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Total cost of outcomes (TCO) and techniques for litigation management

An article aimed at insurers (Claims Magazine, Oct. 2002 by Tewabe Joro Ayenew) speaks to insurance carriers handling large claims portfolios. But its lessons apply more broadly, and it unearths a provocative metric.

In brief, the article concludes that as to two common efforts – legal bill auditing by third parties and law departments seeking lower hourly rates – “neither approach is strategically sound.” “Not only has fee auditing created discord between insurers and their counsel, some state courts have held that it may violate attorney-client confidentiality.” I have wondered the same about e-billing auditors.

Instead, to lower the total cost of litigation, the article urges law departments to (1) promote collaboration with outside counsel, (2) implement case budgets, (3) pursue more sophisticated quantitative analysis of data, (4) evaluate the performance of outside counsel, and (5) invest in telecommunications technology.

The provocative metric supported closer collaboration. “A recent study showed that without effective collaboration, loss overpayments equaled 17 percent of the total loss indemnity payment on litigated cases.” No reference accompanied that quote. My reading of it is that for the insurance companies studied, those cases lacking effective collaboration cost 17 percent more than they otherwise would have with effective collaboration. I wish we knew more about the details.