Enough of anecdotes: an objective way to assess defense counsel competency.

• Author: Brink, Michael W.

IADC member Michael W. Brink is Liability Division Manager of the Interinsurance Exchange of the Automobile Club of Southern California and a member of the IADC Insurance Executives Committee.

IN RECENT years, much has been said and written about the relative value of legal services in the defensse of civil cases. Spiraling costs have spawned dramatic changes in the way insurers and corporations secure legal services. Use of staff counsel, case budgeting, bulk contracts, finite litigation plans and a variety of alternative billing arrangements are just some of the strategies that have been employed in an effort to gain control over what, at least in the 1980s, was a dizzying upwards spiral.

Much has also been said and written about what triggered this focus on the costs of legal services, the impact on the price of goods and services and the ultimate effect of all this on affordability and competitiveness. This is not a historical review of this phenomenon, interesting as that might be. Suffice it to say that there is sufficient blame to go around; further finger pointing is count6r productive.

There is also much to say about the various approaches being employed in an effort to improve not only the affordability but also the predictability of the costs of legal services. Some of these initiatives have been quite imaginative; they have brought about much needed dialogue and have provided perspectives on the way legal services are now being valued by insurers and other corporations.

But permeating the entire spectrum, one critical need continues to exist--finding a truly objective way to measure counsel performance, notwithstanding disparities in the complexity and financial exposure of particular cases.

COUNSEL SELECTION

In the past, counsel selection by insurance companies and corporations was based largely on referral, relationship, or cost alone. Almost all information was anecdotal. A lawyer or law firm would achieve a good result on a particular case and would be sent more business. Soon, a volume of work would develop, either from the same source or from other referrals. A reputation would develop, based on anecdotal information on a few cases. Perhaps the cases were typical, perhaps not. Claim or risk managers felt they knew the product of a given lawyer or law firm because of their involvement in the review of cases handled by that attorney or firm. But the greater the case volume, the less likely the product of any particular case is typical, especially in areas such as third-party property and casualty defense. Factoring in the cost of achieving the results in a set of diverse cases becomes extremely difficult, virtually worthless, when applied against such a subjective base.

There are familiar debates about the results achieved by one lawyer or law firm compared with those of another lawyer or firm; or about how the product of house counsel is just as good as that of rewined counsel, and at a lower cost; or about how the case results of one lawyer or law finn are better than those of another lawyer or law firm, and the fact that the former's hourly rates are lower. But then the usual questions a risk about the comparability of case mix among the firms being compared. Because of the variables, the debate is endless.

Endless evenings of these debates, entertaining as they may have been, motivated an attempt to find some genuinely objective measures of legal services as valued by insurers and corporate interests today.

HOW TO DO IT

It was necessary to gather data in a variety of areas involved in case handling that would provide objective measures of performance. Eighteen categories were identified. These are listed and explained on pages 100-102 of this article. The first 10 categories are further described some detail later and are depicted graphically, based on data accumulated in 1994. Categories 11 through 18 are self-explanatory, except Nos. 15 and 16, which are numerical ratings in several areas calculated by claims-handling personnel--sort of customer satisfaction ratings. Methodology to capture the data in categories 11 through 18 for the year 1994 is being developed.

These categories are not exhaustive, nor do they represent the exclusive measures for comparison. They simply appear to be the correct categories for the study conducted. These categories, based on my experience, are typical of those valued by other insurers and corporations. Certain categories were eliminated during the development of this process as not being useful. Any carrier or corporation can identify its own categories and can easily set up a methodology to capture, calculate and compare the data.

The insurer studied for this article is an automobile insurer that handles a large volume of relatively small personal injury cases. There are about 50,000 cases per year, with about 6,000 of them going on to the litigation track each year. These cases require the services of defense counsel and staff counsel. Only a few of the 6,000 cases are tried to conclusion, typically about 150 a year, roughly .30 percent of all the cases and 2.5 percent of the cases that go to litigation.

These cases, as most insurers and defense counsel know, although they represent only a small percentage of all the cases, provide an important benchmark for the handling, evaluation and disposition of all the rest of the cases. Tried cases, however, are not in themselves otherwise typical of the legal services valued by insurers today. In the California automobile liability area, arbitration has largely supplanted trial as a resolution methodology, and mediation is gaining fast. If this trend continues, we could eventually come full circle and actually end up resolving almost all disputes by negotiation and agreement. The legal services most valued by insurers today are those of attorneys who have the knowledge, experience, credibility and motivation to identify issues promptly, obtain information economically, evaluate candidly and influence an early disposition of disputed matters.

Judging performance by measuring and comparing outcomes in a few trials is, therefore, of limited value. Presumably, all counsel utilized by the carrier are believed to be capable of trying cases, although admittedly some are far superior to others, particular in special circumstances.

For these reasons, arbitration outcomes were chosen (both judicial arbitration and uninsured motorist arbitration) as the criteria for the data in the first ten categories. The accompanying charts and graphs are based on the results of 3,113 arbitrations conducted in 1994.

Categories 11, 15, 17 and 18 tell more about the comparative performance of firms in the very important areas of effective, efficient and speedy case disposition.

My basic philosophy concerning these measurements is that performance in no single category is conclusive, although I value some categories more highly than others. For example, I value monetary impact result as a percent of value, percent of awards within 10 percent of value, and percent of defense awards on cases with defense values. These monetary impact measures can demonstrate the extent to which legal expenses are offset by indemnity savings, when spread over a volume of cases. Someone else may value them...