insurance Department regulations.

Irving vs. State Farm, 2017 US Dist. LEXIS 164390 (E.D. Pa. Oct. 4, 2017) (Slomsky, J.) – Court granted State Farm’s Motion to Dismiss Plaintiff’s bad faith claims pursuant to F.R.Civ.P 12(b)(6).   Disagreement over the value of the UIM claim, without more, does not constitute bad faith.   Plaintiff granted leave to attempt to amend Complaint to state bad faith cause of action.

 

Summary Judgment

Defense and Indemnity Provided To Insured

State Auto Property vs. Stucky, 2017 W.V. LEXIS 759 (Oct. 10, 2017) (Ketchum, J.) West Virginia Supreme Court held that Plaintiff failed to state a bad faith claim as a matter of law where it was provided defense and indemnity in an underlying trespass suit.   Court observed that State Auto provided the insured, CMD, with a defense and settled the underlying tort suit for $325,000, well within the insured’s $1 million dollar policy limit.
Delays Processing UIM Claim,  Collection of Records,  Investigation

Radolfi vs. State Farm, 2017 U.S. Dist. LEXIS, 165013 (M.D. Pa., Oct. 5, 2017) (Carlson, J.) – Court grants summary judgment in favor of State Farm in UIM claim,  holding no inference from which a finding of bad faith could be made.   The Court observed that while there were delays in processing the claim, including the collection and review of medical records, the delays were not attributable to State Farm.  The Court found that State Farm’s request to the Plaintiff’s attorney for medical records were not complied with, including requests for updated medical records.  The Court held that Plaintiff also failed to provide employment records despite making a claim for wage loss.  The Court also held that a new contractual bad faith cause of action was barred by the law of the case, in that it had previously dismissed a statutory bad faith claim, and that State Farm’s initial error in stating coverage limits to the insured did not constitute bad faith.