A typical construction project involves the owner, the design professionals (architects and engineers), the general contractor, and numerous subcontractors. When something goes wrong and litigation ensues, there are many potential defendants. Which of these defendants you represent affects how you evaluate your litigation strategy. Regardless whom you represent, one challenge is universal: working with the insurance adjuster on your litigation budget. This article provides some best practices for working with an insurance adjuster in the defense of a commercial construction case, specifically (1) how to prepare a litigation budget; (2) how and when to change and update the budget and how to deal with the adjuster’s challenges to such changes; and (3) how to budget for the type and extent of insurance coverage, especially when dealing with an eroding policy, which is common in construction litigation.
The Budget—the Cone of Uncertainty
Creating a litigation budget at the outset of your retention can be difficult. There is a great deal of uncertainty and multiple factors that are out of your control, many of which you may not be aware of when performing your early case assessment. The adjuster, however, is looking to defense counsel for a degree of certainty where there is none. Therein lies the challenge—how to provide a defensible budget that bakes in sufficient wiggle room to accommodate the uncertainties inherent in litigation.
Each insurance company has its own budget guidelines for defense counsel. The common denominator is that insurance companies require you to budget the attorney fees and costs for every aspect of the litigation at the beginning of your retention as counsel, without the benefit of any discovery. This can include (1) assessing whether there will be initial motion practice directed to the pleadings; (2) the type and cost of written discovery; (3) the need for, and number of, depositions; (3) whether and to what extent experts and consultants are necessary and the associated costs; (4) the time and costs involved in attending hearings; (5) the likelihood of success, and the costs, of mediation; and (6) the costs of trial preparation and the number of days expected for the trial. For each aspect of the litigation, you must identify the attorney time and experience level of the attorneys involved, together with their rates, and the estimated cost.
At the beginning of a case, there is great uncertainty about how the litigation will develop over time. To address this uncertainty when building out your budget, it is important to be realistic. Use your prior experience as a guide. Because the construction defense bar is small, you likely will be familiar with the attorneys involved and how they litigate, who they will use as experts, and how reputable (or not) their experts are. You may have some knowledge of the judge assigned to the case and how the judge may handle his or her docket (how actively the judge manages his or her cases, how the judge rules on dispositive motions, the judge’s appetite for discovery battles, etc.). Use that knowledge and experience when you prepare your initial budget.
Do not to tell the adjuster what the adjuster wants to hear. Tell the adjuster what he or she needs to hear. One thing is certain: There will be changes to your budget that you will need to justify to the adjuster. If you realistically prepare your budget based on facts developed in your early case assessment, any subsequent changes to your budget will be based on changed facts, not issues overlooked when you developed the initial budget. This will make such changes much easier to justify.
The requirement to prepare a litigation budget, while burdensome, can also be beneficial. It forces you to perform an early case assessment that will help you understand the case and develop your strategy at the outset. Many successful trial attorneys develop their theory of the case and supporting themes at the outset of the litigation based on their early case assessment.
Monthly Reports—Make the Necessary Adjustments
As the litigation proceeds, you will learn more about the underlying dispute, which may change your expectations and your litigation strategy. Once again, be realistic and use your own experience to evaluate how new developments may affect the original budget. Revisit your early case assessment and adjust it accordingly. If changes are required, provide a full explanation to the adjuster to justify any changes to the budget. For example, you will learn early in the case whether there will be extensive (and expensive) battles over e-discovery that couldn’t have been predicted or built into the original budget. Once you have this information, it’s time to revise your original budget and reach out to your adjuster.
The best practice in such situations is to speak with the adjuster by phone, in addition to providing a detailed written report justifying any changes to the budget. If you have dealt with the adjuster before, you should have established credibility. If you haven’t yet dealt with the adjuster, being open and honest and realistic is the best way to develop your credibility.
Know the Policy and Prepare the Budget Accordingly
Many professionals, such as architects and engineers, have eroding insurance policies that reduce the amount of coverage by the attorney fees and costs incurred in defending the litigation. You need to account for this type of coverage when you evaluate the case and develop your case strategy. Obviously, your obligation to provide competent representation and your loyalty to your client should never be compromised. However, what is necessary to provide competent representation can vary greatly. For example, construction cases typically involve numerous parties and witnesses. In developing your budget, and as the case proceeds, consider whether you need to be involved in all of the depositions. Evaluate the need for discovery without compromising your representation. What discovery is going to be essential to your representation of the client and what can be avoided or limited? Knowing what kind of coverage your client has can help guide you when making these decisions.
By performing a detailed early case assessment, using your experience to develop a reasonable budget estimate, and being alert to potential changes in the scope and magnitude of work the case requires, you will be better positioned to work effectively with the insurance adjuster on your case.
Robert W. Wilkins is a shareholder with Jones Foster in West Palm Beach, Florida.
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