Subscription Flat – Fee Efficiency Comes to Insurance Litigation and Non-Litigation Matters

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“Adapt or die….”

Billy Beane, Moneyball

As insurance company legal departments continue to feel organizational pressure to improve efficiencies in the  engagement of outside law firms, many outside firms lag behind in adapting products and services to meet this need.  Those firms who have, however, risen to meet the demands of the market continue to innovate.  Subscription fee arrangements are one such innovation.  Under these arrangements, in which clients pay outside firms an monthly flat fee  subscription  for legal services, provide much – wanted control over expense, and help insurers’ legal departments convert variable costs into fixed ones.

We have discussed a broad range of alternative fee innovations in these pages many times in the past.  Subscription fee arrangements represent a narrow but powerful segment of this range.

Rather than pay outside firms by the hour, a referred matter, litigated or not, is quoted by the outside firm at a flat monthly price.  Assignments with a shorter life span of 60 days are simply quoted on a flat rate fee basis.  Most litigated matters are quoted with a cap on the number of months the subscription fee is to be paid.  Both the lawyer and client agree, however, to be open to reasonable adjustments  of the length of subscription, especially in cases of unforeseen circumstances, delays, as well as events which may shorten the life of the assignment.  Trial preparation and trial are billed separately, either on an hourly basis, or an after-negotiated flat rate per day quote.

For comparison purposes, our firm provides clients with a statement of what a subscription fee matter would have cost if it were billed hourly.  This data is used not only to demonstrate extra value provided to the client, but to make adjustments in the monthly subscription fee, if necessary, in similar future assignments to make sure the client is satisfied with the arrangement.

The subscription fee arrangement is also scalable.   Assignments can be negotiated in blocks for a single subscription fee, for example, and volume subscription discounts can also be offered and agreed upon.

Subscription flat fee arrangements are win-win for both legal department and outside law firms.  Firms are encouraged to handle matters quickly and efficiently, and insurance company legal departments can migrate a large portion of outside legal expense to a fixed cost as opposed to a highly variable one.

Reach  me at chaddick@dmclaw.com or 717-731-4800 for more information on how the use of flat fee subscription agreements in insurance litigation and non litigation matters can create efficiencies for your legal department.

Outside Counsel Re-Packaged and Re-Focused: Four Pillars

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If your outside counsel has not worked on re-purposing how their services  are delivered to suit your needs, you are entitled to ask why, and to ask them to get to work on doing so.  In-house legal departments in the current market are entitled to value in at least four key areas:

1.  Monthly Access to Counsel at No Cost For Questions on Miscellaneous or on-Assigned Matters – My clients each have several hours per month of free phone consultation time, analysis, or research on any subjects of their choosing.   A good client who invests their money in you to represent them in paid matters is entitled to be able to pick up the phone or send an email with a random or miscellaneous question without worrying about the meter running.  It is a way to provide value to good clients, and a way to encourage them to reach out and stay in touch to take advantage of the benefit.

2.   No-Cost Quarterly  At-Client “Office Hours” – This is an extension of the no-cost consultation service.  My clients each get eight hours per quarter of my spending time in their offices, where I can assist and consult on matters of importance, provide updates or continuing education on topics of interest, or to listen and learn about the legal department’s or company’s goals and objectives, and to discuss how we might assist the client in achieving those goals.  It is a great way to learn more about a client’s DNA and institutional culture, so that legal services can be aligned with those things.

3.   Alternative Fee Options, And The Willingness To Negotiate Any Fee, Any Time – I have posted about the complex subject of alternative legal fees many times, and have a page dedicated to describing many popular alternative fee options.  Clients like the ability as they assign matters to outside counsel to toggle back and forth between traditional hourly rate arrangements and alternative fee proposals based on the nature of the matter assigned.  The only real rule here is absolute flexibility.  The client should be given the option of deciding which fee approach they feel is best for them at the outset of assigning a matter.

Outside counsel  should be open always to adjustments in the fees as a case or matter proceeds.  Circumstances change, cases can take unexpected twists and turns, and an in – house legal department should never, never feel locked into an unfavorable fee agreement after circumstances material change.  Setting legal fees is NOT an adversarial process between outside counsel and general counsel;  rather, it is a collaborative one.

4.   Re-Thinking Hourly Fee Engagements To Provide More Value – Some clients still prefer engaging outside counsel by way of a traditional hourly fee deal.  At the same time, however, in addition to the extras discussed above, they are also looking for value from outside counsel even under these engagements.  We have re-packaged our hourly fee engagements with legal departments, and re-thought how they should operate.

Our clients have begun to regularly see “No Charge” line items in their invoices.  Under our re-vamped hourly rate system, clients are not charged for routine letters and phone calls, and  charged only for substantive work which moves a matter forward.  In that way, a client feels like it is paying only for value received, not merely a ticking clock.

All of these pillars serve the same goals:  First, these features encourage clients to reach out to outside counsel on non-assigned matters, and feel like they are partnering together to serve the common goal – the client’s interests, without necessarily worrying about cost.  Second, these features provide value to clients on the matters which are formally assigned to outside counsel.

To put these advantages to work for your in-house legal department or office of general counsel, reach me at chaddick@dmclaw.com or 717-731-4800.

 

Alternative Fee Spotlight: The Outside General Counsel Arrangement

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In the rapidly changing environment of the delivery of legal services to clients, including insurers, third party outside general counsel providers have begun to offer as-needed office of general counsel staffing to insurers and other businesses.  Insurers and businesses, however, can find the same benefit in the outside law firms they have been dealing with for years.  There is a way to have the best of both worlds.

The arrangements vary widely, from counsel actually occupying the physical space of the client on a full or part time basis, to a looser arrangement with outside counsel staying at her outside firm.  The arrangement offers the flexibility legal departments now require to meet their obligations as efficiently as possible.  The General Counsels’ offices get the benefit of the knowledge and experience of an outside lawyer but at a far greater control over the cost of such services.

Outside General Counsel arrangements generally involve fixed fees for a set amount of time based upon how much of the outside counsel’s workweek the insurer will utilize.  The outside lawyer’s time is utilized as the legal department sees fit.  In practice, it oftentimes involves outside counsel providing coverage opinions, and coverage and bad faith litigation support and representation , but the relationship can expand to such diverse matters as regulatory compliance, claims handling, and fraud investigation.   The duration of the arrangements can be short term, long term, month to month, or ad hoc — again, the beauty of the arrangement lies in its inherent flexibility.

The arrangement provides the additional benefit of outside counsel getting to know the procedures and operations of the legal department  to which she is deployed from a much closer vantage point than she would otherwise have.  Outside counsel even get a sense of the business and mission goals of the both the insurer and in-house legal department — benefits which can and will extend far beyond the duration of the outside general counsel arrangement.

For insurers with legal departments looking to stay flexible and to retain cost controls over the use of outside expertise, the outside general counsel option could be the puzzle piece needed to control legal spending, and ensure access to outside expertise and jurisdictional familiarity.

For more information on providing your legal department the benefits of an outside general counsel arrangement on shorter or longer term bases , reach me at chaddick@dmclaw.com or 717-731-4800.

Alternative Fee Spotlight: Fixed Fee Coverage Opinions and Bad Faith Claims Audits

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Within legal departments today, the most common barriers to obtaining knowledgeable outside counsel for non-litigated matters are cost and uncertainty.   Outside counsel is seen nowdays as an expense which must be scrutinized, limited and reduced.  But there are ways to enjoy the benefit of the independent, objective opinion of outside counsel without worrying that doing so is an unnecessary extravagance, or yet another trip down the black hole of a running meter.

The truth is that most non-litigated matters handled for insurance company legal departments don’t need to be handled  via hourly rate.  Costing such projects is easy and predictable.  And the legal marketplace no longer operates under a single, monolithic pricing model.  Good lawyers are available for reasonable, flexible, affordable fees.

Coverage opinions and claims file audits can be performed by experienced outside counsel via fixed fee, quoted arrangements.  A legal department can get the benefit of a coverage opinion or claims file review for a low, fixed sum, quoted after only a brief review of the scope of the matter.  This small investment in an outside opinion can save an insurer many multiples of the fixed fee cost in coverage or extra-contractual exposure later on.    There are even more savings available with volume discounts or “block” fee quoting for multiple non-litigated  matters.  The options are virtually endless.

Traditionally, the return on investment which a coverage opinion or claims file audit brought was not sufficiently predictable:  the hourly rate arrangement made the initial investment in an outside opinion unclear, and therefore made the benefit hard to measure.  Under a fixed-fee arrangement, six and seven figure exposures can be identified and prevented with small four figure investments.

For more information on providing your legal department the large investment return on fixed fee coverage opinions and claims file audits, reach me at chaddick@dmclaw.com or 717-731-4800.

Alternative Fee Spotlight: The Simplicity Of Fee Caps

“Nature is pleased with simplicity. And nature is no dummy.”
Isaac Newton

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Above all things, clients do not want headaches.  They certainly don’t want headaches from their outside lawyers.  After all, outside lawyers are supposed to fix headaches, not cause them.  So amid an increasingly roiling sea of alternative fee arrangements, the simplest alternatives may stand out as the most appealing to legal departments who engage outside counsel for litigated and non-litigated matters.

And, believe it or not, some legal departments are reticent to  dispense with the hourly fee altogether, fearing that they may well be trading one gamble with outside counsel  for another:  a flat fee, for example, can under the right circumstances be a worse deal for a client than a high hourly rate, i.e., the bad faith or coverage case that is dismissed early, or settled within 60 days.

Enter the hourly fee with caps concept, an arrangement which not only provides simplicity, but allows legal departments to have their cake and eat it too.  Under the arrangement, outside counsel is engaged under a traditional hourly arrangement, but a cap is agreed to and put into place.  The cap can either be a single cap for the entire engagement, or it can be broken down into separate caps  for each phase of a case.  Caps ensure that the legal department has cost control over the matters it refers out to counsel.  It provides some muscle to legal project management, and not merely lip service.

If a legal department sends out a matter which outside counsel gets dismissed at the pleading stage, or resolves within a couple of months, the client gets the benefit of that speed, efficiency, and reduced expense — it pays only the hourly fee for the minimal amount of work.  At the same time, should a matter take a more protracted course, the client still has the cost control and budget certainty which either an overall fee cap, or phased fee caps,  provide.

One caveat:  as with all alternative fee arrangements, both the legal department and outside counsel must have a level of trust and goodwill which allows for adjustment and renegotiation of the fee mid-course, should their be a sufficiently large and unforeseen change in circumstances to warrant doing so.  The adjustments, however, can only be made if the client is agreeable to doing so, and should be the rare exception to the arrangement, rather than the rule.

For more information on how to put fee caps to work for your legal department to reduce costs and fine tune legal project management budgeting, reach me at chaddick@dmclaw.com or 717-731-4800.

 

 

 

Alternative Fee Spotlight: Allowing Clients To Adjust The Fee For Value Perceived

It is a dangerous thing for a lawyer to put his fate, even partially, in the hands of his client – the lawyer is used to having it the other way around.  For centuries, lawyers have always set their value, and disclaimed the risk of a bad result, placing it squarely on the shoulders of their customers.  (I do not chose and use the word “customers” lightly.  Clients, especially legal departments,  are in this day and age customers in the truest sense of the word:  discerning buyers with pricing power.  Those lawyers who fail to approach clients as customers risk being left behind.)

The billable hour arrangement swims hard against this tide of modern reality, and is faltering against the strength of the current.  Hourly rate engagements seek to dictate value to the customer in a top-down manner, and in  an age when customers have the capability and desire to assess and decide value for themselves, and use that data to hire outside law firms.

As lawyers read this, especially older ones, they are likely to feel a tightness in their throats and to see their own knuckles whitening.  The thought of sending a bill out to a client and giving the client the power of even partial veto over that bill is to them rather like paying the cable TV  company based on whether the viewer liked what she watched, and how much she liked it.  Preposterous, right?

Wrong.  They day has arrived when lawyers, including old ones and very good ones, must face the reality that clients want and expect to have far greater influence on how they compensate their outside law firms, and how that compensation should be linked to something other than merely the time expended.

There are at least two reasons to do so.  First, legal departments are already  exercising such control, with auditing departments and third party auditing vendors poring over and oftentimes unilaterally adjusting invoices.  And second, those lawyers not willing to cede this power to their customers are going to be either passed over on the legal departments panel lists, are removed from the lists altogether.  Lawyers have no choice; and to believe they do have a choice is to risk extinction.

The Nuts And Bolts of Client Value Adjustments

There are a number a ways to place greater value control in the hands of the legal departments who engage outside counsel.  The two most prominent ones at this stage of the game, however, are holdbacks, and value adjustments.

Under the holdback system, a percentage (usually in the range of 10%-25% or 30%) of the total fee paid to the outside firm , whether via hourly arrangement or an alternative, is held back until either a specific case goal is reached, or the conclusion of the matter.  The client then has the authority to pay some, all, or none of the holdback to the outside law firm, based on the value the client believes it received.

The value adjustment method is similar, but not identical, to the holdback method.  Under the value adjustment approach, clients are given authority over any invoice to adjust an invoice downward or upward by an agreed upon percentage (again usually 10%-25% or 30%) based on the value it feels it received  during the period covered by the invoice.

Why Give A Client So Much Pricing Power?

Outside law firms who have been compensated for decades by the billable hour simply don’t have their interests sufficiently aligned with those of their clients.  Where the client wants fast, efficient and inexpensive, the outside law firm compensated hourly has interests which, while not diametrically opposed to speed, efficiency, and cost-consciousness, are sufficiently opposed to those goals to  have led legal departments to question the arrangement, and to move toward something better.

Holdbacks and client value adjustments allow lawyers and clients to realign their interests in the same general direction, to jointly shoulder the risks of poor performance and bad results, and to restore the feeling that the legal department and the outside lawyer are in the same boat, and rowing in the same direction.

 

 

GC’s: Are You Demanding Fee Options From Outside Counsel?

For many years the arrangement was understood — a negotiated hourly rate would cover the assignments from General Counsels at Insurance Companies and other Corporations to their outside lawyers.  The seismic shift in legal departments to emphasis on speed, efficiency, and cost-effectiveness has obliterated that status quo, for the most part.

Some outside firms have slowly, glacially, begun to shift to alternative fee arrangements.  But as I have written in the past, this shift is not likely enough to keep pace with what  in-house legal departments are searching for:  the nimble ability to select the right fee arrangement for each and every case which gets assigned to outside firms.   Having a single, alternative fee proposal is barely better than the hourly rate concept it replaces.

How can outside lawyers offer more? By letting the clients, the law departments and general counsel we serve pick the arrangement.  This can be done either by a.)  offering the client a list of several alternative fee options; b.)  listening to the client to hear about what they have been using and what they like (that is what good service is all about):  or c.) collaborating somewhere between these two approaches to tailor an arrangement that works in a particular case for both the law department and the outside lawyer.

There is no magic to it.  It is simply a matter of demanding options from outside lawyers so that clients are comfortable that with cost control over the assignment, and the alignment of the clients interests and outside counsel’s interests.

 

 

What Happened to “What” – Law Departments and the Advent of the Four W’s

When I started practicing law more than a quarter century ago, law departments at insurance companies and corporations only cared about one “W” when they engaged outside law firms – the “What.”  What results were delivered?  What was the outcome?  What was the verdict?  What deal was negotiated to settle?

The days of the single “W” are long gone, however, and now, General Counsel and the legal departments they shepherd are looking for answers to four  W’s (and one H) — who, what, when, why, and how.   The outside lawyers and firms which answer all of those questions most to the OGC’s liking are the lawyers and firms who will continue to garner business and new assignments.

Results still matter, of course.  But they no longer matter in an absolute vacuum:  a good result delivered by overstaffing (who), delivered too late (when),  delivered  inefficiently or against the client’s  larger mission (why, how) will simply not be considered a good result.

Good outside lawyers and firms keep an eye on all of these elements – and strive to provide value from  all 360 degrees:

  • Legal Project Management (LPM) – including action plan, budgeting, and forecasting;
  • Continual analysis, communication, and refinement in a dialogue with the client about changing goals and needs;
  • Flexibility, including in agreeing to alternative fee deals at the beginning of a matter, and even to modify the arrangements should circumstances change;
  • Demonstrating an understanding of the Legal Department’s goals, the company’s goals which they serve, and attempting to align legal representation with those goals.
  • Innovation, helping your client see a need for new models and arrangements before they may see the need.
  • Getting to the best result sooner, cheaper, better, and more efficiently.

The modern, outside law firm can survive on providing an excellent What anymore — they must also satisfy the legal departments for whom they work by meeting or exceeding expectations as to  Who, Why, When and How as well.

 

Alternative Fee Arrangements, Revisited

CAMP HILL, Jan. 27 – We addressed some of the flexibility provided by alternative fee arrangements in a prior post.   We are adding to that a resource page surveying some of the many emerging alternative fee arrangements we are offering to existing and prospective clients.  Please feel free to dig in and explore the many options available.

Good outside counsel view alternative fee ideas as starting points, not destinations.  Legal fee agreements can be as diverse and inventive as the lawyers and clients involved.  Reach out any time to me chaddick@dmclaw.com or 717-731-4800 for more information.

Legal Departments: Are You Sharing Your Metrics With Outside Counsel?

From Legal Project Management (LPM) to the arrival of Legal Operations Officers at Legal Departments, insurers have become far more discerning and discriminating buyers of legal services than ever before.  Technology allows for any number of measurements of the performance of outside law firms, and therefore comparison of outside law firms.

Should this data be kept secret? Not if the insurer truly wishes to incentivize outside lawyers become the kind of lawyers the metrics are designed to create in the first place.

There are concerns, of course, about disclosing proprietary data, and information regarding other firms.  These issues, however, are easily addressed by 1.) providing metrics outputs to lawyers and law firms, not the methodologies and 2.) showing the outside lawyer or firm how it stacks up against averages, or par, as opposed to providing data on other lawyers or firms.

For an insurer to measure the data and not use it to influence outside lawyers toward the benchmarks the insurer is aiming for is to use but half of the tool.

The metrics themselves are as diverse as the objectives, but some of the more popular ones are:

  • Cycle Time  – how long a case takes from assignment to closing
  • Return on Investment – how much exposure was eliminated or reduced in exchange for payment of legal fees to defend a claim.  (This can also be an effective marketing tool for a law firm:  I was able to demonstrate to a large national insurer that over the course of several years that for every dollar they invested in legal fees,  my firm was able to eliminate six dollars in corporate contingent exposure.)
  • Leverage  – similar to ROI, a measure of dollars spent in relation to dollars at stake. Designed to prevent lawyers from killing flies with sledgehammers.
  • Overall Grade – somewhat subjective, but a great overall metric which allows General Counsel to grade how their outside lawyers are doing

We will delve into metrics in more detail in a future post.  In the meantime, remember that what can be measured can be used to steer outside lawyers in the direction the insurer wants to go.   Good outside lawyers will neither mind being measured, nor adjusting their performance to suit the insurer’s needs.

CJH