Most defense counsel likely think of a “win” as hearing the words, “We find in favor of defendant” read aloud by the court or the jury foreperson, or perhaps quietly reading the words, “Summary Judgment Granted” in a detailed court order. However, given that it likely cost the carrier client several hundred thousand dollars in loss adjustment expense (LAE) to receive that news after protracted litigation and/or a long trial, perhaps the insurer sees a win differently.
Likewise, while many defense attorneys are devastated to incur an adverse jury verdict of $500,000, if that comes in a case where the lowest demand plaintiff ever made to settle was $1 million, most insurers see a verdict for half that amount as a win, especially if the trial verdict is lower than what the carrier was actually prepared to pay.
To that end, a win is going to be defined differently on a case-by-case basis, depending on who is using the term, the type of case, the value of the case, etc. For defense counsel who regularly try complex multimilliondollar cases that take years to get to trial, it may be hard to remember that, on a small auto policy case, a win to the carrier is closing the file within a few weeks for a nominal payment. From the standpoint of “counsel value” then, the issue is, ultimately, whether the carrier is getting value—i.e., its “money’s worth”—for the service provided by defense counsel. Counsel who work up a file for years and run up significant fees may not actually be providing appropriate service, despite securing a defense verdict (a win) at trial.
Hence, the key to this issue, like almost all issues in our industry, is thorough communication between the claims professional and defense counsel, starting right at the inception of the assignment. One of defense counsel’s initial questions to the claims professional should be, “What is your goal here?” (i.e., “how do you define a win?”). Does the carrier see this as a case of clear liability or one of no liability? Do they intend to defend it through trial, either because there simply is no liability or to make a statement about their “willingness” to defend their insureds? Or do they hope and intend to settle the case, liability be damned? Do they expect it to be worked up vigorously to position the case for contentious but potentially cost-saving mediation, or are they interested in pursuing early mediation (or direct negotiations) before incurring significant discovery and investigative expense to get the case resolved promptly and closed quickly? If the case facts and liability are murky, how much discovery and case workup do they want defense counsel to do in order to be appropriately prepared to evaluate the case and the strategic approach? Does the case warrant or require the expense and input of experts, and, if so, to what extent and at what cost?
In this regard, policy limits often play a significant role in deciding what a win might be. The extent of the carrier’s risk should be considered and discussed. A policy with a $250,000 limit should be viewed differently from one with a $1 million (or higher) limit as the claims professional and defense counsel coordinate their initial defense strategy. Likewise, an insured’s right to consent to settlement can be a key factor. The particular jurisdiction’s laws (caps on damages, etc.) may play a significant role. Carriers need to understand that their expectations of the speed or pace by which a case may progress through the system should differ from jurisdiction to jurisdiction, and the questions they should pose to defense counsel at initial case assignment should include inquiries about “docket clog,” the particular judge’s propensities, and plaintiff’s counsel’s reputation for aggressiveness.
The certainty or uncertainty about the insured’s liability might cause the definition of a win to be fluid. In that regard, not only must defense counsel and the claims professional communicate early to try to establish the carrier’s goal in the case, but also counsel must constantly update the claims professional on case developments that might move the goalposts. Any significant fact, event, or court ruling that alters the potential exposure, damages, or liability assessment should be discussed promptly. A case that once was thought to be defensible and that could or should be won at trial for a certain anticipated defense budget might morph into one in which a prompt settlement at a higher figure than originally anticipated will ultimately turn out to be a win if it terminates further risk and exposure.
Those potential revisions in case assessment should be part of an ongoing discussion between defense counsel and the claims professional so that both are on the same track about evaluation of the potential win. No claims professional wants to hear from defense counsel for the first time in months that case value and/or risk has changed dramatically. Although the mysterious process of setting reserves is alien to most defense counsel, they must always be cognizant of the importance to the carrier of doing so, and, in that regard, the carrier must have updated information promptly. And, as has been frequently discussed at CLM conferences for years, no carrier wants to hear from defense counsel two weeks before trial on a matter that has been worked up for years as “defensible” that there is a sudden need to settle the case. With constant, ongoing communication, the claims professional will have some insight into or warning on potential developments that may alter the landscape, and they can make prompt decisions about whether to consider settlement options as part of the risk stratification in order to call a potentially worsening case a win.
Another important factor in evaluating what constitutes a potential win is the damages being claimed. As both defense counsel and claims professionals know, damage evidence is sometimes slow to develop, as injured plaintiffs may need ongoing or continuing care, and their future needs are not always immediately apparent. What was once a potentially simple or straightforward case may change over time.
However, other cases can be evaluated quickly. Two identical accidents with the same facts—including highly questionable liability on the part of the insured—may have astronomically different values. The case of a plaintiff who suffered soft-tissue injuries must be evaluated differently than that of a plaintiff who suffers an amputation, burns, or, of course, death. A defense verdict would be a win in each case, but for the soft-tissue case, the expense to get there may make an early small settlement and prompt file closure far more efficient, cost-effective, and appropriate, even if there is no real liability. The severely damaged plaintiff’s case, however, may be one that simply cannot be settled reasonably, and, as such, a win may be a trial defense verdict—or even a verdict well under policy limits—when settlement at policy limits is the only resolution otherwise available.
A win may also be defined differently depending on the carrier’s relationship with its particular insured. Even where the insured does not have a “consent” policy, the carrier often wants the input of the insured and maintains a desire to continue a positive relationship with them. Incorporating the insured’s hopes and desires about claim resolution into the defense plan can be important, as it may alter the strategies that must be employed to reach a win for that particular case.
Carrier statistics or metrics might also play a role in what constitutes a win. For cases with defined or liquidated damages, the carrier might find that the earliest possible file closure after payment on their policy is a win. Counsel should understand the carrier’s internal goals and expectations about cycle time, while the carrier needs to understand that different cases in differing jurisdictions move at different paces. A case that might close in under six months in one venue might take well over a year elsewhere. Counsel should enlighten the claims professional regarding the potential nuances of the venue, the assigned judge, and the propensities of plaintiff’s counsel. As those factors play a role in the length of the case life, they will also impact the carrier’s ability to close the file promptly, and, as such, they may define a win as paying a bit more on liability to close the file before incurring significantly more in LAE. Metrics have a role in evaluating both defense counsel and in assessing how a case should progress, but are most valuable when comparing apples to apples.
One area where defense counsel and claims representative communication is frequently weak is the issue of settlement authority. When the carrier extends a certain level of authority to the claims professional, perhaps heading into mediation, it is not unusual for the claims professional to keep that information to himself/ herself. However, defense counsel may be able to provide significant ideas about case strategy with some knowledge of the extent of settlement authority available. Investing in a $25,000 expert may make no sense if the settlement authority is only $100,000, but, on the other hand, it may be important to retain such an expert or complete some particularly expensive discovery effort if defense counsel believes that could bring a plaintiff’s attorney down from a loftier goal to something in the range of settlement value. Knowledge of the range in which the carrier hopes to close a case also gives defense counsel the ability to start “greasing the wheels” and planting seeds with plaintiff’s counsel, hopefully to diminish or dilute expectations of a big pay-day.
At the end of the day, defense counsel and the claims professional must communicate frequently and should mutually understand what the end goal is for the carrier. If a win is a $100,000 settlement, is it still a win if the carrier incurs $200,000 in LAE to get there? In that regard, would a better win be a $150,000 settlement and only $50,000 in LAE? While developing a goal or definition of a case win at the inception of the file helps give defense counsel some guidance on how a case should be worked up, an understanding that the case complexion may change should not be lost on either defense counsel or the claims professional, and the need to frequently re-assess and potentially redefine a win is critically important.
About the Author:
J. Thaddeus Eckenrode is managing principal at Eckenrode-Bauman. jte@eckenrode-law.com