August 14, 2022

Archives for February 2021

Become a Sought-After Client: Assess Your Own “Payment Culture” With Outside Counsel

Recently I shared thoughts about specific questions that adjusters should pose to outside defense counsel to gauge the “billing culture” within the law firm.

This got me thinking about the “payment culture” within the insurance company or TPA overseeing claims and working with defense counsel. If it’s legitimate for claims people to poke and prod with regard to the law firm’s billing culture, it is legitimate as well for attorneys to inquire about the payment patterns of the insurer or claim department.

Admittedly, this is a delicate topic. Candidate law firms trying to win or keep business referrals from insurance companies do not wish to come across as being obsessed about billing. However, law firms — like insurance companies or businesses — and survive (or die) due to cash flow.

It’s no secret that some insurance companies (which will remain unnamed here), whether intentionally or through benign neglect, drag their feet and paying defense attorney bills. As a claim adjuster and supervisor, I knew of one multibillion-dollar insurance company that had an unwritten rule that no law firm Bill was considered for payment until it was 90 days old. Other insurance companies appear to operate on the basis that “the squeaky wheel gets the grease” (and the bill payment).

Tip: be a good client by paying bills on time.

Set expectations with outside counsel as to when bills get paid, within “x” number of days for example.

If there is a problem or question about a bill, communicate that quickly to the law firm so it can address it.

Consider issuing payment for the undisputed portion of the bill.

Help defense counsel maintain reasonable cash flow by not foot dragging bill payment.

Don’t put them in a bad spot vis-à-vis their firm management, which notes that there is a receivable problem with your files.

Avoid developing the appearance or reputation of a “deadbeat” client or a source of business. It’s going to be harder for the attorney to argue on coverage disputes that your company keeps its promises, knowing that the company drags its feet with regard to paying bills on time.

Claims people may be unaware that in many law firms, Insurance Defense Practice is looked down on by other departments of the firm. It can quickly be perceived as the orphaned stepchild of the different practice groups in a larger firm. Hourly billing rates for insurance work are much lower than those for other types of high prestige or cachet practices such as transactional work, tax, M&A, commercial litigation, intellectual property, etc. I’ve spoken to many attorneys in larger firms who do insurance work who privately tell me the pressure that they get from firm management to increase the rates.

Do you want to attract the best legal talent to your cases?

Do you want to be able to summon high-quality legal assistance on short notice in time-sensitive situations?

Do you want to be viewed as an attractive client, the kind that lawyers want to work for?

Set clear expectations with outside counsel as to payment cycles.

Honor those payment cycles.

Pay defense attorney bills promptly.

If there are issues or problems with the bill, communicate that quickly to outside counsel so that they can either explain the bill or consider writing it off or writing it down.
Assess your own corporate and departmental culture with regard to bill-paying. Strive to be a sought-after client by not creating undue financial hardship on the cash flow of your outside counsel and firms.

In the short run, you’re helping them.

In the long run, you’re helping yourself by demonstrating that you keep your promises and that you are a good business partner and somebody that high-quality law firms and attorneys want to work with.

Seven Questions to Ask Candidate Law Firms to Assess their “Billing Culture”

One huge aspect of shopping for legal services involves fee discussions. It is common to gather hourly rate information and fee schedules from candidate and incumbent law firms. Whether you are a claims professional, risk management, insurer employee, TPA rep or an in-house general counsel, you need to make sound cost decisions when selecting outside counsel for your legal needs.

A simple review of hourly rate or fee schedule may not tell you all you need to know, though, in managing litigation, controlling costs or assessing a good economic “fit” between yourself and a law firm. What hourly rates and fee schedules will never tell you is the “billing culture” within a firm. Hourly rate tells you nothing about how efficiently a lawyer works. It masks the situation where the firm low-balls the hourly rate but “makes it up” by laying on charges with a heavy pencil. If the firm arranges to take twice as long to draft a motion or research some point of law, the 10% reduction in fees you won are now offset.

That is a false economy.

While it’s easy to determine hourly rate, discerning a firm’s billing culture is notoriously difficult. That does not mean that it is impossible, however, or that the discerning buyer of legal services shouldn’t try nonetheless.

How do you get to the issue of a firm’s “billing culture,” the degree of pressure within a firm to pump up the volume on billings? One approach comes from asking the right questions during the “courtship phase.” This is part of doing due diligence on any attorney or law firm that you are considering. These may be out of the norm from the usual list of interview questions posed by risk managers, adjusters and other buyers of legal services.

Nevertheless, these questions can poke beneath the surface gloss, to probe the depths of the billing culture of the law firm in question. Consider these questions to discuss fee issues with any firm you are considering using. True confession time. I cannot take credit for these. They come from Chicago attorney Mitch Orpett of Tribler Orpett & Meyer.
Orpett rightly observes that few clients pose the following questions to law firms:

• What is the minimum number of hours your associates and partners are expected to bill? (We hear of some firms that have minimum billing quotas of 2000, 2200 or 2400 hrs. per year. That puts a premium on heavy billing.)

• What are the bases of attorney compensation and advancement? (Is work quality considered? How? What percentage of the evaluation is driven by production of billable hours?)

• Are billing minimums used, particularly by new attorneys who often handle the firm’s motion call for each day’s scheduled court appearances?

• What kind of training do new lawyers receive from the firm and who pays for training time? This tells you the commitment that the firm has or lacks with regard to ongoing continuing education.

• How are attorneys supervised? What is the firm’s general culture?

• Do your attorneys engage in non-billable activities? Who is responsible for reviewing and approving bills? Is there some kind of quality control or quality check on bills before they go out to the client or the insurance carrier?

• Do attorneys receive bonuses for hitting certain billing targets?

By posing these questions, you are putting yourself ahead of probably 90% of all clients. Many (most) client meetings with firms are “grip and grin” glorified social calls. It need not be this way. You do not have to transform yourself into The Grand Inquisitor, but pack the exchange with substance.
Let’s be clear and not dismiss out of hand the relevance of hourly rate as one data point to capture. None of this means that checking out the attorney’s or law firm’s hourly rate is irrelevant.

Do not throw away the fee schedule. Factor in those quantitative data points but leaven them with answers to these searching questions. Listen carefully to the answers. Then and only then decide if, financially, you and the law firm are a good fit.

What is missing here? What do you find are other ways to assess a law firm’s billing culture in order to help manage litigation costs? Share your thoughts here.

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