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How to Manage Legal Fees for Work Comp

Loss expenses are on the rise, at an alarming rate, according to California’s Workers’ Compensation Insurance Rating Bureau (WCIRB). The California Workers Compensation — Aon Advisory Bulletin (July 2014) indicates that “allocated costs (mostly attorney payments) increased 7.3% in 2013. Unallocated costs increased 10.3%.”

Given that legal costs are on the rise, here are nine ways that risk managers can more closely manage legal services:

Have in-house counsel monitor outside counsel (and adjuster performance). Litigation costs must be properly managed because overzealous defense counsel and untrained (or cooperating adjusters) can prolong litigation, increase costs for the employer and wreak havoc on the lives of injured workers.

Review outside counsel financial arrangements — consider capped fees, flat fees or invoice paid upon file completion. Paying at the end allows outside counsel to defend the claim but discourages unnecessary hearings and runaway fees and lets risk management easily review the ultimate fee rather than numerous monthly bills. Excessive fees are more noticeable and easier to compare against other files and law firms. Attorneys who are milking the claim become more visible.

An “invoice paid upon file completion” is a good approach if you use the same attorney frequently. However, this approach should not be used when the defense counsel only has one file. You could end up with an excessive bill, with little recourse other than to fight with your own chosen counsel over the amount.

Conduct an independent audit to assess whether defense counsel was needed in the first place, or whether she was just assigned the case to do work the adjuster, assigned too many cases, was too busy to do.

A favorite ploy of overworked adjusters (and lazy adjusters) is to allow the defense counsel to handle the claim. Legal counsel should not be paid to do the adjuster’s job, including gathering medical reports, state board records and ISO reports, arranging independent medical exams (IMEs), etc. An independent claims audit of your files will tell you whether you are paying legal fees for the work the adjuster should be doing.

Review hearing rulings. Review whether the same attorneys are requesting hearings on the same issue repeatedly or requesting hearings on issues they are likely to lose. For example, if benefits are terminated but reinstated at the hearing, and this happens repeatedly, it is an indication that benefits are being terminated without sufficient cause, thereby creating unnecessary legal expense. In insurance speak, this is called “churning” files.

Churning is any unnecessary activity undertaken by defense counsel for the sole purpose of increasing the legal services bill. It can be unnecessary research on a subject the attorney should know, unnecessary motions, unnecessary discovery, having another attorney in the firm review the case, having a paralegal or junior partner undertake an unnecessary action, etc.

Before any preparation by defense counsel for the hearing, the adjuster should phone the defense attorney and discuss the need for the hearing and what the probable outcome will be. If you know going into the hearing that you are going to lose, have counsel resolve the issue with the opposing counsel. It will save both legal fees and unnecessary claim costs (indemnity and medical costs continue while you wait for the hearing). By removing the unnecessary hearings, you move the file faster, with less overall claim cost, to the final resolution.

Review whether opportunities for agreement between counsel are ignored. Defense counsel may avoid agreement because it is more profitable to have a junior attorney attend hearings and collect a large fee.

For example, in Connecticut, a claimant’s doctor can be changed, with agreement of counsel, but defense counsel rarely agree even though knowledgeable counsel will know which doctors have reputations for overtreating and overrating disability, which doctors are known for unbiased treatment and ratings and which doctors have a reputation for being conservative in their treatment and ratings.

Review whether defense counsel makes unfounded accusations against claimant of misbehavior or wrongdoing (e.g. claimant is not credible or is trying to game the system) on every claim to obfuscate the issues and prolong the litigation.

If defense counsel is not totally objective in his assessment of both the claim and the claimant, it is time to immediately identify new defense counsel.

Look at whether the attorney charges for lots of research, on many files. Very little research is necessary except in unusual claims with issues of law, so files with legal research should be reviewed very carefully.

Adjusters — with sufficient authority — should attend all hearings with defense counsel. Sometimes, there are opportunities to settle litigation during hearings. These opportunities should be considered while someone with the requisite authority is present. In many cases, seasoned adjusters are capable of attending hearings without defense counsel. (This is not allowed in some jurisdictions.)

Risk managers (or the company human resources manager or the workers’ compensation coordinator) should attend all hearings to be available to testify about the job requirements and efforts to provide transitional duty and to show interest in the injured worker’s well-being. Specify this procedure in the account handling instructions.

To verify you are controlling your legal fees, a two-pronged approach is needed. A litigation management review by an independent claims auditor will determine the effectiveness of your adjusters in controlling legal expenses. This should be combined with an audit of the legal invoices by an experienced legal bill auditor.