Litigation cost is a factor calculated into premium as an allocated expense. Each state retains a record of all allocated cost expenses. Through the various state formulas, all allocated expenses become a part of the experience modification code. The experience modification code sets the stage for premium calculation.
Plaintiff attorney fees are generally capped as a percentage of the employee’s benefits awarded in contested claims. They also become a part of the final ruling by the judge or mediator. When paid they are paid as part of the indemnity benefit. Since indemnity benefits are already part of the experience modification process there is no separate impact as an allocated expense.
Defense costs are based on billable hours at the attorney’s hourly fee rate. Defense attorney fees are payable regardless of a win or a loss of the case. The defense attorney bills are paid on the file in separate direct payment. Legal reserves are required to cover the payments.
Billable time includes: telephone calls, legal research, investigative steps, reporting, deposition time, trial time, and trial preparation, witness briefing, consultation time with fellow counsel and or witnesses, as well as negotiating time with plaintiff counsel.
In addition to the lawyer’s time fee, a defense legal bill may include clerical time charges, photocopying fees, postage, subpoena service cost, investigative cost, messenger service, witness fees, paralegal service time, travel time and cost. Some bills may even go so far as to charge for filing time and paper supplies.
Retaining Defense Counsel
All too often there can be a scarcity of local defense counsel. Fewer legal firms are taking defense work in rural areas or smaller towns. This limits legal counsel choices. All local claim units may be using the same attorneys. Fee rates and costs may become non-negotiable, and quality and quantity of defense work may be weak. Worst of all, the judges and mediators might give little credence to their defensive presentations. Larger communities might have more defense counsel choices, but all too often there is still a tendency to rely on the same legal firms.
Contacting the local legal bar association is one step to locate new attorneys. The association can advise of the current practicing and newly licensed counsel. They will also advise field of practice.
Attending a workers compensation court hearing and observing the defense counsel is a second way to search for new legal counsel. Probably the most used method, however, is to obtain a recommendation from professional associates or employers.
Before fully engaging any attorney, obtain their resume and request references. After reviewing the resume and contacting the references arrange for a personal interview. Discuss fees, reporting requirements, and all other expectations desired from the attorney. Do not be afraid to offer fees lower than those being asked as many attorneys will adjust fees to obtain business.
When reaching an agreement with an attorney follow through with a written confirmation.
Effective Use of Attorneys
Since attorney fees and bills are charged by the hour, it is incumbent on the claim technician to limit those hours. The following list of ideas should help:
- Keep telephone calls to a minimum. Know what you are going to discuss before calling. During the call gather the necessary information and terminate the call as quickly as possible. Document the telephone call information in the claim file notes.
- Use e-mail as much as possible and limit them to necessary information. This automatically documents the claim file and reduces time to document a telephone call. Use formal letters and regular mail only as necessary.
- Limit the attorney’s need for additional investigations. This is accomplished by the claim technician obtaining all defense and claimant statements. The adjuster should supply all personnel records that may be needed, arrange and forward all information from independent medical examinations, as well as supplying claim file reports and investigation information.
- Require a legal cost estimate and follow up on this for necessary revisions. Use the estimates as a basis for legal reserving.
- Require the attorney to obtain permission to do any additional investigations, hire private investigators, and schedule depositions (if statements are in the file defense depositions should be minimal).
- Limit verbosity in reporting. Once the attorney has made initial assessment (which should include a full review of the loss facts) and given a plan of action, it will only be necessary to comment on current happenings. It is not necessary to have the attorney copy the claim file on interrogatories, depositions etc. These are seldom needed if the attorney is reporting on the findings and results. The cost of reproduction and mailing can be eliminated.
- Obtain all information the attorney may request as promptly as possible.
- Try to employ more than one attorney. Competition generates better results in litigation and disposition.
- Negotiate settlements and agreements as much as possible. Attorney negotiating should be limited to court house steps, pretrial conferences, arbitration, and trial.
- When the attorney does negotiate, set limits and authorities. Require a telephone request for additional limits and authorities. If possible, serve subpoenas for the attorney.
- Require regular and timely billing by counsel. Audit each bill line by line to ascertain accuracy. It should also conform to the written agreement. Charges should coincide with legal information in the claim file records. If any reductions are necessary, let the attorney know why. Pay the bill promptly to avoid late fees and charges. Check to ascertain that a paralegal fee is not accidentally submitted as the attorney’s fee.
- Due to inflation and other impacting factors fees may need to be increased. This should always be done by mutual agreement and direct negotiation.
Litigation costs impact premium as allocated expenses. Controlling litigation cost is vital and requires the proper choice and use of lawyers.
Author Michael Stack, Principal, COMPClub, Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder of COMPClub, an exclusive member training program on workers compensation cost containment best practices. Through these platforms he is in the trenches on a working together with clients to implement and define best practices, which allows him to continuously be at the forefront of innovation and thought leadership in workers’ compensation cost containment. Contact: email@example.com.
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.