Insurance Defense Firms & Fees

Insurance defense firms represent a group of attorneys who are closely controlled by their clients. A survey was made of claims officers of major U.S. casualty insurance companies. It indicated that the amount of fees charged was an important factor in the selection of outside counsel, but that records on past cases and timeliness of responses to inquiries were more important.

Other findings of the survey include the following:
 

1. All companies responding will accept billings at least annually, but monthly, quarterly, or end of case billings are unacceptable to some of the responding companies. Different companies have different requirements.
2. Complete, detailed bill forms are preferred, and computer printouts of detail work are acceptable to all respondents.
3. Summary bills are unacceptable to some respondents, and bills showing case title and number of hours charged only are unacceptable to most responding companies.
4. All respondents find disbursement billing by forwarding invoices for payment acceptable, and all but one company reports monthly disbursement billing acceptable.
5. Almost all respondents report advance payment of disbursements for costs unacceptable.

Insurance companies were some of the first corporations to require outside counsel to itemize what will be done and how much each step will cost before allowing outside counsel to begin work on a matter. In some cases the companies have decided, for example, to eliminate certain interrogatories as being more expensive than could be justified. Many of these companies have printed directives and forms which must be completed by outside counsel before the law firm can consider itself to be employed by the insurance company for legal work.

Credit Billing

Law firms that are heavily engaged in dealing with the general public may be aided by an ethics opinion (Formal Opinion 338, American Bar Association, Committee on Ethics and Professional Responsibility).

After years of experimentation in several states and major cities, the American Bar Association stamped its approval on the use of credit cards for the payment of legal services and expenses. Further, the committee found that interest may be charged on delinquent accounts with the client's agreement.

The committee cautions that to qualify as ethical, a credit card plan must have the following provisions:
 

1. All publicity and advertising relating to a credit card plan shall be subject to the prior approval in writing of the state or local bar committee having jurisdiction of the professional ethics of the attorneys involved.
2. No directory of any kind shall be printed or published with the names of individual attorney members who subscribe to the credit card plan.
3. No promotional materials of any kind will be supplied by the credit card company to a participating attorney except possibly a small insignia to be tactfully displayed in the attorney's office indicating his participation in the use of the credit card.
4. A lawyer shall not encourage participation in the plan, but his position must be that he accepts the plan as a convenience for clients who desire it, and the lawyer may not because of his participation increase his fee for legal services rendered the client.
5. Charges made by lawyers to clients pursuant to a credit card plan shall be only for services actually rendered or cash actually paid on behalf of a client.
6. In participating in a credit card program the attorney shall scrupulously observe his obligation to preserve the confidences and secrets of his client.

The committee also finds that ". . . it is the committee's opinion that a lawyer can charge his client interest providing the client is advised that the lawyer intends to charge interest and agrees to the payment of interest on accounts that are delinquent for more than a stated period of time."

This latter opinion sanctions a collection device which has been used by some law firms for a number of years. Clients are advised at the beginning that the firm will make an interest or service charge on unpaid accounts after thirty or sixty days. The appropriate provisions of credit reporting laws must, of course, be observed in the type of notification placed upon a bill showing a charge for interest. Law firms often find that even though the interest may not be paid, a statement showing an interest charge will hasten a payment of the underlying fee.
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Written Fee Agreements
There is general agreement among experts in professional economics that it is essential to explain the basis of charging legal fees to a new client. This procedure avoids later misunderstanding and makes it more likely that a lawyer will be paid fairly. Increasingly law firms are confirming this type of fee discussion with an engagement letter or with a written fee agreement, such as the one included as

Billing Follow-Up

Some law offices send a bill and never check to ensure that the bill gets paid. In consequence, these firms build up a very large amount of receivables, most of them worthless. The authors remember well one evening spent with a relatively small rural firm during which a review was made of accounts receivable dating back over many years. As a copy of a bill was picked up, the senior partner would mutter something like, "I'm sure that Joe must have paid that." Then a search of accounts would follow with the revelation that the bill had not been paid. The lesson of this, of course, is that one can trust neither to memory nor luck to collect a fee once a bill has been sent.

In any given practice between 50 and 80 percent of all bills are paid within thirty days of initial presentation. The others require reminders.

There is no reason why lawyers should not invoice monthly like every other business organization. A well-managed law firm will have the bookkeeping department send out statements at monthly intervals for some months following the initial bill. After a period of 60 to 120 days the delinquent bill must be brought to the attention of the billing lawyer, so that he can arrange some other follow-through toward collection. The circumstance of each case determines the further action needed. Some clients need a telephone call reminder; others may respond to a letter request for payment.

Some law firms today are taking a hard-boiled attitude toward the collection of fees from clients who can afford to pay, and they are suing as necessary to enforce collection.

You should be aware that many malpractice suits against lawyers arise as countersuits in fee collection matters. A suit for a fee should only be brought if the firm is absolutely sure that no negligence existed in their handling of the matter.

Under the former Code of Professional Responsibility, EC 2-23 on the subject of collection of fees it was stated that:

A lawyer should be zealous in his efforts to avoid controversies over fees with clients and should attempt to resolve amicably any differences on the subject. He should not sue a client for a fee unless necessary to prevent fraud or gross imposition by the client.

ABA opinion 250 (1943) issued under former Canon 14 states:

Ours is a learned profession, not a mere money-getting trade. . . . Suits to collect fees should be avoided. Only where the circumstances imperatively require, should resort be had to a suit to compel payment. And where a lawyer does resort to a suit to enforce payment of fees which involves a disclosure, he should carefully avoid any disclosure not clearly necessary to obtaining or defending his rights.

It should be remembered that an attorney has a common-law right to a lien on the money or property of a client until a proper fee has been paid. He also may have an enforceable right against funds held by the court for the benefit of his client until the fee is paid.

When a law firm encounters deadbeat clients, it is very important to make sure that further work is not performed for them. This generally means that a notation should be made on the client's file index card or on the firm's computer data base to insure that the old non-payment is brought to the firm's attention when the client asks for further services at a future time.

The Language of Billing

There are many styles for bills rendered by the legal profession. The style of the bill depends on the type of client involved, the frequency of billing, the personality of the firm or of the billing attorney, and the amount of direct involvement the client has had with the matter.

Many years of consulting experience with law firms have led the authors to believe that there is a great deal of wasted motion in the preparation of bills. The firms that habitually and constantly prepare long and detailed statements tend to collect no larger proportion of their fees than do those firms that generally stick to relatively brief reminders of the services performed. A good generalization, subject to the limitations of all generalizations, is that the amount of information provided in a bill should be no more than absolutely necessary to get the bill paid. If the client has been kept abreast of the work performed on his behalf as that work was performed, and if billing is performed at relatively frequent intervals so that the client's memory has not grown dim, then very brief bills will work well.

If a firm has a regular pattern of monthly billing, detailed bills may not be necessary. However, more and more business clients are asking for item-by-item listings of the work done. This may be due to increasing client understanding of the way lawyers charge and increasing pressure from management for justification of legal fees.

Quite often, lawyers who prepare long bills do so more to justify their charges to themselves than to explain the charges to the client. A phrase in a bill referring to a legal document which the client never saw may mean nothing to the client, but it will remind the attorney that he spent a considerable amount of time preparing the document.

When a portion of a fee can be deducted on a tax return, this information shown in the bill will generally make the fee amount more acceptable.

It is generally inadvisable for a law firm to show clients the precise number of hours spent on each service since this can lead to unnecessary questions. No matter what explanations a law firm gives, if a client has decided that he is being charged too much for legal services, he will eventually try another law firm.

There are some situations, however, in which law firms agree to bill on a time basis; then clients may insist on being advised of the total number of hours spent on their behalf. Such arrangements are also not uncommon with government bodies and insurance companies.

In contingent fee cases an accounting is rendered to the client. It is generally a good idea to provide details with regard to the costs advanced since they are being repaid out of the client's money.

The bane of attorneys handling insurance company matters is the great amount of detail required in the billing process. Some law firms are presenting their insurance company clients with copies of the computer print-outs received from their time records system; these provide a detailed list of the actions taken on insurance defense matters. The firms report that the companies are delighted with this time-saving means of obtaining the information they require, and that the clients have no problems in reading from print-out copy, since they generally are also using it internally. The same may be said for detailed billings to business corporations.

If a computer print-out is not available or not desired, there are several styles of itemized billing which may be prepared in law offices. Some firms list each step of the case; some add the actual time used for each service.

Excessively long and detailed bills, when not required by the client, are generally the result of late billing or poor communications. The preparation of such bills is costly in lawyer and secretarial time and yet adds little to the client's knowledge of the value of the services performed. Had these clients been billed each month or had they received adequate periodic reports on the progress in their cases, the form of the bill could have been quite different.

Review of Fee Policies

In a period of changing dollar values, no organization can long neglect to review its pricing structure. Professional organizations are not exempt from the laws of economics.

Pricing policies must consider the fee levels of competitors and costs of providing services as well as the current philosophy of the firm to expand, remain static, or contract. These are not the principal criteria which apply to setting a specific fee in a specific matter, but they are the criteria that must be considered when there is a general review of the level of charges.

Such a review should be formally undertaken at least annually. At that time, a law firm should recalculate its standard hourly rates, on the basis of new cost information, including the cost of employing associates and the proper remuneration of partners.

At the same time, standard fee charges used within the firm must be reviewed and adjusted.

The general philosophy of the firm should also affect charges. For example, a firm that has decided that a certain aspect of its practice is uneconomic or undesirable may simply raise the fees for this type of service. It may thus reduce its volume in this one area of practice and at the same time make the work which it does retain, more lucrative.

The contrary policy of lowering fees will not necessarily produce more work for a firm which is seeking more. This is because prospective clients are generally unaware of the available "bargain." There are some exceptions to this generalization. In some standard routine services, such as real estate conveyancing, in which clients are referred by brokers, and other like services, where real price competition may exist, increased business may result from a lowering of charges.
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