Despite becoming increasingly entangled in legal battles, insurers are becoming more at odds with their defense attorneys due to cost-cutting measures.
This escalation was noted by the American Property Casualty Insurance Association (APCIA) as a top concern, prompting insurers to enhance reserves to cover social inflation costs, and modify insurance terms by raising deductibles and accelerating rate hikes across various lines.
According to a Best’s Review poll called “State of the Defense Counsel” involving members of Best’s Insurance Professional Resources, certain cost-cutting measures by insurers may be undermining their legal defenses.
The survey revealed growing friction between insurers and their external legal counsels due to stringent control over legal expenditures. This includes the enforcement of billing caps, adherence to stringent litigation guidelines, and delayed payment schedules.
Phil R Richards, a partner at Richards & Connor PLLP in Tulsa, Oklahoma, highlighted a shift in dynamics.
“The thing that started driving the deterioration was the change that I saw in the insurance industry, [that they were] referring to panel counsel as vendors rather than their lawyers,” he noted.
This change has supposedly eroded the traditional trust and loyalty between claims representatives and defense attorneys.
The survey, which posed 16 questions, found a significant 96% of respondents expressing dissatisfaction with the imposed financial constraints. Mark Perkins, of Perkins & Associates LLC in Louisiana, discussed the impact of insurer audits, which sometimes arbitrarily reduce legal bills by 5% to 10%, forcing attorneys to contend with compensation at paralegal rates for lawyer-level work.
“It is very difficult to get the job done in catastrophic claims without putting in the hours necessary to adequately defend the client,” he said.
Survey responses revealed widespread frustration among defense attorneys over insurers’ “arbitrary” fee reductions and the need to draft excessively detailed descriptions for routine tasks just to secure payment. One attorney described the extensive billing cuts as “disheartening and demotivating”.
G. Mark Thompson, president and CEO of Marshall Dennehey, a civil defense law firm based in Philadelphia, pointed out another recent challenge: the retirement of experienced insurance claims personnel during the COVID-19 pandemic, which has led to less experienced staff handling complex claims.
Despite these strains, some defense attorneys recognize that insurers are sophisticated legal service consumers who rely heavily on the expertise and recommendations of their legal teams, it was stated.
Patrick Brennan, shareholder and chairman of Crivello, Nichols & Hall in Milwaukee, asserted: “I’ve often thought that the insurance industry is the most astute consumer of legal services in the world.”
According to Brennan, this professional relationship is underpinned by a mutual respect, guiding insurers to assign tasks judiciously and maintain fair billing practices.
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