How can you know that your defense firms are doing the job you want? The first step is to communicate your priorities and preferences early on in the partnership. Beyond that, there are ways to quantitatively measure the effectiveness of the partnership. In recent years, this has come to be known as “legal metrics.”
As companies seek more efficiency from counsel, both parties need to measure the effectiveness of that partnership. Although quantitative evaluations of defense counsel are not the only tool available, they certainly provide some insight. In addition, legal metrics will matter to defense counsel to the extent that they matter to the company.
A very telling statistic comes from Revere Advisory’s National Litigation Management Study released in 2011. Seventy-one percent of respondents believe that spending more money on the defense of a matter is not likely to reduce the ultimate indemnity cost in a case. In addition, 89 percent of respondents believe that higher compensation to law firms is not likely to improve outcomes.
With those prevailing beliefs, what quantitative numbers do companies need to review to see how counsel is performing and how much impact they are getting for each dollar spent in legal expense? Here are six statistics to watch that will help ensure excellence in counsel performance:
Time to Close — Firms handling multiple claims, particularly a high volume of low-value claims, should be aware of how long it takes defense counsel to conclude a file. Counsel, in turn, should be knowledgeable of how long an average file lasts in their firm. Generally, the longer the shelf life of a file, the greater the legal expense per indemnity dollar, all other factors being equal. Companies can compare this statistic among panel counsel to get an idea of who is performing well and to look at a firm’s overall performance. Often external factors, such as court budgets and general litigation trends tied to the economy, cause changes from year to year; however, it is a good statistic for companies to use in order to track performance.
Average Defense Cost per Claim — This statistic is helpful when compared to other, similar claims. For example, defense counsel should have an idea of how much it averages on files valued between $0 and $49,999, $50,000 and $99,999, $100,000 and $249,999, etc. Also, consider the types of claims and be sure you are comparing apples to apples. For example, auto/trucking and general liability claims are typically less expensive than medical malpractice or product liability claims for the same claim value. Another way to measure this is defense dollars as a percentage of indemnity dollars. There can be some pitfalls with this analysis, though, particularly when the number of claims is low enough to be thrown off by an unexpected verdict.
Lawyers per Indemnity Dollar — This is an easy statistic to track. Look at the legal invoice and see how many lawyers have touched the file. Then, compare it to the amount spent on indemnity dollars for that file or for all files over the course of a year. For files that get passed down over the life of the file, the legal expense is likely to be higher since each person who touches the file has to be brought up to speed. Also, when new lawyers have to get up to speed on your preferences, this can affect the legal expense figures. Good firms absorb this cost internally. Firms that value the relationship with the company will keep only the necessary number of attorneys on the file and keep them for the life of the file.
Predictability — Estimating verdict and settlement range is not an exact science. However, this can be tracked over the life of the file. Keep a record of how the initial verdict or settlement range differs from the final verdict or settlement. Also keep track of the percentage change in verdict or settlement estimates over the life of a file. The number one rule as a defense lawyer in providing estimates is to make sure they are accurate the first time and change only if there is a significant development during litigation. Companies need predictability in managing overall litigation for the company. Accurate and consistent verdict estimates from outside counsel are essential to accomplish this.
Metrics on Alternative Fee Files vs. Hourly Billing Files — As the litigation partnership moves to alternative fee arrangements (AFA), companies need to track the effectiveness of these arrangements. Compare AFAs to hourly billing files over several of the categories in this column and see which is producing better results per indemnity dollar spent. Consider the incentives that each type of arrangement creates and whether or not they are appropriate for the size and type of claims being assigned.
Rates and Results by Firm Size — On average, for every 100 lawyers employed by a firm, the rate increased by an average of $9 per hour, according to the 2010 Real Rate Report. The rate also increased by $131 per hour for firms that were in what were considered “Tier 1” markets. Another factor related to firm size is the experience of the lawyer handling the file. At larger firms, less experienced attorneys may handle files for higher rates than in small to medium size firms. While there may be reasons for hiring a large firm, attention should be given to the experience and results obtained for the dollar spent. Larger firms should take care to be competitive with medium and small firms that can handle the same work with the same quality and efficiency. Track the experience of the lawyer doing the bulk of the work on the file and compare it to the rate charged.
One final word: Let firms know you are tracking these statistics and share the results with them. It informs them of your values and will encourage them to partner with you. The firms that sit up and take notice are the ones that will provide a better defense and ultimately produce better results.
Jim Pattillo is a partner with Norman Wood Kendrick & Turner, an Alabama-based law firm. He has been a CLM member since 2010 and can be reached at jpattillo@nwkt.com, www.nwkt.com.