Canadian Underwriter
Feature

Starving the Bar


March 31, 2008   by David Gambrill


Print this page Share

Insurers trying to scrimp on litigation claims costs may be unintentionally starving the insurance defence bar, a senior member of the bar told delegates at the CIAA/CICMA conference.

Guest speaker Brian Elkin of Lavery deBilly LLP said the insurance defence bar stands to lose its best and brightest lawyers because insurers, which are trying to shave money off their legal expenses, are looking for ways to pay less money to the lawyers responsible for defending them.

Elkin listed several concrete examples of how penny-pinching by insurers could result in the defence bar not vigorously defending the case, driving up insurers’ claims costs in the forms of huge settlements.

Elkin noted that some insurers have refused to pay a lawyer’s up-front administration costs, called ‘disbursements,’ meaning that lawyers have to pay photocopying and research costs out of pocket.

In another example, insurers have tried to save money by not paying for the binding of court reports, which include expert witness testimony both for and against the position of the defending insurance company. If the plaintiffs’ lawyers pay for binding the report, Elkin noted, they can choose the order of the bound contents; inevitably, they will ensure the expert testimony most prejudicial to insurers will appear right at the beginning of the report — the first thing jury members read.

Young lawyers in the lucrative field of commercial litigation are putting in fewer billable hours and yet are making more money than hard-working lawyers in the insurance defence field.

In particular, Elkin observed one situation in which trial lawyers billed $195,000 in legal fees on a case that settled for $60,000. “Why do plaintiffs’ lawyers do this?” Elkin asked rhetorically. “Because they can.”

In the meantime, if defence lawyers tell their clients that they need to increase their reserves and/or collect more premium money to help pay for escalating litigation costs, “we get a fight,” Elkin observed.

He noted some insurance defence lawyers are charging about $100-per-hour less to keep their insurance business. For a single lawyer, that kind of concession translates into a lost business income of almost $185,000 each year.

And if nine insurance defence lawyers in a firm take that kind of hit, that translates into a loss of more than $1-million in a year for a law firm. Elkin said the fear is that partners will notice this kind of drop in income and question whether insurance law is worth it.

Elkin said if bright, young up-and-coming lawyers start to notice this dynamic, it will be difficult for law firms to attract them into the field of insurance defence law. “[As insurers] try to attract people to do insurance defence work, who will represent the industry as you go down the road?” Elkin asked rhetorically. “It’s not going to be the best lawyer.”

He observed the situation has already reached the point where specialized (also known as “boutique”) law firms are moving into areas of law other than insurance. In addition, entire insurance practices have left law firms — the theory being that, without having to pay the overhead associated with being members of a firm, they might be able to stretch their income further.

Elkin concluded by saying he hoped his message would be taken as coming from “a member of the family.” Family members tend to be harsher with each other than those around them, he added.


Print this page Share

Have your say:

Your email address will not be published. Required fields are marked *

*