“Close Those Files or Else!” The Need for Case Resolution Planning

Kevin G. Faley and Andrea M. Alonso
*Originally published in
The Brief

At insurance companies, one always encounters the clamor to close claims files, move cases along, or reduce caseloads. This is directed first at claims examiners, then regurgitated to defense attorneys. Such exhortations from a company’s upper levels carry great weight, and claims handlers are pressured constantly to reduce the number of open claims. However, problems arise when no one has thought out a plan to dispose of these cases.

Merely screaming “Close files!” accomplishes nothing. The pressure to move a case can reach a breaking point if the attorney lacks a means to settle a case or sufficient money to make a serious offer to the plaintiff. The attorney or firm often is unjustly blamed for leaving files open too long when, in fact, the overburdened judicial system and a lack of communication between the attorney and the company are at the root of the problem. Hence, the company and the defense attorney must form a partnership, create a business plan, and clearly develop a precise method by which to close each file.

The Prelitigation Phase

Three critical junctures to dispose of a claim usually arise. The first is when a potential case arrives in the form of a claim letter, a letter of representation, or other first notice such as a summons and complaint. Even before a company retains a defense counsel, a claims examiner should attempt to dispose of the file with the plaintiff. Especially with property damage and personal injury claims, the examiner must obtain sufficient information from the plaintiff to make an informed decision whether to settle or select outside counsel. Often a time-consuming process, this requires patience and numerous telephone calls with a plaintiff. Without doubt, it is far easier for a claims examiner to dump the claim reflexively on an outside counsel than to carefully consider whether the case should be settled or litigated.

That, of course, is the claims examiner’s prerogative. However, if he or she pursues this course, the examiner has no cause to bristle when an attorney’s invoice is received for the numerous phone calls and court appearances necessary to close the file for a minimal amount. If the $1,500 property damage case is settled for $750 after three court appearances of approximately three hours each, the company cannot cry foul when it gets an invoice that exceeds the cost of the entire settlement. Frankly, claims examiners must take the time to dispose of these cases before sending them to defense counsel or bear the burden of the legal fee arrangement.

Similarly, we have received property damage cases where one phone call to the plaintiff’s counsel offering 50 percent of the loss on a take-it-or-leave-it basis has immediately closed the file. Plaintiffs do not look forward to two-or-three-hour sojourns to night court any more than anyone else does. Cases such as these emphasize that claims examiners can easily achieve the same result with minimal effort.

One major snack food manufacturer has significantly reduced its potential legal claims by responding to complaint letters with coupons for free bags of snack food redeemable at local stores carrying the product. The cost to the manufacturer is minuscule, especially when compared to the potential legal defense fees. A risk management analysis of literally thousands of potential claims against this company demonstrates that they have been reduced to just under 100 actual product liability lawsuits. Similarly, one retain operation gives out gift certificates in small amounts when they receive claim letters for slip-and-falls, falls on displays, or other minor store accidents. The cost differential between the gift certificates and litigation is enormous. This is proof positive that creative thinking can lead to solutions for early disposition of possible lawsuits.

The Postdiscovery Phase

Another propitious time for disposing of cases arrives when all discovery has been completed and a statement of readiness for trial or note of issue is filed. In New York, for example, an average of six months elapses between the time of a note of issue is filed and the first pretrial conference before a trial judge. Another six to 12 months can easily pass between the time of the first pretrial conference and a date on which a jury is picked.

Companies have been known to exclaim “You are not doing anything to move this case along!” during this time frame. They will want defense attorneys to force the issue somehow, and one time-tested but outmoded and often unsuccessful method is what they will expect: offering money to plaintiff’s counsel by phone. A company will call defense counsel seeking his opinion on case value. The company then goes to a committee or home office to seek authorization to make an offer. The company then tells defense counsel to offer 10 percent of what the case is really worth. Defense counsel then calls the plaintiff and, after 10 voice messages, communicates the insubstantial initial offer. Plaintiff’s counsel immediately realizes that the company is not serious and is merely using defense counsel as a conduit of the company’s authorizations. The plaintiff decides he is tired of this fruitless, time-consuming haggling and forcefully responds with “I’ll see you in court.”

This traditional insurance company method of attempting to move cases before trial is worthless. It is as outdated as a carbon paper copy.

So, what is the alternative?

We recommend initiating “settlement days.” This involves setting aside a day at defense counsel’s firm to specifically resolve as many cases as possible. Conferences ranging in length from a half-hour to an hour – depending on the complexity of the case – are arranged throughout the course of a day. Attendees for each conference include the plaintiff, plaintiff’s counsel, defense counsel, and a representative of the company. Everyone meets face to face, over a tray of bagels and a pot of coffee, to seriously and in good faith discuss settlement. By taking the time and expense to come to the case venue to attempt to resolve the case, the company representative sends a message to the plaintiff: we seriously want to get rid of this case. Today. Furthermore, the plaintiff should realize that the attorney-as-messenger role is eliminated. He is dealing directly with the “money man.”

Defense counsel advocates his or her position, and the company representative is left to give the plaintiff a full and fair incentive to settle the case immediately. When both the injured plaintiff and his or her counsel attend the conference, the company representative is certain that his or her offer will seriously be considered by the plaintiff directly. This is not necessarily true when communications are made only to plaintiff’s counsel. A face-to-face conference conveys to both the plaintiff and plaintiff’s counsel the company’s commitment to disposing of the case as quickly as possible.

One of our most innovative insurance company clients actually sends its top negotiator to the settlement day conferences with blank checks in triplicate. Intentionally, the checks are visible to the plaintiff at all times. The negotiator writes the check in the amount of the offer and tells the plaintiff and his counsel, if they do not accept the check immediately, that “I’ll leave it at the firm if you change your mind.”

Some companies will argue that it is expensive to send a representative to New York (or some other city where their law firm may be situated) to settle cases, and they are right. Nevertheless, letting cases stagnate on the trial calendar is more expensive. Another benefit is gained by settlement days, namely, the disruption of work routines. After many years of litigation management, the claims examiner is used to working and thinking in a preordained way. Forcing him or her to leave the office, travel, and break the normal routine may well inspire him or her to think differently. Indeed, in our experience, the results have been spectacular. Cases have been disposed of quickly and cost efficiently. Face-to-face settlement conferences between company representatives and plaintiffs usually achieve a settlement rate of 75 percent or greater on an average day.

Of course, not all cases lend themselves to easy resolution at settlement days. Fraudulent and exaggerated claims must be litigated. Believing that a multimillion-dollar exposure case with multiple defendants can be settled by the same method as a two-car accident is simplistic. However, most cases lend themselves to a settlement day scenario.

An alternative to a company representative traveling to the firm and meeting with the plaintiff is having outside counsel travel to the company’s home office to discuss pending litigation. In this situation, the attorney prepares a brief summary of each case and spends a day – or a few days – at the home office with a supervisor and various claim examiners tailoring a plan for disposing of each open file. In some cases, immediate offers will be marked for mediation or arbitration. A small number of cases will be strenuously defended throughout trial and verdict.

The crucial aspect of settlement days or the alternative just discussed is that both the insurance company and outside counsel set aside time – without other distractions such as daily court appearances, telephone calls, personal problems, etc. – to focus on case resolution planning. Without dedicating significant blocks of time to purposefully discussing case resolution plans on a case-by-case basis, no decrease in open claims will be realized. Expeditious case handling can be achieved only though extensive dialogue between the company and outside counsel.

The Trial Phase

An unwritten belief exists that once a trial begins no novel methods of settlement can be used. To the contrary, it is a fine time to think out of the box and produce creative alternatives to the winner-takes-all mentality of trial. A verdict never needs to exceed the policy limits. Most plaintiffs will agree to a “high/low” agreement to ensure themselves of some return on the investment they have put into a trial

From a plaintiff’s perspective, a high/low agreement guarantees that a minimum monetary amount will be received regardless of the verdict. In most cases, this will result in plaintiff’s attorney’s out-of-pocket expenses being covered even in the event of a defendant’s verdict. To a defendant insurance company, the agreement will prevent a runaway jury verdict and also protect the carrier from bad faith claims if the jury verdict exceeds a limited policy of insurance. It places a ceiling and a floor on the amount of money awarded at trial.

A $50,000/$250,000 high/low agreement means $50,000 will be the minimum award and $250,000 will be the maximum despite the jury’s actual verdict. If the jury returns a defendant’s or plaintiff’s verdict up to and including $50,000, the plaintiff will receive $50,000. If the jury returns a verdict of $50,000 up to and including $250,000, then the actual verdict amount is paid to the plaintiff. If the verdict exceeds $250,000, the plaintiff is entitled only to the $250,000 “high” of the agreement.

High/low agreements are now being used more often at trial and are viewed favorably by all sides. Insurance companies should consider them more often and use them even in arbitration and mediation situations.

Another creative method to dispose of a case before verdict would be bifurcating a trial. Court rules in some jurisdictions mandate bifurcated trials – that is, trying liability first, followed by damages. Defense counsel may agree to a value of the case with the plaintiff, then agree to try liability only to determine the relative share of fault of each defendant. This method ensures that a runaway verdict will not occur.

Conclusion

Demands of “Move my files or else…” must be answered with creative, hands-on solutions proposed by claims examiners and/or defense counsel. The most productive method has proven to be in-person conferences with plaintiffs, their counsel, insurance companies’ representatives, and defense counsel. Without innovative techniques to dispose of cases, the future holds inflated open claims numbers, bogged down trial calendars, overburdened claims examiners, and a frustrated litigation management atmosphere. Defense counsel can avoid all of these through meaningful debate with the insurance company seeking to devise tailored methods to resolve individual files on a case-by-case basis.

Kevin G. Faley and Andrea M. Alonso are partners in Morris Duffy Alonso & Faley, an insurance defense firm in New York City. Mr. Faley specializes in litigation and trial work, with an emphasis on construction litigation. Ms. Alonso specializes in appellate litigation. Kevin can be reached at kfaley@mdafny.com and Andrea at aalonso@mdafny.com.