TALES FROM THE CRYPT

(Why Failure To Control Your Claims Will Kill Even The Un-Dead)

We have previously written about how an SIR and a hammer clause can help you maintain control over your claims.  The first step toward an effective risk program is to minimize the risk in the first instance.  That is, building a quality, safe product, employing best practices, and employing good customer service practices all lead to lower claims frequency.  Notwithstanding, unless you decide to go out of business entirely, you cannot totally avoid claims.  Indeed, in some respects, claims are a reflection of a successful business.  The more you sell, the more chances you have of getting a claim.

In the renewal process a deductible policy often appears less expensive. After all with aggressive file maintenance, you should still expect to get good representation.

The reality is that unless you retain the legal right to control a claim, you lose the ability to select counsel, and the attorneys then believe they are beholden to the insurers, and not their client.  No matter how aggressively we work on your behalf, trying to ensure that the attorneys are representing your interests, horror stories abound.

Paying the Lawyer and the Settlement

By selecting counsel, and controlling litigation, you get to select an experienced trial attorney who is working toward the trial and a successful verdict.  RRS selected attorneys generally get a case to trial (in a products liability case) for approximately $50,000.  This benchmark is a guidepost, but has been successfully achieved over the past couple of years in virtually every case, including, CA, the site of our first horror story.

A manufacturer of a certain product was sued in Los Angeles.  Damages were, dripping wet, approximately $350,000.  Liability was quite weak.  There was a substantial likelihood that a defense verdict could be obtained. Unfortunately, the law firm in that case was a relatively large firm, and utilized inexperienced associates for much of the work (which was then re-done by the partner).

The insurer tried to control costs.  Indeed, the lead attorney told an RRS litigation manager that he could not “believe that the insurance adjuster was questioning his bill, nobody has questioned his bill in 10 years.”

The RRS manager asked whether there was any basis for questioning the bill, to which the attorney replied

“well, of course.  Everyone knows you can’t make money at $200 per hour, so we double the time on the bill, but everyone knows this goes on.  The adjuster has no business questioning my bills!”

One month before trial, the attorney submitted another bill and a budget to get the case through verdict.  He had now billed $200,000, and his budget asserted that it would cost another $250,000 to get the case through trial.  The case settled for $250,000.

You cannot blame an insurer for cutting its losses.  Their attorney was saying that it would cost the same amount going forward — $250,000 – whether the case settled, or the case was tried (to a defense verdict).  But, by settling, the insurer eliminated the risk of an adverse verdict.
Of course, the attorney had already billed and been paid $200,000, so the attorney successfully got paid without the stress of a trial.

Had the appropriate attorney been hired and controlled, the question would have been whether to try the case for $10-$20,000, or settle for $250,000.  The math works very differently with a properly managed file – and you can only manage what you control.

Where the attorney and his firm are hired by the insurer, you cannot control rates, billing practices, or competence.  But, in the end, you do pay the bill.

Paying the Incompetent Lawyer

A lawyer is nothing without competence and credibility.  This is why it is so important that the attorney retained be local (so the judge knows the attorney) and that the attorney retained has trial experience.  This way when an issue comes up he does not learn, for the first time, the basic law much less the nuances.

We always insist that attorneys only assert defenses that can be supported by the evidence or the law.  This way, the attorney will always have “truth and justice” on their side.  Also, the attorney can say that if they do not see the evidence, they do not assert a fact as being true.

But part of this comes with experience – knowing the defenses that are actually applicable to a case.

Thus, it was ever-so-frustrating recently when a well known partner, with trial experience, was retained to handle a subrogated products liability case in a small-SIR case.

A workers comp carrier was suing a retailer and the manufacturer whose product was involved in their insured’s accident.  Because the potential damages were high, the insurer took control of the case immediately. The attorney they hired, being very busy, had an associate with six years of experience handling the case.  No further word was heard from the partner for 8 months.

Shortly thereafter, the associate left the firm and it was announced that another associate had been assigned to take over the case.  This associate had been licensed just two years ago, had no practical experience at all, no experience with the product, and evidently no experience in the law.  The partner was apparently too busy to handle the case.

The associate filed an answer asserting twenty-nine defenses to an indemnity complaint.  The retailer was not covered by the vendor’s endorsement, and in California, the vendor (retailer) is entitled to recover all attorney fees and damages if the manufacturer is found liable but retailer is not.

The attorney asserted as defenses that there was a release (there was none); asserted that the retailer had waived any right to indemnity; asserted that indemnity should be barred because of an act of god (not kidding).  The attorney also asserted that the retailer assumed the risk.

When the client (RRS) complained, repeatedly, that this attorney was not qualified, and was asserting frivolous defenses, the client was told by another law firm hired by the insurer that the insurer had the right to select counsel, and the client had no say in the matter.

Of course, the client is the one who has to explain what evidence exists to support the defenses asserted by the attorney, and the incompetent attorney is the one who loses credibility.  But if the attorney loses credibility – it is the client who really loses.

Sometimes Truth Prevails

Some insurance companies actually charge more for an SIR than they do for deductibles.  They figure that if you mess up a case, they are the ones who pay for it above the retention amount.  Add the difference in premium and the fees charged by a third party administrator, and it can sometimes seem that a self-insured retention is not cost effective.

But the assumptions are only valid if insurers actually properly control the claims, and if you did not have to pay for insurer mistakes through increased premiums.

We were recently involved in a case in Utah, where the plaintiff filed suit.  The attorney for plaintiff discovered that the defendant had a relatively large SIR, and that Risk Retention Services was handling the litigation for the manufacturer.  The attorney then went to the Risk Retention Services website.  Before depositions commenced, the attorney called the manufacturer and asked to dismiss the case – on the merits.  When asked why, our attorney was told that “We were looking at the numbers, and realized that while we think we have a strong case, you are going to make us fight every step of the way, and pay experts, and even then will not be offering us money.  It is simply not worth the time and effort to chase a losing case.  We looked up the manufacturer, and their risk managers, and this is not a fight worth having.”