A Message from the Executive Committee

By Thomas A. Brophy, Esquire, President & CEO

Further Thoughts On Legal Auditing

In the last column that I wrote for this publication, I said, “There had to be a better way” than the current process of bill review wherein bill auditors analyze legal bills with the express purpose of identifying billing entries for which they can deny payment. It is the single most frustrating feature of representing insurance carriers and their insureds in civil litigation. Ask any one of our lawyers, many of whom have defended difficult cases with bad facts before hostile juries and hostile judges, and they tell will you they would much rather deal with those issues than deal with the constant barrage of exceptions to billing entries they see from a significant number of insurance carrier clients.

Recently, when discussing this topic with an auditor at a large insurance carrier, the auditor asked, “What are you complaining about? The percentage of write offs that you are experiencing is less than the industry average.” I asked what industry average she was talking about, and she said, “Seven percent.” I was shocked by her response. Perhaps I was being naïve, but I thought that clients genuinely had an interest in paying our fees to the extent that our fees had been generated in fairly representing their insureds. I told that carrier’s auditor that we were unwilling to accept any “industry average.”

However, this comment compelled me to take a further look at the industry practice of auditing billing entries. I say billing entries because the type of audit that I am discussing audits only billing entries. It does not audit legal work or the case itself. The first problem with this type of audit is the one-size-fits-all mindset. The carrier publishes a set of billing “guidelines.” Those billing “guidelines” are then applied in the same manner to every case, whether it is an asbestos case, a workers’ compensation case, a professional liability case or a general liability case. The reality is that no one set of guidelines can cover every situation. However, the auditors are trained to apply the same guidelines to every situation, which is akin to fitting a square peg into a round hole. Whatever parts of the peg don’t fit in the round hole are then written down or off in one way or another, and the lawyers are then left to accept the “discounted” fee or to reconstruct that which has been written off.

The problem of the one-size-fits-all mindset is further compounded because many carriers assign one or two auditors to audit an entire book of business being performed by a particular law firm. This reality often leads to a failure to appreciate the type of work that is being performed, the jurisdiction in which it is being performed or the attorneys who are adversarial to its insured.

Let me give you a specific example. In Philadelphia asbestos litigation, in an effort to control costs and to eliminate redundancy, one defense firm will be selected in each case to handle the “defense medical.” The law firm that is responsible for the “defense medical” will have to gather all of the medical records and diagnostic tests that are material. That law firm will also have to communicate with plaintiff’s counsel and the various defense counsel about the status of the “defense medical.” Counsel will also have to communicate with defense experts and address the need for further medical evidence and the timing of expert reports. In asbestos cases, there are multiple defendants, and this responsibility is passed from one defendant’s attorney to another, resulting in substantial savings to our insurance carrier clients since so much redundancy is eliminated.

Despite the fact that this process is mandated by the court, and the despite the fact that the insurance carrier is saving significant dollars by participating in this joint process, we find fee auditors constantly challenging the fees that we bill for this task, alleging that they are administrative or paralegal. In other words, reducing the fees that would be billed to our clients by participating in this joint process is not adequate. We must also be in compliance with the letter of each case handling guideline, even though it is impossible to be compliant with each carrier’s guidelines while fulfilling the obligations associated with handling the defense medical.

There is also the question of bias. The responsibility of a civil defense lawyer is to represent the interests of his or her client. That lawyer is dealing with attorneys who are adverse to the client’s interests. That lawyer may also be dealing with a judge who is hostile to the interests of his client and, in some cases, may be dealing with a legal system that is hostile to the interests of his client. That lawyer needs to balance the needs of all of the clients whom he is representing, in every case that he is handling, and he needs to readjust almost on a daily basis the time that he can allocate to a particular task given the requirements of each case and the demands of opposing counsel and the courts. A fee auditor brings a single perspective and a single set of rules and applies it to the work that the lawyer is doing, no matter how unrealistic those rules are when applied to a given situation. Thus, a phone call made to the lawyer by opposing counsel or by the trial judge will be written off as administrative, depending upon the subject matter of the conversation, notwithstanding the fact that the time that the lawyer expended was mandated by the activity initiated by plaintiff’s counsel or by the court.

Two years ago, we were defending a large insurance carrier in a bad faith claim in federal court. On one occasion, general counsel for the insurance carrier called the defense attorney to discuss general counsel’s availability to provide testimony in response to a court order. On another occasion, the federal judge handling the case called the defense attorney to discuss the potential deposition of the general counsel and in order to see whether general counsel’s schedule could be accommodated. In neither case did the attorney initiate the phone call. In both cases the time entries were written off as “administrative” because they involved “scheduling.” Given the position of the individuals initiating those phone calls, those write offs were nonsensical. However, fee write offs like that are routine.

The lawyer evaluates his services, in large part, by how well he or she has represented the client. I suspect that an auditor evaluates his performance by how strictly he has applied the case handling guidelines to the fees that he has audited. Over time, the auditor cannot help but become biased in favor of writing time off since that is the single most important thing the auditor does. The auditors also write off time entries that they view as vague, or they discount them to a lower fee structure. This then requires the attorney to redraft the time entry or to draft an appeal of the fees that have been written off. Often, the time and the cost of drafting that appeal is more costly than simply accepting the write off and moving on. We call it “death by one thousand nicks.” It is costly; it is demoralizing; and it erodes the partnership that our clients claim to have with us.

Some carriers take pride in the fact that their auditors are “blind” to the underlying litigation or to the result obtained. In my opinion, the auditor being blind to the underlying litigation undermines the legitimacy of the audit. Several times within the last year, attorneys at this law firm have been asked to assume responsibility for trying a case one to two weeks before trial. They have done so. In one instance, the “blind” auditor assessed the billed attorney’s fees as though the attorney had had the case from the first day that it was filed. The auditor discounted the attorney’s time, suggesting that certain things that were done by the lawyer in the emergent circumstance “could have been done by a paralegal” and things that were done by a paralegal “could have been done by a secretary.” The auditor questioned why the attorney was reviewing medical records when that task should have been done by a paralegal and so on. These fee reductions were made because the auditor was blind to the underlying fact that the lawyer had been asked to assume responsibility for the case on an emergent basis.

I continue to write about this topic because it is the single greatest frustration of lawyers working within the insurance defense industry, and that frustration is not unique to lawyers at this law firm. As a law firm, we are committed to continually reassessing how we do business and how our lawyers handle our cases. We do so out of a desire to continually improve the quality of our services and to make them more cost efficient. Unfortunately, the current insurance industry practice of assessing every individual time entry and contesting each one, no matter how minimal, if it does not contain certain magic words or if it does contain certain other magic words, requires us to spend more and more time on training our attorneys how to craft time entries. This is time that would be better spent improving the quality of the services that we perform. As I have said before, “There has to be a better way.”

*Tom works in our Philadelphia, Pennsylvania office and can be reached at 215.575.2748 or tabrophy@mdwcg.com.

Defense Digest, Vol 21, No. 4, December 2015

Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2015 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.