Litigation Management: What Legal Defense Costs Are Reasonable and Necessary?

By Tollin, Howard M.; Feman, Tammy | Defense Counsel Journal, October 1996 | Go to article overview

Litigation Management: What Legal Defense Costs Are Reasonable and Necessary?


Tollin, Howard M., Feman, Tammy, Defense Counsel Journal


WHAT are the proper legal standards and guidelines for determining the reasonableness of acceptable legal fees and costs, particularly when insurance companies retain counsel to defend claims against their covered insureds and to defend themselves against coverage claims by insureds?

In defending their insureds, insurance companies are responsible to pay only reasonable and necessary defense costs. In order to minimize legal fees and costs, defense counsel should be given guidelines by the insurer or follow standards that comport with established case law. In various types of settings, insurance companies may lose the "right to control" the insured's defense, but still must pay or reimburse the insured's reasonable and necessary defense costs.

The duty to defend clause not only obligates the insurer to provide a defense, but it also gives the insurer the right to control the insured's defense. After the insured has tendered notice of a lawsuit, the insurer must determine whether there is a conflict of interest between it and the insured as to how the lawsuit should be defended. When the insurer reserves its right to deny coverage later, there is the potential for a conflict of interest. Courts have held that in such conflict of interest scenarios, the insurance company has a choice between either hiring independent counsel to control the defense or reimbursing the insured for its selection of private counsel.(1)

Particularly in situations in which the insurance company does not control the defense, it should monitor and audit claimed defense costs carefully. The company should review bills carefully on receipt, and it may decide to audit the file periodically. It also may decide to litigate the unreasonableness of defense costs. Legal audits and litigation over excessive fees and disbursements have proved successful in reducing past costs and dissuading future excessive costs.

RECOVERY OF ATTORNEY'S FEES

The case law is well settled that an insurance company is liable only for the reasonable and necessary expenses incurred by the insured in defending the claim.(2) The party seeking recovery of attorney's fees has the burden of establishing that both fees and expenses are reasonable and necessary.(3) The key factors for courts to consider in determining attorney's fees are the time spent by each attomey handling the matter and the reasonable hourly rate for each attorney in a firm. In order to avoid litigating retrospective legal costs, however, the insurance company should establish its own written guidelines and provide them to defense counsel.

GUIDELINES

Insurance companies should provide guidelines to defense firms and not only evaluate compliance with the guidelines periodically but also provide constructive feedback to counsel. Among the items to be discussed, along with handling the claim and litigation strategy, are staffing and billing. The following suggested billing guidelines may be instructive to both the insurance company and defense counsel as to reasonable and necessary defense costs.

A. Litigation Team

The defense firm should designate a team of lawyers and legal assistants who will be involved in the defense of the case.(4) Although there may be future additional personnel assignments as the case progresses to reflect attrition or heightened activity, defense counsel should identify to the insurance company all individuals who will be billing on the file. The company should receive notice of additional personnel assignments concurrent with the first bill presented after the biller commences working on the case.

Defense counsel should identify the individuals as senior partner, junior partner, senior associate, junior associate, paralegal or clerk and provide the billing rate or rates for each. It is not unusual for trial work by a lead trial attorney to be billed at a higher rate than pretrial litigation work.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Litigation Management: What Legal Defense Costs Are Reasonable and Necessary?
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.