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Guidelines for insurance defense lawyers could keep costs down

A national organization of defense attorneys has published case-handling guidelines that could end long-standing acrimony between insurers and lawyers that stems from the legal fees that law firms charge insurance companies for defending policyholders. Both sides say consumers ultimately will benefit from the adoption of the new ground rules.

"We think this benefits not only the insurance industry and the defense bar, but also the insured."

In April, the Defense Research Institute (DRI) of Chicago approved guidelines that address, among other things, attorney billing procedures, reporting requirements, and how a case is developed and staffed.

Insurers and law firms have been at odds over unnecessary legal costs and delays in cases involving consumers. Insurance companies hire law firms to defend policyholders who are sued by third parties, typically in cases involving personal injury such as car crashes or home slip-and-fall accidents. Insurers generally want to keep legal costs down, while law firms want to provide the best defense — and bill for it.

In an attempt to keep down costs, insurance companies routinely hire outside auditors to examine law firm bills and have imposed their own strict guidelines on attorneys. The law firms say these rules have interfered with the proper defense of policyholders.

The new guidelines — different from the insurance companies' rules — call on insurers and law firms "to achieve the best result for the insured in an efficient and cost-conscious manner consistent with the firm's ethical obligations."

For example, the guidelines say a law firm will designate one attorney to have primary responsibility for each case. The lead attorney shall submit reports to the insurer about significant developments in the case and a litigation plan. The new rules call on the lead attorney to "delegate work to subordinates wherever possible to achieve efficiency and cost-effectiveness without compromising quality."

The guidelines encourage lawyers to seek an early resolution of lawsuits and use alternative dispute resolution to settle legal disputes.

Lawyers also are required to provide insurance companies and policyholders with reports as the case progresses, including an acknowledgement upon receiving the case, an outline of how the case will be litigated, and documents such as deposition transcripts, expert reports, and medical reports.

In addition, the guidelines call for attorneys to discuss billing decisions with insurance companies. For example, lawyers are required to consult with the insurer before embarking on a legal research project that will take more than three hours. "We think this benefits not only the insurance industry and the defense bar, but also the insured," says Lloyd Milliken, DRI president and a partner with Locke Reynolds law firm of Indianapolis, Ind. "The effort has been to provide a full and complete, but cost-effective, defense to the insured."

The DRI hopes insurance companies will either adopt the guidelines verbatim or use them as a model in writing their own. Milliken points out that law firms would like to see national standard guidelines, rather than a patchwork of rules imposed by insurance companies.

Building a bridge

Tension between law firms and insurers stems partly from strict insurance company guidelines that limited or prohibited billing for legal research. "It would cause the lawyer to get into a situation where he would have to fulfill an ethical obligation to the insured or he had to impact his own economic situation, which made it difficult and obviously led to some acrimony," Milliken says. "On the other hand, insurance companies felt there were cases when lawyers would spend too much time on research, maybe with justification."

Milliken sees the guidelines as a communications bridge between law firms and insurers, allowing one side to see the other's point of view.

Lee Bennett, senior vice present and general counsel for The St. Paul Cos. Claim Services, says the guidelines encourage insurance companies to step away from micromanagement of an outside law firm. Insurers can spend less time scrutinizing an attorney's specific activities and focus more on the total economic performance of the law firm. "We think this is a good way for defense firms to practice more efficiently," he says.

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