When facing the possibility of mass tort litigation, insurance recovery might not be the first thing on one’s mind. However, it is crucial to recognize that even the largest tort cases had humble beginnings. As litigation scales up, defense becomes increasingly complex and costly, often exceeding the ultimate settlement costs. In the face of mounting lawsuits, insurance can be a crucial lifeline for corporations, preventing potential existential crises. That’s why it is vital to prioritize insurance considerations, even in the early stages of litigation. But what does this mean in practical terms? This article highlights the importance of considering insurance and retaining coverage counsel from the beginning when establishing a defense cost management system. By adopting a centralized system that effectively connects costs to individual cases, companies can enhance data transparency, increase the chances of a successful insurance recovery, and minimize the time and money spent on negotiations or litigation.
From Claims-Made to Occurrence-Based Policies, Defense Cost Management Matters
Effective management of defense costs plays a crucial role in insurance recovery for both occurrence and claims-made policies. In occurrence policies, properly managing and presenting defense cost data allows the insured to optimize coverage and avoid premature depletion of policy limits. By carefully allocating costs, the insured can demonstrate the reasonableness of expenses, significantly enhancing the likelihood of a successful insurance recovery. Detailed and well-documented defense cost records facilitate efficient reimbursement, promote effective negotiations, and minimize coverage disputes. Similarly, in claims-made policies, effective cost management ensures the efficient utilization of policy limits. Comprehensive documentation of defense costs strengthens the insured’s case during claim reporting, ultimately helping secure the maximum coverage available. Overall, proficient defense cost management is integral to controlling expenses and thereby maximizing coverage, streamlining negotiations, and providing essential documentation to ensure a successful insurance recovery across all types of policies.
Billing Systems Don’t Always Focus on the Requirements of Insurers
Defense claims management and billing systems serve as vital tools for prompt payment to defense counsel. However, these systems are primarily designed to interface with accounting systems, prioritizing efficient payment processing rather than catering to the specific demands of insurers. Focusing solely on the speed and efficiency of payment with purpose-built billing systems gives rise to several issues. First, firms operating on an alternative billing arrangement such as a fixed-fee basis, an increasingly popular billing method, often submit single entry invoices to a single billing number. Consequently, there is not a road map to determine the costs associated with specific matters when reviewing the bill. While some costs may be general or applicable to multiple matters, allocating costs to specific matters is vital in insurance recovery. Another concern with the inability to connect costs to specific line items is that it may lead insurers to argue that the billings include a certain percentage of non-covered costs. In addition, as companies periodically change and update defense billing systems, there is a risk of data loss during transitions, making it difficult, if not impossible, to retrieve cost information when the need arises.