Liability is everywhere. Our lawmakers are not satisfied with the ten commandments. They are also not satisfied with the millions of statutes on the books today. So, they are making more laws and passing them each day. Perhaps lawmakers are simply responding to their constituents.
Against the backdrop of a burgeoning lawsuit minefield, a critical function of litigation managers and claims departments is to measure the value of their defense attorney dollars against alternatives. This is where litigation scorecards come into play.
California Leading the Way with New Laws
Law firms that do corporate defense work are strongly encouraged to develop their own litigation scorecards using these metrics. In that way, someone else doesn’t “tell your story.”
In 2019 in California alone, there were dozens of new laws put into effect as of January 1st. Laws addressing issues such as breastfeeding at work, regulation of street vendors, plastic straw bans, healthy child drink mandates for restaurants are just a few that go into effect for 2019. For publicly held corporations with executive offices in California, a new 2019 law requires that at least one corporate board member be female.
A few key metrics serve to assist in this scorecard endeavor. Take caution. These metrics are strong indicators. But they must be coupled with actual first-hand knowledge and experience with the professional service providers to which they apply.
A ‘litigation scorecard’ should always be accompanied by a written analysis that explains the results as well as the methods used to obtain the data. There are usually aspects of the data that an independent business analyst may not see or appreciate, so it helps to have claims management deeply involved in the gathering and analysis of this data.
The key metrics are:
- Cycle Time
- Median Legal Spend
- Median Settlement Amount
- Dismissal Rate.
#1 – Cycle Time
The first metric and most important in my view is cycle time. The best definition of cycle time is the number of days between the initial defense assignment date and the professional services completion date. Cycle time almost always ranks as the most useful predictor of relative value. That is, those defense firms ranking high regarding ‘lowest cycle time’ are usually ranked higher in dismissal rate, median settlement amount and median legal spend.
Getting accurate and fair data for cycle time can be elusive unless the claims system captures ‘assignment date’ in a separate field as well as ‘completion date’ by defense firm. Claim open and closed dates will not suffice for this metric. And, in case you were wondering, your spreadsheet software will, in fact, subtract one date from another in your ‘completion minus assignment’ formula to give you the number of days. The goal is to capture the time it takes the defense firm to perform its services and should not consider the time before or after the litigation assignment based on processes completely out of the defense firm’s control.
Having collected good data on cycle times in the past, I learned the importance of segmenting claims by matter and jurisdiction. In my experience, matters involving auto injuries tended to have lower cycle times than employment practices cases. So, do not compare your Ohio auto defense specialist to your Ohio employment law firm without segmenting the claims by exposure type. Cross-jurisdictional comparison will also account for variations in your scorecard. Your West Virginia defense firms may only be comparable to firms handling cases in other judicial hellholes like Cook County Illinois for example.
#2 – Median Legal Spend
The second metric is median legal spend. Median legal spend is different than the average legal spend. Averages include all observations. Averages distort metrics when there are outliers. In using “median,” the effect of outliers is greatly minimized. As with cycle time, median legal spend must be viewed in light of the types of cases, the jurisdictions and the average complexity of the cases being assigned. As an aside, I am a proponent of scoring the complexity of a case based on (1) the number of parties, (2) the number of liability theories being defended, and (3) the number witnesses. All of these factors greatly influence the legal defense budget.
#3 – Median Settlement Amount
The third metric is median settlement amount. This metric receives the most ‘push-back’ from law firms. Median settlement amount can be a measure of the law firm’s negotiating expertise. Or, it can be an indicator of the willingness to ‘buy peace’ as they say. The more you value peace, the more expensive it becomes.
One aspect of a solid defense firm is its ability to instill confidence in the way it develops the strengths of the defense. A defense attorney that builds up a solid defense and communicates a feeling of confidence is more likely to embolden claims management to stand firm on their offers. Of course, one must know their own company’s tolerance for litigation to put this metric into perspective. And, if there is a change in settlement philosophy, this metric can produce false negatives.
Firms whose median settlement amounts are significantly higher than or significantly lower than other comparable firms must become a focus. This is especially true if those same firms offer little to no offsetting reduction in cycle time or legal spend. A good claims management technique is to explain the variance with reasoning and then test the hypothesis against actual cases.
#4 – Dismissal Rate
Finally, the fourth metric is dismissal rate. Dismissal rate can be measured as the number of successful attempts to dismiss an allegation of liability divided by the total number of dismissal attempts. This can be rated at the “allegation” level or “claimant” level. Or, if only available at the claim level, this may suffice.
There is tremendous value in dismissals. Other than the obvious elimination of the threat, a dismissal sends a signal that the defendant is willing and able to fight back. The plaintiff’s bar is keenly aware of who is likely to fight and who is likely to settle, and it often factors into their calculations. Believe it or not, seasoned personal injury attorneys collect and record the tendencies of your claims adjusters so they know who they can exploit for higher settlements. Because actual trial verdicts are rare as a percentage of cases filed, dismissals are fast becoming the ultimate homerun ball of defense litigation, and their frequency should be measured.
Conclusion
One aspect to emphasize is that the metrics should not be used in isolation. The value of these metrics comes when they are viewed as a whole and as part of a qualitative valuation that considers overall client service, responsiveness, manageability, stability, staffing expertise, and other factors. I never recommend anyone use ‘numbers alone’ to make judgments regarding which firms are ‘panel-worthy. Numbers alone are highly susceptible to throwing false positives as well as false negatives.
