First rule: Hire the best attorney you can afford who has specific expertise fitting your exact need. Do not hire jack-of-all-trade attorneys unless you’re just checking boxes and do not care if they know what they’re doing.
The very best attorneys may charge more per hour, but they generally work faster because they know what they’re doing. Besides, the full cost is not just the initial fee. If, for example, you hire an attorney to write a contract, but that contract is contested later, and especially if the contract has a lot of holes, the extra money you’ll pay to defend it will make the extra money you would have paid a high-quality attorney at the outset look like peanuts.
Second rule: I am a big fan of hiring an attorney who also goes to trial. If that is not possible, hopefully someone else in their firm is a trial attorney. The reason I like this is because I’ve seen a lot of contracts that are not likely to hold up in court. If the attorney never goes to trial, they never really experience what it is like to defend a weak contract. They are not likely to see all the points a good trial attorney will pick apart. Trial attorneys have this experience. I have found the extra insights they possess are quite valuable.
Third rule: Do not pay to train an attorney on your specific needs. If they do not already know quite specifically how to write a contract for an independent insurance agency, or defend an independent insurance agency, find someone who does. Or have them partner with someone who does, who may not even be an attorney. Or at least don’t pay them full rate for training. Might as well pay for their tuition.
Fourth rule: What do you do when you don’t get to choose your attorney?
A recent article in A.M. Best regarding insurance defense counsel factors caught my attention relative to the collateral damage to agents and particularly in relation to agents’ E&O.
96% of the E&O defense attorneys surveyed had experienced frustrations related to fee caps, billing, and payment timelines. Compare this to third-party litigation funding and contingency fees for plaintiff firms. The plaintiff firms may not get paid for some time, but they don’t have to worry much about fee caps.
I think it is common knowledge carriers are doing their best to minimize loss adjustment expenses (LAE). This is putting pressure on defense costs. To some extent maybe it’s a trade-off with loss ratios. But in my experience, really good attorneys not only go for the best money, but sometimes the more important issue is having clients that are not pains in the neck and if clients are nickel and diming you, they are a pain in the neck.
What might be more problematic is that 53% of defense attorneys have encountered difficulties with insurers regarding case management/strategic decisions. This might mean the attorney does not value a second opinion, the insurer does not trust the attorney (then find another attorney), the insurer has more or less risk tolerance, or the insurer is a control freak. I have seen how this works in E&O cases where the carrier takes the least risky path regardless of the odds of winning because if through some oddity they were to lose, the loss would be significant. This benefits analysis is critical in legal cases but it sure can be frustrating for the insured who is confident they can win if the carrier would just push harder.
Also, I am not confident the carriers’ trade-off analysis is working because I tested the five-year loss adjustment expense against pure loss ratios for 30 independent agency carriers writing the majority of premiums placed by independent agencies. No correlation exists between the LAE and loss ratios. The correlative factor is purely random. Insurance companies have a bad habit of budgeting just to budget and without a clear strategy of what they want to truly achieve with their budget. Cutting LAE without fully understanding the collateral effects is not likely the best course.
These factors put the defense on their back foot. Then, at least in my E&O experience, the good plaintiff attorneys are often paid more and have far more resources, even AI tools, than most defense attorneys. The best resources are not being employed, maybe those resources are the best available, but they are not the best.
The E&O insurance carriers, the best ones at least, have a tough and often razor edge to walk balancing insurance agents’ demands and their probable losses/wins. Agents are a different kind of client because they know the industry. Being in the industry, some agents’ emotions also get the better of them. But other agents have a high degree of knowledge about the plaintiff, the plaintiff’s attorney, the facts, and sometimes even the judges.
Sometimes it might be worthwhile hiring your own attorney to work with your E&O defense counsel if your carrier is limiting what their appointed attorney can do.
If you have a carrier who does not pay claims well, leading to more litigation than necessary, consider taking extra steps to protect yourself before the claim.
First, get a good attorney to review your contract relative to your restrictions on what you can and cannot do. For example, you are unlikely to be able to advise the insured to sue the insurer no matter how much the insurer deserves to be sued.
Second, you are more likely to be sued when you represent carriers that do not pay claims well. If you truly do not need that carrier, get rid of them. If you must live with them, be sure you train your staff well and enhance your procedures, particularly your documentation to protect yourself.
Third, consider, in all cases, how your compensation is affected by bad claims practices and lawsuits. Is your loss ratio higher than it needs to be? I have clients that have completed this analysis and decided they can create more effective programs resulting in better loss ratios and simultaneously fairer claims settlements. They looked at the situation and decided that with better attorneys, they could avoid the problems created by insurers minimizing too much of their loss adjustment expenses.
The carriers are simply not following the first rules I listed in this article. Penny wise and pound foolish rarely works in the high stakes of insurance litigation. Hire the best attorneys you can afford, who know the specific area of law, and if you must accept an insurance company’s attorney, know the restrictions they are under and consider how you can best help them make the case.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.
None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.
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