Liability insurance policies are designed to protect a business from the full costs of defending claims against the business, its executives or its employees. Also known as “litigation insurance,” this defense coverage is an important part of the insurance contract.

Compelling an insurer to provide the litigation insurance it owes too often results in a headache to the business rather than the bargained-for peace of mind. Attorneys in Perkins Coie’s Insurance Recovery practice doggedly pursue full litigation insurance on behalf of our clients, allowing businesses and their defense counsel to focus their energy and resources on resolving the underlying claims.

Maximizing Litigation Insurance

Liability policies typically require the insurer to defend the business against potentially covered claims or to pay the costs that the business incurs in its own defense. In a perfect world, the insurer would agree to have the most qualified counsel defend the business, pay counsel’s standard billing rates, and allow counsel to exercise her best judgment about the tasks necessary to mount a zealous defense. In the real world, however, businesses need experienced insurance advocates on their side to make sure that happens.

Understanding The Insurer’s Litigation Guidelines

Insurers have developed so-called “litigation guidelines” that purport to govern whom businesses may choose as counsel, cap the hourly counsel rates that the insurer will pay, or give the insurer the right to conduct line-by-line reviews of counsel’s bills to decide whether the work conducted was “reasonable and necessary” to the defense. These guidelines may also try to dictate the specific tasks that counsel may undertake as part of the defense. For example, the guidelines may say that the insurer will not pay for meetings among multiple attorneys, research costs, travel time or “administrative” work.

In most instances, the litigation guidelines are not part of the insurance contract. As such, they are not binding on the business or its defense counsel. Rather, the guidelines should be viewed as the insurer’s aspirational views on what costs the insurer would like to cover as part of its defense obligation, not an enforceable restriction on the insurer’s defense obligation.

Indeed, state bar ethical boards and courts have disdained litigation guidelines as an improper attempt by insurers to usurp defense counsel’s independent ethical duty to represent the business according to her best judgment. As one ethics board put it, “it would be naïve to believe that economic consequences do not impinge upon an attorney’s exercise of professional judgment.”

Our Insurance Recovery practice has a proven track record of defeating insurers’ attempts to limit their defense obligations by virtue of litigation guidelines.

Navigating The Defense-Cost Process

Perkins Coie’s insurance recovery attorneys partner with the business and its defense counsel to ensure that the insurer compensates counsel at reasonable rates for the work that the counsel, in its professional judgment, actually performs in the course of defending the business.

We have a strong understanding of the processes that insurers use to review and challenge defense counsel’s bills, including their reliance on rote reviews, outside vendors and automated systems. When defense counsel’s billing entries are vague or contain certain buzzwords that the insurers have identified as reflecting unnecessary legal work, the bills are more susceptible to billing deductions.

Working with defense counsel from the outset of a claim, we make sure that counsel’s billing records contain the kind of information that is most apt to satisfy the insurer’s billing and record-keeping requirements, and least apt to trigger reductions when subjected to insurer scrutiny. Even when an insurer deducts costs from defense counsel’s bills or otherwise refuses to pay, we are poised to pursue the shortfall through the insurer’s appeal process, negotiation or litigation as appropriate. Some specific defense-cost tasks that we are prepared to tackle include:

• Compelling the insurer to honor its duty to provide litigation insurance immediately when a potentially covered claim arises
• Obtaining the insurer’s consent to the business’s choice of defense counsel and its agreement to pay counsel’s usual and customary billing rates, including annual rate increases
• Facilitating communications between the insurer and defense counsel to keep the insurer involved in the defense of the business
• Challenging the insurer’s individual billing deductions—for example, pointing out when the insurer considered a line item charge in isolation rather than in the context of the overall representation or mistakenly concluding that substantive legal work was “merely administrative”