Fixing the Fractures

The crucial relationship between claims organizations and outside defense attorneys faces a number of challenges today, and both sides appear to recognize the need for better communication to work through those challenges.

At CLM’s 2024 Annual Conference, Taylor Smith, president, Suite 200 Solutions, addressed the current state of this key relationship in a panel discussion with representatives from both sides of it. 

“I think we are a very unique industry because we have two segments to it—defense counsel and claims organizations—and these two groups have to be working tightly, synergistically, in order to be effective against the common adversary of the plaintiffs’ bar,” said Smith. “If either of these groups is suffering, both groups under-perform.”

With that in mind, Smith noted that insurance defense attorneys are facing “significant pressures” in areas such as staffing, compensation, and career satisfaction, and he called the current moment an “inflection point” for the industry. `

In fact, before the premier session panel discussion, Smith unveiled and discussed the results of the 2024 CLM Defense Counsel Study, conducted by Suite 200 Solutions, which outlined some concerning trends.

The State of Defense Counsel

The 2024 CLM Defense Counsel Study is the sixth study CLM has done, and the second study of insurance defense counsel. The other four studies surveyed insurance litigation and claims executives. Smith noted that the last defense counsel study was done in 2020, just before the pandemic. 

With data going back to 2012 across the six studies, Smith was able to identify some trends. For example, he noted that views on client relationships have tended to ebb and flow over the time that these studies have been conducted, but that it is rare for attorneys to score below claims executives on how those relationships are going. In this latest survey, however, 52% of attorney respondents say the strength of their relationships is stronger than three years ago, below the 54% of claims executives who said the same in the previous two surveys and well below the 61% of attorneys in the 2020 Defense Counsel Study. 

Expanding on client relationships, 52% of attorney respondents say they are doing better when it comes to understanding client needs in the latest survey, down significantly from 78% in the 2020 survey. Meanwhile, 62% believe they are doing better at creating value for their insurance clients, down from 79% in 2020. For litigation executives, meanwhile, just 30% felt this way in the 2023 survey. 

Billing was a pain point highlighted in the study, and has been a topic of discussion at recent CLM conferences as well. The average post-appeal invoice adjustment rate reported by the 2024 survey’s attorney respondents was 9.5%, and 78% of respondents say they find the adjustments to be subjective and/or inconsistent. While this is nearly unchanged compared to the 2020 survey (76%), the number of attorneys who say adjustments are objective dropped from 18% to 8% over that time.

Other survey highlights: 45% of attorneys report having higher caseloads, 56% say they have more turnover, and 65% say their law firms are understaffed, which Smith called “a big number. If law firms understaffed, that’s less resources and partnerships for claims organizations.” In addition, 91% say it is more difficult to recruit and retain attorneys.

Communication Is Key

With the 2024 Defense Counsel Study as the backdrop, Smith moderated a premier session panel to discuss the relationships between claims departments and outside counsel, and how to improve those relationships. The panel included Carey Bond, head of claims, Americas, Lloyd’s of London; J. Thaddeus Eckenrode, managing principal, Eckenrode-Maupin; Alexandra Santo, claims consultant, Golden Bear Insurance Company; and Malaika Simmons, head of claims strategy, Ategrity Specialty Insurance Company. 

The major theme throughout the discussion was the importance of, and the need for improved, communication. This theme was weaved into questions and responses on a number of topics causing friction between claims departments and outside counsel. 

For example, when asked about the most important pillar or principle in the relationship between claims departments and outside counsel, Simmons cited communication and responsiveness. “What I would really say, though, is connection,” she said. “That sense of getting back to the basics and building those fundamental relationships. Post-COVID, I think we’ve almost over-corrected and nothing’s happening in-person anymore, and I think that’s a mistake.”

When asked to close the discussion with tangible advice for the audience, Santo pointed to the need for more open communication between both parties, and Eckenrode offered, “It all starts with communication. The best results we get are for carriers with whom I have constant communication.” He added, “Relationships equal results.”

And, when the conversation ventured to the contentious issue of billing, communication featured prominently. Eckenrode, the panel’s outside counsel representative, pointed to the lack of communication on billing guidelines as a key friction point. “Now, if you give me billing guidelines, I’ll play by the rules,” he said. “If you say I can’t do X, then I won’t do X, or I wont bill you for X. But sometimes, oftentimes, the cuts that we see in our bills are things that we know are within the guidelines, but they’re just cut for what we think are arbitrary reasons.”

Stressing the need for better communication, he added, “What I think would be best for defense lawyers with new clients, or with any new assignment: The first two bills we send, before you have them audited, call us up and say, ‘Hey, I have a problem with a couple of things on your entry,’ and let’s talk about those things. Tell me why you didn’t like the entry the way it was worded, or why you didn’t like the work I did, and in the future I think we can adjust those bills accordingly so they’re going to meet your guidelines.”

On the same topic, Santo stressed that communication is a key reason she is able to resolve disagreements over adjustments: “It’s a partnership; we work with defense counsel. We know what work is being put into the file. So, we have that open communication if we’re going to [adjust] the invoice…. You should have that partnership with defense counsel so that they can call you up to discuss these issues.”

Simmons agreed, but pointed to the realities that can complicate those intentions sometimes. “I was chief claims officer at a medical malpractice company where I had 437 firms on my panel,” she noted. “So, of course I wanted to have conversations with everyone when I had to cut their bills, but it simply was unsustainable. So, yes, these communications and conversations are important, but we have to design processes that are sustainable for everyone involved, otherwise everyone is just going to be frustrated.”

Defining the Relationship

Smith opened the discussion with an important question about outside counsel’s relationship with claims departments: Are they vendors or partners? Bond replied, “I don’t know that there’s a difference.” He added, “We don’t enter into the usual relationship. There’s a purpose for that relationship, and you’re not going to do it for free. So, in that sense, you’re a vendor. But when we focus on why we’re in that relationship, it’s the insured. So, [in that regard], we’re in agreement, and we’re going to do the best we’re able to do on behalf of that insured. So it’s both [a vendor and partner relationship].”

Simmons suggested that expectations differ when we hear the word “vendor” versus the word “partner,” and that difference matters. “When we hear ‘vendor,’ we think, ‘OK, I’m paying for a service; I’m going to pay this person, they’re going to provide something.’ Whereas when you hear partner, there’s a sense of a more holistic relationship.” 

She adds, “My best counsel are the people who call me in the middle of the night and are kept up at night by the same issues I am. So I think it is an important distinction, and one we should really care about. And I think, ideally, we’ll get to a place where there is a partnership that is defined by giving each other the benefit of the doubt.”

The Heart of the Problem?

Smith, at times, lamented some of the hangups in the relationship between claims departments and outside counsel, warning of larger issues that should consume the discussions between the two parties, such as “indemnity issues that comprise 80% of total case costs.” He also mentioned the plaintiffs’ bar’s increasing use of technology, and specifically implored attendees to visit a website where plaintiffs’ attorneys can use an artificial intelligence (AI)-driven solution to increase settlement amounts on injury claims.

Still, the reality is, as the CLM Defense Counsel Study shows, that issues such as billing are a sticking point in the relationship. Smith, pointing to the study, noted, “Payment and rate issues are the top-two friction points with insurance company clients. Aggressive bill adjusting and audit was identified as the second-greatest challenge to law firms over the next five years.”

As mentioned above, better communication appears to be a way forward to resolve some of the uncertainties and misunderstandings around billing, but Eckerode expressed sentiments on behalf of the attorneys: “First of all, everyone understands that insurance defense lawyers are paid less per hour than other lawyers in commercial litigation, etc. …And every insurance defense attorney in this room tries cases better than commercial litigators who don’t ever go to the courthouse.”

He also criticized the use of outside bill auditors, saying, “I don’t understand how a guy two timezones away can look at my bill and say, ‘This was excessive time for the work performed.’ This makes no sense to me. How does he know what was excessive for that? So, yes, I would like to have some insight into what they’re looking at.”

Bond spoke of the need to set expectations in honest conversations, using modern tools to better evaluate and define relationships. “What I’m looking for is something where I can have an objective conversation with our legal partner on what we’re paying them to do the task at hand,” he said. “As a more experienced claims person, I recall the day when we’d sit down and have a disagreement, but at the end of the day, we came to a path that would allow us to service a client.”

He noted that tools providing key insights are getting better by the day and week, providing the opportunities to inform discussions between the two parties. “I have a basis that says, ‘Well, I truly appreciate what you do, but you’re not getting there for me, so this may not be the case for you. I’ll pay more for someone else to do it.’ It may leave your partner saying, ‘What am I not doing that someone else can do better?’ And if you don’t conclude that conversation before you leave the table, you’ve probably soured a relationship that could potentially be beneficial to you.”

Bond mentioned the importance of clearing up “unspoken expectations,” or, “That translation of value that you bring to me as a legal person, what does that mean to me?” He summed up by saying, “So, are we cheating our partners? If we don’t talk about it, yes, we are. But if we do, at least we know what the parameters are and what’s being met or not.”