The Defense Trial Counsel of Indiana is a strong and diverse organization. Our members are involved in all types of litigation, and we enjoy the respect of our adversaries and the courts. However, when I look to the future, I see storm clouds gathering on the horizon because one of the industries our defense counsel represents has chosen a course that will ultimately cause damage to itself in the future. The industry I am referring to is the insurance industry. Specifically, many insurance companies have gone to the exclusive use of in-house counsel except in cases involving a conflict. Other companies have asked their defense counsel to accept files on the basis of an agreed defense figure that is far removed from the actual time and effort required to properly defend the insured and our client.
While budgets and billing guidelines are important tools to keep in check defense costs, some companies employ these guidelines in such a way that few defense firms can properly defend the insured and still make a profit. The result of all these burdensome obligations is that many fine firms are turning away from insurance defense assignments. And while there are still competent firms willing to handle insurance defense cases, the number is dwindling. At the same time, the number of young trial-worthy defense lawyers waiting in the wings is much smaller than it was 20 years ago. The industry is facing the likelihood of a shortage of experienced defense lawyers in the not-too-distant future.
Examples of burdensome billing practices include:
1. When an attorney bills for discovery-related work, the insurance company reduces the attorney-fee rate to a paralegal rate. In short, there is a $50 per hour reduction.
2. Many companies refuse to pay the law firm for the time, effort and costs to issue a subpoena for the production of records and documents, despite the fact that the law firm must pay its staff to type and produce the subpoena and motion to produce. The law firm must also incur the cost of the stationery and postage – none of which is reimbursed.
3. Lawyers must examine and review all pleadings, discovery and court-generated orders, yet many companies will not reimburse the attorney for the time to review such matters. For those companies that do reimburse for this fee, often it is paid at a paralegal rate.
4. Lawyers are asked to travel great distances. However, many companies refuse to pay the lawyer for the time and expense involved or will only pay a portion, even though the lawyer would not be traveling and incurring expenses if it were not for the activity on behalf of the company.
5. Authorized research and other related matters are routinely reduced by auditors who have no clue of the lawyer’s effort in a given area. While the law firm can always appeal a reduction, the time it takes to appeal is generally high and extremely disruptive of the lawyer’s practice.
It is difficult to understand why so many companies have chosen a path that makes it virtually impossible for its defense counsel to thrive, since the average hourly rate for defense counsel in Indiana is only $135 an hour. This is much less than the hourly rate for other areas of practice in Indiana and is significantly less than the national average hourly rate. Moreover, many in the industry have acknowledged that attorney fee costs have remained rather consistent over the years when compared to the premium dollar, that is, 2.5 percent to 3.5 percent. (For every dollar spent, only 2.5 to 3.5 cents are used for attorney fees.)
Let me also add that many fine companies do not employ burdensome billing practices that are destructive to the long-term health of defense firms and the industry they serve. Nevertheless, as long as the rest do employ them, we will continue to see a fast retreat by defense firms from this area of practice.
It is time for the insurance industry to sit down with its defense counsel and address the reality of burdensome billing guidelines, as well as the exclusive use of in-house defense counsel. The failure to act now will cause significant harm to the industry in the future and to the insureds the industry must defend.•
Jerry Huelat is a partner in the Michigan City firm of Huelat Mack & Keppien. He is the 2013 president of the Defense Trial Counsel of Indiana. The opinions expressed in this article are those of the author.