The Road to Resolution

CLM's litigation management study reveals a combination of pressures for claims organizations and defense firms

May 08, 2023 Photo

Claims and litigation executives report their organizations are experiencing increased litigation inventory, higher per-file costs, increased policy limit demands, and greater difficulty finding qualified staff, among other challenges, according to the 2023 CLM National Litigation Management Study.

The study, commissioned by CLM and conducted by Suite 200 Solutions, is the fifth of its kind, with previous studies conducted in 2011, 2015, 2019, and 2020. The primary objective of the initiative is to provide a comprehensive understanding of how claims and litigation executives are deploying resources, evaluating law firm performance, using staff counsel operations, addressing cost and quality issues, and facing new industry challenges. The 160-question survey was designed with the help of a 45-member steering committee, comprised of senior claims and litigation leaders, making this truly a study of the industry, by the industry.

Ninety-two organizations participated in the survey, and we estimate that these organizations, collectively, manage $10 billion to $13 billion of annual outside counsel legal spend, an amount equal to 40-50% of the industry’s total spend. On average, these organizations maintain an open litigated pending of 6,850 files, and a median number of 1,500 files. On average, these organizations assign 3,500 cases to outside law firms annually, with a median volume of 600 annual assignments.

Like prior studies, two thirds of participants report that one single line of business comprises more than 50% of their annual legal costs. The actual lines of business driving these costs range from general liability to auto liability to professional liability to workers’ compensation exposures.

Among the many data points revealed in the study were the following key findings:

Increased litigation inventory. The study found that litigation inventory has increased for 48% of participants, and decreased for 35%. Compared to three years ago, there are more organizations with a larger number of litigated files than organizations whose pending has decreased.

Higher per-file costs. Seventy-six percent of participants reported that litigation costs per file have increased. The percentage of executives reporting higher costs per file has increased 50% from the 2019 study, and 75% from the 2015 study. It is becoming increasingly challenging to find claims and litigation executives who feel per-file costs are decreasing.

More difficult to find qualified staff. More than two thirds (67%) of respondents say it is challenging to find qualified staff to handle litigated files.

More policy limit demands. Policy limit demands have also increased, with 72% of respondents reporting a rise. A full 68% of those reporting more policy limit demands say they do not have a system for capturing the volume of policy limit demands.

Social inflation delaying settlements. Sixty-four percent of respondents say that social inflation is causing later settlements.

Many are experiencing law firm cyber events. One third of participants reported experiencing at least one cyber event with their law firms in the past 12 months. The average number of law firms that self-reported a cyber event was 2.3 (for each respondent). The median number of firms was one.

Litigation program visibility may be decreasing. The study found that litigation program effectiveness is being discussed with CEOs less frequently than in previous years. Sixty percent said that this topic has been discussed with their CEO in the past 12 months, down from 77% in 2019.

The litigation function is less decentralized, and is playing a key role in file assignments. The study also found that the decision about which attorney should receive a file assignment is up to the claims professional in 46% of organizations. A larger percentage, 55%, said their litigation team either directs the assignment exclusively, or consults with the claims professional at the time of assignment. The percentage of organizations reporting a decentralized litigation management function decreased from 30% in 2019 to 17% in 2023.

Fewer executives report stronger relationships with law firms. Regarding outside law firm relationships, 48% of respondents said that their relationships with outside firms were stronger, while 44% reported that they remained the same. However, this number is below the 70% who said relationships were stronger in 2015. The study also found that fewer respondents believed that firms were doing better when asked three separate questions about understanding their needs, creating value, and complying with billing guidelines.

Organizations are more focused on billing compliance. More companies reported using e-billing software and third-party auditors—69% in the current study compared to 65% in 2019. The percentage reporting the use of third-party auditing services increasing from 33% in 2019 to 43% in 2023.

Core philosophical beliefs remain unchanged. The study also revealed some three core litigation management beliefs remain unchanged. For example, 81% of respondents say that spending more money on the defense of a case does not reduce indemnity costs; 83% of respondents believe that higher compensation to attorneys does not translate to better attorneys or a better outcome; and 87% say that most litigated claims also settle later than necessary. These are three important foundational aspects to the relationship between claims organizations and counsel.

Litigation expense levels are flat. The study found that 21% of total legal spend is spent on litigation support, experts, e-discovery, and other litigation expenses. This percentage is essentially unchanged from prior years. However, the study also found that the preference for exclusive relationships with one provider in a service category seems to be decreasing, with only 9% of respondents preferring this approach in 2023, compared to 17% in 2019 and 21% in 2015.

In addition to the key findings listed above, a number of other interesting data points emerged from the study:

Changes in panel size. Only one in five (20%) respondents reported a smaller panel of approved law firms when compared to three years ago. In both 2019 and 2015, that number of executives reporting smaller panels was nearly double that. One third of executives reported a larger number of firms on their panel.

Firm-versus-attorney retention. As in prior years, most claims and litigation executives (74%) operate under the philosophy that they are hiring the attorney and not the firm. However, 2023 findings show a significant increase versus 2019 in the number of executives who say that they are hiring the firm. The percentage who say they hire the firm increased by 62%, from 16% in 2019 to 26% of the participant pool in 2023.

Friction points with counsel. The top-three recurring friction points with outside counsel were: not showing strategic focus, under-reporting, and billing. These friction points are not identical, but very similar to the 2019 data.

Firms asking for performance data. Eighty-six percent of the respondents said that law firms continue to not ask for enough performance data about their law firm. However, this figure was 96% in 2019, so there may be some improvement in this area, with law firms asking for more data.

Law firm metrics. On average, respondents estimate 20% of their law firms maintain good metrics about their own performance. The median answer to this question was 10%. These numbers were higher than in 2019, so, again, there appears to be forward progress in this area.

Use of staff counsel. Twenty percent of the respondents maintain a staff counsel operation. The study summarizes numerous data points about the use of staff counsel, but we would highlight the following:

  • Half of the staff counsel operations report ultimately up through the claims organization and the other half to legal.
  • For 42% of these organizations, staff counsel has the right of first refusal on a case.
  • A full 89% of those with staff counsel feel that staff counsel is more efficient than outside counsel in terms of cost-per-case, however 40% of those with staff counsel operations believe that outside counsel obtains better outcomes.

Measuring diversity. Approximately one in four of participating organizations (27%) said they measure the diversity of their law firms and of the attorneys working on their files. Seventy-three percent do not.

Value of current litigation metrics. The value of the metrics being used by organizations to improve litigation management performance remains of great importance to our industry. We asked respondents how good they believe their organizations are at measuring law firm performance when it comes to expenses (including fees and non-fee costs), and also when it comes to measuring law firm performance as it relates to outcomes (settlement values, verdicts, indemnity payments).

We asked these questions separately so as to not conflate expense management with outcome management. Participants appear to feel that they are better at measuring expense performance (scored as 58 out of 100) than outcome performance (53 out of 100).

When it comes to the overall helpfulness of analytics and metrics generally, in terms of measuring the overall performance of their litigation management program, respondents provided an average score of 56 out of 100.

All three of these scores suggest that current metrics are more helpful than not, but these are certainly not effusive endorsements for the strength of participants’ metrics and analytics programs, or for the strength of their comfort levels with them.

In our view, there remains significant room for improvement in our industry’s use of metrics. We anticipate that the continued advancement in technologies that assist organizations in the  structuring of data, the measurement of litigation outcomes, and counsel performance will help organizations that wish to construct analytics and metrics that they find to be more helpful.

General Observations

The primary objective of these studies is to provide findings that can serve as discussion points for all the members of our litigation management community: claims and litigation leaders, defense counsel, and all of the service and technology providers that assist in the process.

Clearly, there are significant pressures emerging for both claims organizations and defense firms. Costs are up, inventories are higher, file settlements are perceived to be taking longer, and it is harder to find qualified internal staff to manage litigated files. This is a powerful combination of pressures.

For defense firms, only a minority seem to be doing better when it comes to distinguishing their firms from others, creating value, or understanding claims organizations’ needs. Many appear to have plateaued in these respects, even while the environment remains so competitive for law firms. At the same time, the use of both legal invoice e-billing software and auditing services appears to be greater than it was three years ago.

We would assert that this is the worst time for litigation management programs to be receiving less attention from CEOs and from senior management teams, as is suggested from the study’s findings. We would also suggest that true, effective, and holistic litigation management improvement is not going to be realized with an exclusive focus on legal invoices. While there may still be low-hanging fruit with that focus, those fees continue to account for a small portion of total case cost.

Our call to action, based on many of the study’s findings, would encourage all three of the industry’s primary constituencies (claims organizations, counsel, and technology and service providers) to work together to predict, manage, and optimize total case outcomes more effectively. This will require many multiple-party initiatives, including the capture and structuring of information, more collaborative litigation management platforms, and increased sharing and discussion of performance data coming from claims organizations, their law firms, and the technology and service providers themselves. 

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About The Authors
Taylor Smith

Taylor Smith is president of Suite 200 Solutions.  taylor.smith@suite200solutions.com

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