Tag Archives: litigation

How to Cut Litigation Costs for Claims

Attorney involvement has been steadily driving up workers’ compensation claims costs over the past decade. In 2014, the California Workers’ Compensation Institute (CWCI) published results of a five-year study that showed that when a single injured party brought in a lawyer the associated costs per claim went up by an average of $40,000 for permanent disability payments and $25,000 for temporary total disability benefits — even if the case never went to court. In Florida from 2016 to 2017, legal fees related to workers’ comp claims totaled nearly $440 million — approximately $254 million of that came from employers defending claims while injured workers themselves were responsible for $186 million (an increase of 36% in just one year).

These cases do not bode well for anyone except law firms. Given this present reality, what can companies do to eliminate or at least minimize the effect of lawyers on the claims process? How can they protect themselves and keep costs from ballooning out of control while helping workers get back to their jobs faster? Here are three keys to consider:

1. Stop Litigation Before It Starts

This is the No. 1 component in keeping costs down and workers happy. Contrary to popular belief, workers don’t want to sue their companies. They need their jobs and want to return to them quickly. But they also want to get results. Most attorneys are engaged only when injured workers don’t feel like their claims are being properly addressed. For example, they might not know how to get what they need, or they haven’t heard back about who they should see or what the next steps should be.

To reduce the potential for attorney involvement, companies should leverage new technologies that apply artificial intelligence (AI) to search claims and assess the risk of litigation. These solutions can quickly flag claims that need intervention so that the right member of a claims team can step in and provide a bit more hand-holding, from making appointments on the worker’s behalf with doctors who have the best outcomes scores to conducting a basic check-in to see how the worker is feeling or how the recovery process is going.

See also: Breaking the Cycle of Litigation in WC  

Early intervention that cuts off litigation before it starts is the ideal scenario. Claims that steer away from an engaged attorney can save roughly $42,617 from direct claims costs. That’s not spare change, particularly when a company needs to address multiple claims. In one example from a recent CLARA study, a small regional carrier ran a six-month pilot using AI-based software to identify claims that were referred to a high-touch team. At the end of the pilot, the carrier reported that its “litigation rate went from 14% of all claims to 5%. This means that even a smaller carrier, with 20,000 claims per year, would save approximately $42 million in claims costs if it was only half as successful as the pilot example.” That’s a pretty substantial, tangible return on the investment in the software.

2. Identify and Engage the Most Effective Lawyers

Some claims will move forward with a lawyer regardless of early intervention. But all is not lost! Just as all workers’ comp physicians are not created equal, neither are attorneys. Claims teams can still save a significant amount of money, time and frustration simply by involving the right lawyer.

Outcomes-based attorney scoring is common practice. When this scoring uses machine learning algorithms, as the newest solutions do, the best attorneys for a case are right at the fingertips of claims teams. These lawyers can work toward a fair settlement before going through a long, painful litigation process (though in some cases, it is worth it to engage in litigation if demands are unrealistic, which a good lawyer would quickly recognize).

3. Use Smart Tools to Optimize Settlements

It’s worthwhile to adopt AI-based solutions that can lend invaluable insight on optimized settlements for specific cases. Having instant access to quality, detailed information about similar claims can help determine whether to fight or settle a pending lawsuit. Machine learning provides leverage. This saves money.

While avoiding attorneys is always the goal, smart tools can stop the bleeding when it is unavoidable.

See also: Claims Litigation: a Better Outcome?  

AI and machine learning have the capacity to change the upward trajectory in workers’ comp costs. With products and tools incorporating these smart technologies in meaningful ways, the claims process can be transformed from lose-lose to a win-win for both companies and injured workers.

Breaking the Cycle of Litigation in WC

I recently shared an article discussing the fact that the workers’ compensation system is not functioning as designed, with some key data points that show just how badly the industry is missing the mark when it comes to litigation. In a nutshell, workers’ comp was created to reduce the need for litigation, and yet it has become a highly litigious market. This translates to enormous, unnecessary costs for companies while not benefiting the injured worker.

Before we get into addressing the problem, we need to determine how it became a problem to begin with. Why do workers feel the need to hire a lawyer? I engaged in a little informal research on the matter. I found a number of common trends in the reasons attorneys say they were hired to represent injured workers:

1. Insurance company denied claims.
2. Insurance company denied a treatment.
3. Injured worker was afraid he/she wasn’t going to get needs met (mostly referencing necessary care or financial impact).
4. Injured worker was afraid he/she would lose a job.
5. Injured worker wasn’t sure how to get what he/she needed.
6. Friend/coworker told the worker that he/she needed to get an attorney after being injured.
7. Lack of communication from carrier/employer/TPA.
8. Overbearing communication from carrier/employer/TPA.

The first two seem obvious. People rarely like to be told no — that is a trait we all develop early in life and tend to keep over the years. Beyond denials of claims when a case is righteous and defensible, there will be battles to be fought over compensability and reasonable, necessary care.

See also: The State of Workers’ Compensation  

The next three all have the common thread of fear. Reducing fear and anxiety should be a central goal of claims operations and employers. Effective communication is essential to eliminating these issues.

Reason #6 can best be mitigated by addressing the other reasons better and improving the overall brand of our industry.

That brings us to the last two. One says not enough hand-holding, and the other says excessive hand-holding. Although these seem contradictory, they are essentially the same thing; we aren’t engaging the individual how the person wants to be engaged. For example, as a former marine and athlete, I have had my share of injuries and know how to manage my care and recovery. Just stay out of my way, and I will be back on my feet faster than my doctor could predict. But, another person with a different life experience would be just the opposite. I don’t want you to call me all the time, but if you don’t reach out to the other person (and often) you have a problem. The combination of these points shows that a one-size-fits-all approach to engaging claimants can cause (expensive) problems.

We Need to Make Changes

I’d make the case that state legislatures need to be engaged; we were promised protection from litigation and ended up with a system that facilitates it instead. Unfortunately, there is not a quick fix, and we need to address the aspects within our control to stop the bleeding where we can.

Attorneys are not within our control, although we may wish they were. I don’t begrudge the attorneys — they are doing their job, and everyone has a right to do their jobs to the best of their abilities. But we are making their job easier by making simple and addressable mistakes.

Inserting lawyers into the claims process translates to thousands of dollars in unnecessary costs. We should know (or at least honestly believe) that injured workers don’t want to go the legal route unless they feel they have no other options. So now, what can we do about it? I would suggest we need to take action in three areas.

First, take steps to reduce the perceived need for litigation. This should include leveraging new capabilities in artificial intelligence (AI) that can assess risk of litigation as well as provide new insights into claimant sentiment. Using these types of signals to drive the way you engage injured workers will allow you to focus extra communication, hand-holding and empathy on the claims that need it without adding excessive claims handling costs to all your claims or “over communicating” when too much communication is bad.

Second, when the fight does occur, use intelligent processes for picking the right attorney. AI and business intelligence solutions can help identify not only the attorneys with the best overall results but also which is the right attorney for this instance. Benchmark your panel of attorneys in the same manner an outcomes-based network benchmarks physician performance as a first step, and then develop the nuanced approach to claimant-matching over time.

Third, develop more sophisticated “fight-or-flight” signals using predictive analytics so that you know what the likely costs/outcomes are if you cooperate, settle or draw a hard litigation line when the fight starts. Excessive litigation occurs when it’s easy and profitable to litigate, so the harder and less profitable we make it the fewer “excessive” cases we will see over time.

In summary, I refuse to believe injured workers are typically looking to score big with a vicious lawsuit directed at their employer or claims company. I am not saying it doesn’t happen, just that there is no way that that is the behavior driving the costs and the bad outcomes, and it certainly is not that common in research to date. Most people just want to be treated fairly and get better.

See also: Workers’ Comp: the Best of Both Worlds  

While I am not the first person to make this case, what is new are the technology options that unlock the capabilities to make a change. Most AI and machine learning models are still early in their sophistication and application, but the tools do exist to make more informed decisions and drive processes and engagements that can change the game. But first, we need to devote our resolve to tackle this issue head-on; we need to make the commitment to integrate and experiment with new approaches to how we address the underlying causes that are 100% within our control.

As first published in WorkCompWire.

Should Workers’ Comp Be So Litigious?

Workers’ compensation was designed to reduce litigation by trading out the employee’s right to sue his or her employer for negligence in exchange for limited guarantee of care and compensation. This exclusive remedy “bargain” was the justification for why the system was created a little more than 100 years ago.

If we look at intent and where we are today, it’s a failure (albeit a fixable one). Currently, the workers’ comp system is thought of as one of the more litigious marketplaces for insurance and healthcare. It doesn’t reduce litigation; it simply changes (and in some cases streamlines) the fight. We need to wake up and say ENOUGH! It’s time to dedicate resources on several fronts to get back to the original intent of this system.

Impact Analysis

In 2014, California Workers’ Compensation Institute released a study that provided a strong scientific approach to quantifying impact. The study showed that, if an injured party hired a lawyer, the associated costs went up on average by $40,000 for permanent disability payments and $25,000 in terms of temporary total disability benefits — even if the case never went to court. That is staggering! Prior to this study, there was a general understanding that the system was not functioning as intended, but, when the hard numbers were presented in a very defensible analysis, it was truly shocking. More importantly, the study demonstrated that the injured worker doesn’t benefit from a litigious fight, either. It isn’t good for anyone (except maybe the lawyers) when things devolve to the point where attorneys become involved with a claim.

See also: 2018 Workers’ Comp Issues to Watch  

To determine whether things have improved since the release of the CWCI study, and if so by how much, I am involved with a new study. If the initial findings hold up, I can assure you that the situation has not gotten better. It’s far more likely that it’s only gotten worse. Doing a bit more digging on the impact of litigation on claims costs, we examined data culled from multiple claims companies. Several points stood out from the early informal analysis, most notably that, across all claims, on average:

  • The overall time to resolve claims increased by nearly 10x when an attorney was involved.
  • The amount spent in temporary disability payments was approximately 4.5x greater when an injured worker was represented by an attorney.
  • The number of workdays employees missed more than doubled when lawyers were engaged.

These numbers are considerable and don’t even focus on the out-of-pocket costs of the attorney’s fees, direct litigation costs or the impact the additional friction causes in claims overhead costs.

One of the more provocative initial findings shows that, when carriers distinguish between claims that are litigated and claims that are just represented and haven’t escalated to litigation, there is little difference in outcomes. If anything, initial figures suggest the worst outcomes are more likely in the claims that are represented but not litigated (carriers have different criteria for these categories, so it’s not a conclusive finding).

It is clear that, once the injured worker decides he or she needs to get an attorney, the horse is already out of the barn. We have to get IN FRONT of this event — and not just react to it. The future health of the workers’ comp industry depends on this.

See also: States of Confusion: Workers Comp Extraterritorial Issues 

There are lots of opinions on where to go from here. But real solutions are on the table. Before we examine all of this, however, it’s important to understand why injured workers hire attorneys to begin with. (Hint: It’s rarely because they are looking to score a massive payout). In my next article, I will dive into these reasons and how to remedy them so that we can return the workers’ comp system to its original intent.

As first published in WorkCompWire.

Cyber Attacks Shift to Small Businesses

Small- and mid-sized businesses (SMBs) are increasingly at risk for data breach class-action lawsuits that typically have targeted large corporations.

Large companies are learning to address cyber threats. Hackers are responding by setting their sights on SMBs. So it’s simply more productive and efficient to attack poorly protected companies that could take weeks or even months to notice they’ve been breached.

As the risk of exposure moves downstream, the associated class-action lawsuits surely will follow. Statistics from the Identity Theft Resource Center show that the number of data breaches reported in 2016 exceeded 2015 levels by 40%, a worrying trend for those in the small business sector that likely will bear a greater percentage of those breaches going forward. The data stores held by SMBs may be smaller, but they’re no less rich in value to hackers. They contain financial data, healthcare information and other tantalizing personal details.

Security falls short

Unfortunately, because SMBs often lag behind larger companies in the sophistication and scope of their defensive measures, they’re much more susceptible to litigation centered on charges of negligence or a lack of due diligence. Exposures in the SMB sector also could go undetected for long periods, leaving more records vulnerable and increasing the size of the victim pool that may be interested in suing.

See also: The Key to Survival in Wild West of Cyber  

Smaller firms’ responses to the risk of cyber attack and litigation depend largely on their industry. Even the smallest healthcare entities are typically well-adapted to address potential data breaches and cyber risks. Long-standing mandates such as HIPAA — as well as a robust, centralized breach-reporting mechanism — have made companies in the medical space a little paranoid about their heavily regulated environment.

Behind the curve

Other small business sectors aren’t as prepared for the risk of a breach. Outside healthcare, the professional services industry, including legal and accounting, is much less aware of where threats exist or how to mitigate them. Many small firms don’t understand their responsibilities regarding data privacy or how data breach notification laws apply to them. Without a good awareness of data privacy concerns, obligations and solutions, these businesses are easy targets for any hacker who happens upon them.

Litigation bills add up

Data-breach class-action lawsuits can result in million-dollar judgments, but devastating costs may be incurred even if a settlement never materializes. A breached small business still needs to defend itself against litigation, and that takes money. Between legal counsel, forensic investigations, data recovery and any other steps the company may be required to take, the company is likely to incur significant financial penalties no matter which way the lawsuit goes.

See also: Can Trump Make ‘the Cyber’ Secure?  

Some SMBs are realizing they aren’t prepared for a cyber attack. The truly savvy ones are waking up to the prospect that, just as with the professional and employment liability insurance they already have, it would be wise to pursue coverage to defer defensive and recovery costs around their cyber liabilities. With the specter of more breaches — and more class-action lawsuits — coming down the pipeline, SMBs must find a way to minimize the threat of exposures while also putting protective measures in place should they find themselves facing litigation.

This article was originally posted on ThirdCertainty. It was written by Eduard Goodman.

Fixing the Economics of Securities Defense

In my last D&O Discourse post, “The Future of Securities Class Action Litigation,” I discussed why changes to the securities litigation defense bar are inevitable: In a nutshell, the economic structures of the typical securities defense firms — mostly national law firms — result in defense costs that significantly exceed what is rational to spend in a typical securities class action. As I explained, the solution needs to come from outside the biglaw paradigm; when biglaw firms try to reduce the cost of one case without changing their fundamental billing and staffing structure, they end up cutting corners by foregoing important tasks or settling prematurely for an unnecessarily high amount. That is obviously unacceptable.

The solution thus requires us to approach securities class action defense in a new way, by creating a specialized bar of securities defense lawyers from two groups: lawyers from national firms who change their staffing structure and lower their billing rates and from experienced securities litigators from regional firms with economic structures that are naturally more rational.

See Also: Future of Securities Class Actions

But litigation venues are regional. We have state and federal courts organized by states and areas within states. Because lawyers need to go to the courthouse to file pleadings, attend court hearings and meet with clients in that location, the lawyer handling a case needs to live where the judge and clients live.

Right?

Not anymore.

Although the belief that a case needs a local lawyer persists, that is no longer how litigation works. We don’t file pleadings at the courthouse; we file them on the Internet from anywhere (even from an airplane). These days, in most cases, there are just a handful of in-person court hearings. And the reality is that most clients don’t want their lawyers hanging around in-person at their offices because email, phone calls and Skype suffice. Even document collection can be done mostly electronically and remotely. And with increasingly strict deposition limits and witnesses located around the country and the world, depositions don’t require much time in the forum city, either.

In a typical Reform Act case, where discovery is stayed through the motion-to-dismiss process, the amount of time a lawyer needs to spend in the forum city is especially modest. If a case is dismissed, the case activities in the forum city (in a typical case) amount only to (1) a short visit to the client’s offices to learn the facts necessary to assess the case and prepare the motion to dismiss and (2) the motion-to-dismiss argument, if there is one. Indeed, assuming a typical securities case requires 1,000 hours of lawyer time through an initial motion to dismiss, fewer than 50 of those hours — one-half of 1% — need to be spent in the forum city.  The other 99.5% can be spent anywhere.

Discovery doesn’t change these percentages much.  Assume it takes another 10,000 hours of attorney time to litigate a case through a summary judgment motion (so 11,000 total hours). Four lawyers/paralegals spending four weeks in the forum city for document collection and depositions (a generous allotment) yields only another 640 hours. So, in my hypothetical, only 0.63% of the defense of the case requires a lawyer to be in the forum city. The other 99.37% of the work can be done anywhere. Because a biglaw firm would litigate a securities class action with a larger team, the total number of hours in a typical biglaw case would be much higher (both the total defense hours and the total number of hours spent in the forum city), but the percentages would be similar.

And the cost of travel does not move the economic needle. Of course, if a firm is willing not to charge for travel time and travel costs to the forum city, there is no economic issue. My firm is willing to make this concession, and I would bet others are, as well. Even if a firm does charge for travel cost and travel time, the cost is minuscule in relationship to total defense costs. For example, my total travel costs (airfare and lodging) for a five-night trip to New York City are typically less than the cost of two biglaw partner hours.

Of course, there are some purposes for which local counsel is necessary, or at least ideal: someone who knows the local rules, is familiar with the local judges and is admitted in the forum state. But the need to use local counsel for a limited number of tasks doesn’t present any economic or strategic issue, either — if the lawyers’ roles are clearly defined. Depending on the circumstances, I like to work either with a local lawyer in a litigation boutique that was formed by former large-firm lawyers with strong local connections or with a lawyer from a strong regional firm. I just finished a case where the local firm was a boutique and a case where the local firm was another regional firm. In both cases, the local firms charged de minimis amounts. In some cases, the local firm can, and should, play a larger role, but whatever the type of firm and its role, the lead and local lawyers can develop the right staffing for the case and work together essentially as one firm — if they want to.

All of these considerations show securities litigation defense can and should be a nationwide practice. It is no longer local. We need to look no further than the other side of the “v” for a good example. Our adversaries in the plaintiffs’ bar have long litigated cases around the country, often teaming up with local lawyers from different firms. Like securities defense, plaintiffs’ securities work requires a full-time focus that has led to a relatively small number of qualified firms. The qualified firms litigate cases around the country, not just in their hometowns or where their firms have lawyers.

This all seems relatively simple, but it requires us all to abandon old assumptions about law practices that are no longer applicable and embrace a new mindset. Biglaw defense lawyers need to obtain more economic freedom within their firms to reduce their rates and staffing for typical securities cases, or they must face the reality that their firms perhaps are better-suited only for the largest cases. Regional firms must recruit more full-time securities litigation partners and be willing not to charge for travel time and costs. And companies and insurers must appreciate that securities litigation defense will improve — through better substantive and economic results in both individual cases and overall — if they recognize a good regional firm with dedicated securities litigators can defend a securities class action anywhere in the country and can usually do so more effectively and efficiently than a biglaw firm.