June Risk Management Tip of the Month

Whether the risk manager has insurance or is working within a self-insured layer, requiring a budget from outside counsel is a basic best practice. If an assignment is covered by insurance - even if the insurance company does not require a budget from counsel - the risk manager should mandate this financial discipline. There are three reasons why litigation budgets are foundational best practice for savvy risk managers:

• Reality therapy. Budgets are useful for both insurers and/or policyholders. They are bracing doses of cold water and reality therapy for risk managers who say, "Millions for defense, but not one penny for tribute . . ." Budgets guide risk managers and carriers back to strategic questions such as, "Does it make business and financial sense to spend $50,000 defending a $25,000 case? How much are we willing to spend to 'make a statement'?" A price tag attached to prospective work, however, has a salutary effect on grappling with such "fork in the road" strategic questions.

• Check the sell-by date! Litigation budgets have a limited shelf life, often due to the dynamics of litigation. So, encourage or require counsel to update them, either at (a) pre-set intervals or (b) whenever a change in the case would prompt a material revision of the budget. Tell your defense attorney NOT TO WAIT FOR YOU TO ASK FOR A REVISED BUDGET IF CIRCUMSTANCES CHANGE!!

• Put on your sales hat. Blunt defense counsel (and any insurer) resistance to budgeting by (a) "educating" them on why budgets are useful tools, (b) that budgeting is not intended to play a game of "gotcha’" with counsel, (c) that it is (within reason – say, a one-hour bloc) a billable task that (d) compliance with budget practices (not the same as staying within budget, though that is a laudable trait) are one factor used in selecting or de-selecting outside firms for ongoing referrals and that (e) you view the budget as a good faith forecast, not a guarantee or an ironclad commitment.

Upgrade your risk and litigation management skills by requiring budgets – both upfront and recurring – on any legal assignment. Use budgets as decision-making tools in assessing the wisdom of continued litigation versus resolution.

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Kevin Quinley is a risk management executive based in the Washington D.C. area and serves as a consultant and expert witness. You can reach him at kquinley@cox.net or at (703) 239-1694.