#5 Challenging Insurance Billing Rates

Brian Friel continues his roundup of The Ten Biggest Mistakes Made By Corporate Insurance Policyholders with point number five, the importance of challenging insurance billing rates.  Far too often policyholders rely on insurance litigation billing guidelines and accepting whatever reimbursement an insurance carrier is willing to provide.  The norm is for insurance carriers to apply a heavy discount to submitted legal bills.  There are many ways they do this, and most of them are improper.  In this video, Brian addresses best practices for challenging insurance billing rates, a problem that is present with most any liability insurance claim. 

Challenging Insurance Billing Rates

One of the ways that insurance carriers attempt to limit their exposure is by arbitrarily limiting hourly rates that they are willing to pay for defense attorneys. Typically, insurance carriers cap hourly rates at a level that is far below market rates available to, and paid by, policyholders.   Corporate policyholder are then left to make up the difference between unreasonably low reimbursement rates proposed by an insurance carrier, and the actual rate that policyholders pay for attorneys.  This delta increases with complex litigation, where hourly rates are higher, and where cases take longer to resolve.  

There is a solution to this problem.   Watch the video to learn more about the importance of challenging insurance billing rates, and best practices for resolving disputed billing rates. 

For a transcript of the video, please see below

Another mistake or common mistake made by corporate policyholders is relying on insurance companies’ litigation guidelines and their billing requirements, how much insurance companies are willing to pay outside lawyers to defend a company in a lawsuit. Here’s the scenario, you have an insurance policy that is a duty to pay your defense cost. You are allowed to go out and hire your own attorneys to defend your case, you pay those attorneys and then you submit your invoices to the insurance company to pay, after the fact, your attorneys.

Scenario number two is insurance company has a duty to defend, but you negotiate as a policyholder that because of a prior relationship with a law firm or because of a certain complexity of the case that you need to have a certain lawyer or a certain law firm do the work as your defense counsel, and you get the insurance company to agree to it. Under either scenario a problem almost always arises which is, was the insurance company willing to pay for those outside lawyers, both in terms of hourly rates? What are the insurance companies going to require in terms of what they call their litigation billing guidelines? Let’s go through those two separately.

For billing rates, what we have seen here at Miller Friel and in all the major cities around the country, whether it’s San Francisco, New York, Boston, Washington, DC, Houston, Miami, the billing rates that insurance companies typically will agree to pay are extraordinarily low, they’re unreasonably low. We have seen insurance companies insist that the maximum rate that they will pay is $275 an hour for a senior partner, $175 for an associate and maybe $75 an hour for a paralegal. Let’s go through those rates again, $275 for a senior partner, 25 to 30 years experience, $175 an hour for a tenth year associate out of an Ivy League law school and $75 an hour for a paralegal. You have a case in New York City, it’s a complex commercial litigation, it could even be antitrust, it could be a patent litigation in federal court. As complex a case that you can imagine in the most expensive legal market in the world, New York City, San Francisco, Boston, the most they’re going to pay, $275, $175 and $75 an hour. They may pay a little bit more but not much more, that is unreasonable.

What we have seen are companies willing to accept that because they feel they at least are getting something. They’re going to take that money, however low it’s going to be, and then pay the delta of $700 an hour or $500 an hour between what they’re actually paying out of pocket for their experienced lawyer in New York or Boston or San Francisco. You take a case that’s complex with eight, nine, ten lawyers on it, it’s going for three or four years, that delta will grow by hundreds of thousands, if not millions of dollars over time. It’s a huge money loss to corporate policyholders all because insurance companies insist that these are the rates that they will pay.

Here’s what we have to do as a corporate policyholder, you need to push back. We understand it’s not the easiest thing to do because you’re trying to get the insurance company to pay you money, but you have rights under the policy and you need to advocate or have someone your behalf advocate for you under the policy as aggressively as possible. On billing rates you need to make as persuasive an argument as possible why $275 or $175 an hour is unreasonable given the type of case, location of the case and the financial exposure that’s involved in that case. You need to go and do a market study, look at other similar cases that are filed in that jurisdiction, whether it’s federal court or state court, in terms of the financial exposure. Maybe the underlying plaintiff is looking for $100 million or $10 million. What law firms were used in those other cases? What were the rates paid to those lawyers in those other cases? You need to make the argument, or have your advocate make the argument, that they have to pay not what they consider to be the rate, they have to pay what is reasonable for that case in that jurisdiction.

Now you get to the point you do the best job you can, and we do this every day, this is a very big part of our practice. Maybe you get the carrier to agree to pay not $275 an hour but $425 an hour, $450 an hour. It’s better but not great. What you need to do at that point is you can accept that rate and that money but you have to do it under a reservation of rights. Just like the insurance company will agree to pay you money under a reservation of rights, you need to do the same thing. Accept what you can after negotiations under reservation of rights.

What we tell clients is take the money, every company needs some cash flow, get the money coming in, help defray your legal expenses and then at the end of the case you can reassess where you’re at. Is the delta between what the insurance company is paying and what you’re paying your lawyers so large that you can’t let it go? Okay, reserve rights. We’ll go ahead and we’ll then re-approach the insurance company and see if we can negotiate the rest of that delta. If you can’t, you may have to look at litigation and have a judge or an arbitrator or perhaps a mediator make that decision or help you make the decision about what’s the reasonable rate involved.

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