April 14, 2021

Don’t let AFA’s lull you to sleep in managing litigation!!

Alternative fee arrangements are becoming increasingly common, regardless of whether they are more or less popular with law firms. First, a brief bit of nomenclature.   AFA’s arise when something other than billable hours determine the fees for the law firm.  BUT, AFAs—especially in insurance defense — can include various arrangements other than contingent fees:

  • Fixed fees: where a firm handles a single case (or portion of it) for a pre-specified, negotiated amount.
  • Flat fees:  where a firm handles a “book” of cases (multiple similar cases, cookie-cutter types of claims or functions) for an agreed negotiated total. There may be a specific number of cases, or the agreement may be for all cases of a specific type that occur during a set time period.

With flat or fixed fees, there can be a temptation for adjusters to put litigation cost management on cruise control. The thinking can be,  “Since fees are fixed, why worry?”

This is a dangerous mindset, however. Even with fixed or flat fees, there are many components of litigation expenses that the adjuster must control that are not capped by flat fees: expert services, court reporter expense, etc.  This is not chump change! Increasingly, law firms are passing expenses along to clients. Meals, legal research, car services, photocopies, etc. Many alternative fee arrangements don’t address these.

And even if your litigation guidelines do, there must be vigilance in monitoring and managing compliance with your expense guidelines. It underscores again that AFA’s are no reason to put a case on cruise control or fall asleep at the wheel in terms of managing litigation costs.

Even with AFA’s, there are still many components to manage that impact how much or how little the claim ultimately costs. Don’t think that just because you are not paying a law firm or an attorney by the hour that you can take your eye off the expense management ball. There are still many other expenses to manage. Further, the adjuster should stay engaged in the claim in order to push for early resolution opportunities, discern Windows of opportunity with regard to possible settlement, advocate alternative dispute resolution, etc. A disengaged adjuster allowing defense counsel to turn over rocks and production around may experience case drift and forgo opportunities to resolve the case quickly.

Don’t be lulled into the stance of thinking that flat fees or alternative fee arrangements exempt claims people from aggressively managing expenses. Abandoning cases to counsel can infect other parts of file handling, leading to “drift” — cases lingering, staying open longer than they should. This can increase claims costs because claims, unlike fine line, do not improve with age.

Budgeting and planning are still crucial functions, even with AFA’s.  And, while we’re on the budgeting — maybe try to re-frame counsel’s focus from developing a litigation budget to developing instead a resolution budget!  The point is, by all means use flat fees, but don’t use them as an excuse to abdicate vigilant management of litigation costs.

Further, there is much more to litigation management then cost control. Unfortunately, litigation management has become almost synonymous with slashing litigation costs. While cost management is one component — a key component — of litigation management, it is not the end-all and be-all. It is not the entirety.

There’s still the matter of managing the service, the process and the outcome. These are vitally important as well. There’s no point in excelling at managing litigation costs if it degrades the service, process, or compromises the quality of the end result.

This is yet another reason why alternative fee arrangements are worthy, but they do not absolve adjusters of the duty or responsibility to keep their “heads in the game,” to be engaged, to be hands-on and to not take their eye off the ball in terms of litigation management.


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