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    Take Control of Litigation with Early Case Assessments

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    Despite committing tremendous resources to the defense of coverage, claims and bad faith litigation, many insurers tend to follow a relatively predictable defense model that has not changed substantially over the years. The process is largely reactive, inefficient and costly: plaintiffs take the litigation initiative and insurers respond with a strategy designed to counter a specific action. In this environment, defense strategy tends to become little more than the selection of ever-narrowing choices dictated by the actions of plaintiffs’ counsel.

    Although to a large extent this process is inherent in the chess-like structure of litigation—where plaintiffs and insureds usually move first—too many companies simply accept this reactive posture while too few seek to impose their own structure on the litigation process. As a result, an insurer’s handling of a case resembles more of a passenger along for a ride rather than a driver in control of the bus.

    To reverse this process, many companies are turning to an early case assessment program (ECA), that allows insurers to exert better and more informed control over litigation, monitor and identify litigation trends to control costs, and develop methods to resolve cases more quickly. Matters that are candidates for such a program include new cases that will not be resolved immediately and involve an exposure sufficient to warrant an early and detailed case analysis. An effective ECA process is dynamic and may vary considerably with the nature of the litigation, but includes many of the following elements: (1) creating an ECA team committed to the process of developing and implementing a comprehensive litigation strategy; (2) developing and implementing an ECA plan and litigation budget; (3) creating a litigation infrastructure using discovery and knowledge management technology; (4) and conducting after-action reviews to “audit” the effectiveness of the ECA plan and make adjustments for the development of future plans. The remainder of this article will explore in more detail each component of the ECA process.

    Developing an Early Case Assessment
    The goal of an ECA is to develop an informed, comprehensive strategy for the defense of a case virtually from the inception of the matter. Developing a solid base from which to make long-term strategic decisions at the beginning of the case allows the legal team to plan for and focus on those activities that will have the most influence over the outcome. To achieve this, a basic change of management philosophy is needed. Unlike the “strategize-as-you-go” approach, the data-gathering and analytical work must be comprehensive and put in place at the beginning of the case. That early work must then drive the implementation of the strategy for the life of the case and, if done correctly, will require only modest course adjustments as the case progresses.

    To create a useful ECA, the litigation team needs to investigate the facts and think through the important phases of the case within three to six months of the inception of litigation. Utilizing this approach, the process of interviewing witnesses and gathering essential documents does not wait until a notice of deposition or document request is received. Important witnesses such as underwriters, claims handlers, adjusters and other company witnesses must be identified and interviewed. Key documents such as the claim file, underwriting file, policy forms and important written communications must be quickly located and examined. Initial legal positions and issues must be identified and thoroughly explored. Members of the legal team should be assigned specific tasks and the activities of the investigation must be coordinated closely. Follow up interviews with witnesses as additional documents and/or facts come to light is essential.
    Additionally, electronic documents and communications should not be overlooked in the investigatory process. All electronic communications from key employees related to the subject matter of the litigation must be identified and preserved, including file attachments associated with those communications. In this regard, the implementation and management of litigation holds, the interruption of document retention policies, and the preservation of evidence (electronic or otherwise) becomes an early key mission of the team.

    To ensure that the matter is completed during the prescribed period, the ECA should include benchmarks against which the progress of the litigation can be tracked. Meetings with key personnel should be held at regular intervals, and an open line of communication between in-house and outside counsel should be maintained to ensure that tasks are completed on schedule. Though there should be an effort to complete as much of the work up front as possible, the work should be tailored to the overall complexity of the matter and potential exposure to the company. Whenever necessary, key management and legal decision-makers should also be included in the scheduled briefings, or at least informed about the results.

    Based on the information gathered during the ECA, the legal team should next perform an objective evaluation of all the information developed during the investigatory phase. The facts, both good and bad, should be examined. Witnesses should be assessed for their likely impact on the case and jury appeal, documents should be identified and noted for any harmful information that is likely discoverable, and the legal positions of both parties with respect to substantive and evidentiary matters should be evaluated. The team should then outline a defense strategy that includes further discovery, possible motions, use of expert witnesses and anticipated staffing for the matter.

    During the evaluation process, it is critically important for any ECA to incorporate a business perspective into the case assessment. The legal team must evaluate a range of acceptable outcomes with key decision-makers and include a frank discussion of the realistic objectives of the litigation. A favorable jury verdict after an extended period of litigation will be of little consolation if the company’s reputation has been ruined in the process, or if the economic cost of that hard-earned victory far exceeds a settlement demand available to the company at an earlier point in the litigation.

    After analyzing the facts and the law, and determining the various possible courses of action during the litigation, counsel must perform a decision analysis. By focusing on the key events and decision points of the various possible litigation scenarios, counsel can begin to chart a plan of action that will enhance the chances of achieving an acceptable resolution of the matter. For any litigation alternative, the outcome of several key events will likely determine the final resolution of a litigation strategy. Probabilities can be assigned to the outcome of key events in the various scenarios to help defense counsel and the client evaluate and select the litigation strategy that has the best chance of success. This decision tree model of analyzing potential outcomes is both useful for managing the complexity of litigation alternatives and for bringing a measure of objectivity to the ECA.

    The ECA Team and Role of National Coordinating Counsel
    Perhaps the most important component of an effective ECA strategy is the team that will develop and implement the process. An ECA team draws from a variety of disciplines to ensure that the ECA represents a comprehensive resolution strategy. The team shall consist of both in-house counsel charged with the responsibility of overseeing and implementing the ECA and qualified national and local counsel, who together develop all facets of the assessment.

    The role of national coordinating counsel is critically important in the development of the ECA. The burdens on in-house counsel are many and varied. Few in-house legal departments are fully equipped to handle all of the demands of complex multi-jurisdictional litigation. National coordinating counsel can serve a vital role in coordinating the litigation activities of multiple local counsel across many different types of litigation. National counsel can also achieve economies of scale by helping to standardize the discovery practices of the company, thereby ensuring consistency in the company’s litigation response from jurisdiction to jurisdiction. Finally, by utilizing national counsel as the primary point of contact with local counsel, in-house counsel is freed to focus on larger litigation management and strategy issues.

    The role of national counsel in developing the ECA parallels its traditional role in managing diverse litigation. National counsel can provide invaluable assistance during the investigatory phase of the ECA because of its experience with similar litigation and issues across the country. National counsel can also lend important expertise in developing a successful case strategy, since counsel can draw on experience with litigation strategies that have worked in a wide variety of matters. After agreement on an ECA litigation plan, national coordinating counsel will also be responsible for implementing the strategy. By delegating the duty of implementing the litigation strategy to a single law firm, as opposed to multiple local firms, the company is able to ensure that it projects consistent legal positions and themes during litigation in multiple jurisdictions, and that its in-house legal team is focused on the broader strategic issues that drive the ECA.

    Using Budgets to Manage Costs
    An ECA should include a detailed budget as an essential forecasting tool. A realistic budget helps control the long-term costs of litigation. In-house counsel should require that outside counsel submit budgets at the beginning of the year for each matter. By requiring a budget, in-house counsel is in a better position to evaluate, at an early stage of the litigation, the likely costs associated with various litigation alternatives. Combining the budgeting process with the ECA also means that litigation budgets should be more realistic than traditional “seat of the pants” estimates normally encountered at the inception of litigation. Since the ECA process places heavy emphasis on the early investigation and development of facts, the budgeting process should clearly benefit from the greater level of detailed information available at the start of the case. More accurate budget forecasting, in turn, means that the company can engage in more confident decision-making with fewer surprises.

    The budgeting process also serves as a core benchmark for the success of the ECA. As the legal team implements the strategy outlined in the ECA, it is essential that progress be evaluated against the backdrop of the litigation budget. If a realistic budget was developed at the inception of the matter, it can offer useful guideposts for determining if the strategy is being implemented properly. In-house and outside counsel should confer periodically to evaluate the success of the ECA and determine whether budget goals are being achieved, whether course corrections to the ECA strategy are required, or whether different tactics should be employed in implementing the ECA. For instance, counsel may decide that contract attorneys could be employed to conduct certain discovery tasks at a substantial cost savings, or that internal resources could be better used to conduct interviews, review depositions and perform related tasks. Finally, budgets may also help decrease litigation costs by providing outside counsel with an incentive to resolve matters in a more cost-effective manner. Utilizing budgets, fee arrangements can be created that reward outside counsel for meeting ECA deadlines or disposing of a matter earlier than originally anticipated.

    Development of Discovery and Knowledge Management Systems
    For an ECA to be effective, it must be implemented in a cost-efficient manner. Because discovery accounts for nearly 75 percent of all litigation costs, developing a method to conduct discovery more efficiently can have a significant impact on the ECA budget. Fortunately, various technologies are available to litigators to manage and control large volumes of information in complex litigation. Discovery and knowledge management systems typically allow counsel to collect and organize documents and data from different sources into a single computerized database that enables efficient search and retrieval of relevant information. These systems also contain extensive reporting features that allow counsel to analyze materials more quickly than with traditional paper-based systems. Most discovery management systems also include web-based applications that allow remote users to search electronic documents for relevance, responsiveness and privilege, among other things.

    The development of a discovery and knowledge management system should not be viewed as a new process to be applied to every case, but should be thought of more globally. One of the key efficiencies in developing an ECA strategy with national counsel is to achieve a scalable solution to the complex problem of managing discovery. Thus, discovery databases should serve a broad spectrum of cases and be managed by in-house and national coordinating counsel. The databases should be viewed as an organic undertaking, growing with the addition of new cases and providing defense counsel with greater efficiency in responding to litigation as the databases grow.

    Just as important as document organization and storage, however, is the need for discovery management systems to provide collaboration and real-time access to materials by all members of the litigation team. This is especially important when in-house, national coordinating and local counsel, who are often located in different parts of the country, all need access to the same documents, depositions and other case information. Economies of scale can be achieved where all three parties have access to a standardized database of materials that allows them to collaborate with each other in reviewing and analyzing data that is critical to the case. Any discovery management system, therefore, should provide users with real-time, online access to all documents associated with the case. Users should be able to access the system securely at any time, from any location. The ability to retrieve relevant documents on demand, from any location, substantially reduces the inefficiencies inherent in reviewing and drafting documents, and lends efficiency to the ECA strategy that cannot be achieved by other means.

    After-Action Review
    At the conclusion of the litigation, counsel should conduct an “after-action review” to evaluate the effectiveness of the ECA. There should be a review of the ultimate goals or intended results of the ECA followed by a determination as to whether those objectives were achieved. If objectives were not met, there must be an investigation of the causes. If objectives were met, in-house and national counsel must determine what can be done to replicate or even improve the results to meet objectives in future litigation.

    As part of an after-action review, management should pay particular attention to any flaws exposed in the company’s business practices that need to be addressed. Such flaws may include mistakes by employees, improper activities, problems with a particular business policy or poor communication between management and company employees. It is then important for management to use the lessons learned from the litigation, develop a system to make changes in the company’s business practices, and minimize the possibility of the event reoccurring. Management must then effectively communicate these changes to its employees and ensure that they are properly implemented. Training programs should also be developed, where appropriate, to educate employees on the new practices or policies.

    A thorough after-action review also serves the important goal of managing, and perhaps reducing, litigation costs. First, the company should compare the ultimate cost of the litigation against the budget forecasts and determine where costs may have been incurred unnecessarily. Alternatively, the company may identify particular litigation strategies or tactics that were not cost-effective, given the results achieved. With this knowledge, the company will be in a better position to adjust future budgets and avoid more costly and less productive litigation activities. Second, armed with the lessons learned during the after-action review, the company should be able to develop policies and procedures designed to eliminate or decrease the likelihood that a problem will arise again. Even if the problem reoccurs, however, management and counsel should be better able to respond, having already evaluated which practices were effective and ineffective in the prior litigation. A thorough after-action review, therefore, is a key component in the ECA process that will better prepare the company to avoid or resolve similar litigation in a cost-effectively.

    Conclusion
    Managing the defense of civil litigation proactively and cost-effectively requires defense counsel to break out of the mold of reacting to plaintiffs’ counsel. An effective ECA accomplishes this goal by front-loading the investigation and analysis at the early stages of litigation, building a defense strategy that is paired with realistic expectations and acceptable litigation outcomes, and managing costs effectively by utilizing budgets and ongoing assessments of the ECA. Implementing an ECA requires the close collaboration of in-house, national coordinating and local counsel, as well as key executives. It also requires thinking beyond the confines of the existing litigation and building scalable litigation infrastructures that will serve the needs of future cases. The institutional knowledge acquired through the ECA will not only serve the needs of the immediate litigation, but will also serve as a roadmap to improving the company’s litigation results, reducing litigation costs, and strengthening the company’s overall business practices.

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