IN late 1992, executives at Liberty Mutual Insurance Group in Boston found that the company had paid more than 3,000 outside legal-services providers (law firms or individual attorneys) to represent the company or its policyholders in claims litigation during that year. They projected litigation costs of close to $400 million for 1993. Clearly, it was time to rein in those expenses.
General Counsel Christopher Mansfield and General Claims Manager Tony Ferronato formed a team to grapple with the issue. "Our legal expenses and costs were escalating at a rate we couldn't afford," says Julie Ann Welborn, a company lawyer in charge of the new Litigation Management Program.
Last May, the company sent a no-nonsense letter to all its outside lawyers introducing its "Legal Expense Management Initiative." The letter read: "We plan to make decisions about ongoing outside counsel relationships based not only on the quality of a law firm's work but also on a firm's success in containing litigation costs."
The letter also stated: "Liberty Mutual is not philosophically committed to hourly rate billing.... We encourage and solicit your suggestions for alternative compensation such as flat fee, fixed fee, reverse contingency, and volume-related sliding scale arrangements."
Liberty Mutual in-house lawyers and claims specialists fanned out around the country to explain the initiative to the outside attorneys. "We were looking for lawyers who were really willing to work with us as partners in making the program successful," Ms. Welborn says.
DURING 1993, the company reduced its list of approved attorneys to about 1,500 law firms and practitioners. All approved lawyers were given detailed standards on the number of attorneys and paralegals that should work on a Liberty Mutual case, the development of case-management plans and budgets, periodic reports to company contacts, the use of experts and private investigators, billing rates (when hourly rates are used), and reimbursable expenses. …