Use Privilege Logs To Win Bad Faith Discovery Battles

Privilege-log

There is no more critical or touchy stage of discovery in a bad faith case than the request for the claims file.  It will color the rest of the discovery course, including, most notably, depositions of claims personnel.  Inevitably the request for the file comes, seeking every bit of data, electronic and hard copy, which ever existed in the claims file.  The request contains no restrictions, and no reasonable bounds – the bane of insurance company counsel’s existence.  How to respond, yet again, without having to fight World War III?

A well-prepared privilege log provides insurance company counsel with an opportunity to frame and present argument on discovery motions before they are ever filed.  And yet this opportunity is overlooked — passed over for  rote, form privilege log entries like “Not Discoverable:  Attorney Client Privilege” and the like.  These bland entries will neither  satisfy plaintiff’s counsel, nor a judge.  So take a step back and look differently at the privilege log which accompanies your initial  claims file production.  Look at the opportunity as a chance to file a free discovery brief, and treat it as such.  Get the jump on making valid arguments to protect those portions of the claims file which need not be disclosed under the applicable jurisdiction’s discovery law.

First, a quick look at an example regarding the discovery of claims reserve information, and then a review of the basic elements of privilege log entries which will persuade judges and protect portions of the insurer’s claims file:

Bad Privilege Log Entry Example:  “Objection.  Claims Reserves Are Not Discoverable”

Much Better Privilege Log Entry Example:  “Reserve information is non-discoverable work product and/or is irrelevant and disclosure of information will not lead to admissible information. See, Safeguard Lighting Sys. , Inc. v. N.Am. Specialty Ins., 2004 WL 3037947 (E.D.Pa. 2004); Union Carbide Corp. v. The Travelers Indemnity Co., 61 F.R.D. 411 (W.D.Pa. 1973); Fidelity & Deposit Co. of Maryland v. McCulloch, 168 F.R.D. 516 (E.D.Pa. 1996); and Williams v. Nationwide Mut. Ins. Co., 750 A.2d 881 (Pa.Super. 2000). Reserving is an insurance accounting instrument largely designed for purpose of regulatory compliance, and not evidence of an insurer’s opinion as to either the actual value or settlement value of the claim.  See, id.”

The differences in the two privilege log entries is apparent, but it is not simply the size — don’t confuse length with persuasive substance.  The better privilege log entry contains the following elements:

  • specific reference to the discovery sought, identifying it with as much particularity as possible;
  • Comprehensive statement of case law and rule of procedure which supports insurance company counsel’s position that the discovery sought is protected from discovery.
  • Where possible, additional identification of important public policy principles which weigh in favor of protecting the discovery sought.  Common sense and logical arguments can also appear here.

In addition to providing a jump on the opposition should the dispute make its way to a judge, it demonstrates to the reviewing judge that the objections were not “knee-jerk” or form objections not worthy of the judge’s consideration.  It sets up the insurer’s counsel as credible and thoughtful in the mind of the Court , which will not hurt the insurer, of course.

Good insurance company counsel do not look at privilege logs as merely something to be thrown together as part of preparing discovery answers.  They look at logs instead  as an opportunity to advocate for the protection of discovery at a key point in the bad faith or coverage case.

CJH

 

 

 

 

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.

Badfaithadvisor.com Launches Best Claims Practices and Bad Faith Avoidance Training and Continuing Education

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Badfaithadvisor.com has launched both online and onsite continuing education services at no cost to insurers and other related businesses.  For more information on the benefits and options of this no- cost training and continuing education service, click here.

Legal Project Management Made Simple

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LPM sounds intimidating.   Anything which has to be shortened by using initials has to be, right?  Not to worry.  Legal departments don’t want to be bogged down in complicated legal project management processes any more than outside lawyers do.  They are only interested in legal project management to the extent it gets them to their goal:  engagements with outside lawyers who will do what they say they are going to do, on budget, and on time.

Legal Project Management can be thought of as the GPS of an engagement of outside counsel.   Every trip starts with an intended route, and a GPS does nothing more than tell you where you are in relation to that route.  It keeps you on track.  LPM=GPS.

The biggest obstacle to beginning a foray into LPM is what I call the intimidation of complexity.  Where do I start?  What methods should I use?  Will I need software?    Why can’t I just practice law?    The trouble, however, is that legal departments do not exist for the purpose of allowing outside law firms to practice law;  they exist for the purpose of solving the company’s headaches from within,  quickly, cheaply, and efficiently.  Outside lawyers will only be engaged if they help solve a problem in alignment with those goals.

Elaborate software and project diagramming are unnecessary to both the process and a happy client.   There are but three secrets to implementing LPM for outside lawyers and law firms:  1.) start somewhere; 2.) keep going; and 3.) the simpler the better.   A good outside lawyer with sufficient experience can sketch a project management outline for an assigned matter on the back of an envelope in less than five minutes.

An LPM Example

Here is an templated example of a project management outline I sketched out for a recent assignment from one of the insurance companies I represent in a relatively small, straightforward matter. Complicated, it is not:

Timeline

Pleadings Closed      4/1/2016

Written Discovery Complete     12/31/2016

Depositions Complete      1/31/2017

Dispositive Motions Filed         3/15/2017

Mediation Completed     4/30/2017

Settle or Try Decision      5/31/2017

Trial           8/31/2017

 

The budget portion of the legal project management sketch is hardly more complicated:

Budget

Investigation          Planned:  $ X            Actual:  $ Y

Pleadings        Planned:  $ X            Actual:  $ Y

Discovery        Planned:  $ X            Actual:  $ Y

Dispositive Motions     Planned:  $ X            Actual:  $ Y

Expert Workup    Planned:  $ X            Actual:  $ Y

Mediation/ Negotiation     Planned:  $ X            Actual:  $ Y

Total         Planned:  $ X            Actual:  $ Y

Trial Preparation        Planned:  $ X            Actual:  $ Y

Trial          Planned:  $ X            Actual:  $ Y

Total         Planned:  $ X            Actual:  $ Y

The plan is kept electronically in the matter (hard copy is fine too for the traditionalists), checked at regular intervals, updated, and the updates fed back to the client, so the client can see whether the matter is on course as planned, or whether adjustments need to be made, either to the plan itself, or to the execution of the plan.

A legal project management plan is only as good as the effort put into it up front, however.  There must be agreement and buy in up front from the client, and major deviations in the plan must be explained to the client’s satisfaction.  Unforseen developments will be encountered, and adjustments to the plan should be made where warranted.

LPM is no more than a good outside lawyer road-mapping a matter for his or her legal department client.  It gives the client the data it needs to exercise oversight and cost control in increasingly more demanding and less forgiving environments.  LPM=GPS.

For more information on how to effectively use LPM, 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.

 

Dollarizing Your Value to Legal Departments: Return on Investment

In an earlier post, I commented on some metrics used by insurance and other in house legal departments used to measure the value of outside law firms engaged to represent them in litigated matters, e.g., insurance coverage or bad faith litigation, the latter of which has at risk real corporate dollars.

I’ve received a thoughtful question or two from lawyers who were interested in how I went about demonstrating to my clients (and prospective clients) what kind of return they could expect in exchange for every dollar of legal fees  they invested in our firm to defending them.  I’ve referred to this metric as Return on Investment (ROI).

It’s somewhat of a subjective exercise up front, which involves making an educated estimate of the insurer’s reasonable exposure at the  start of the case.  You don’t need to actually DO the estimation at the start of the case, because the ROI calculation cannot be done and fed back to the client until the case has ended,  and both the final case outcome and total legal fees are known.  The initial exposure assessment is the only subjectivity in the process; all the rest of the numbers are hard data.

So, here’s a quick and dirty ROI calculation, which can be used for a single case, or aggregated to account for a number of completed cases.

For any case, let

a=the initial, reasonable worst case exposure for client at case outset

b=the final payout, if any; and

c= the amount of legal fees incurred to arrive at the final result

 The ROI calculation is simply:

(a-b)/c.

What Do The Numbers Tell Your Clients About Value?

This calculation is a ratio, which expresses the relationship between the company’s investment in legal fees and the reduction or elimination in the contingent corporate exposure which the fees produced.   In terms of quality or value, a reasonable initial target might be a 3:1 to 4:1 ratio.  5:1 and above are good benchmarks, as a general proposition.  But there is a caveat:  a 5:1 ratio is not satisfactory if your clients average ROI from outside firms is, for example 8:1.

And you may never  get data about your competitors.  The solution?  Shoot for as high a ratio as possible, and work to keep it high.  You will know how well you are doing by the number of repeat engagements you are given.

Originally, I simply used the plaintiff’s initial settlement demand as reasonable worst case exposure, but was quickly educated by clients, and by experience, that a plaintiff’s opening number cannot always, or even usually, be considered reasonable.  I also quicly learned that using such unreasonably high demands to plug into the equation led to ratios which were unreliably flattering, and as a result, not useful to discerning clients.

Return on investment (ROI) can only be used as marketing feedback if the numbers are reasonably reliable, and viewed as such by your clients.

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.

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