Magazine article Risk Management

Trends in Litigation

Magazine article Risk Management

Trends in Litigation

Article excerpt

Litigation costs are a pernicious hidden tax for American businesses, as almost 90% of companies are currently engaged in lawsuits, according to international law firm Fulbright & Jaworski's 2005 Litigation Trends Survey of in-house corporate counsel. The average company faces 37 lawsuits at any given time, and for those companies with $1 billion or more in revenue, that number jumps to 147 cases.

Despite the multitude of lawsuits the average company faces and the obvious costs they must incur, many do not have any understanding of the actual impact of litigation on their organizations. Two-fifths of companies do not even quantify their spending on litigation as it relates to their overall legal budgets. For those that do, however, $8 million of the average legal budget of $20.1 million is devoted to litigation costs. Almost 20% of companies with revenues under $100 million do not have a litigation budget at all, despite the fact that even they have an average of 15 lawsuits going on a once.

For the insurance industry, 23% of the respondents have litigation costs that represent more than half of their legal budget--by far the most of any industry. More than a third of companies in the manufacturing and energy industries spend between 21% and 50% of their legal budgets on litigation; the same is true for more than a quarter of retail/wholesale, health care and technology/communication companies. In contrast, 26% of real estate and finance company respondents reported spending less than 20% of their legal budgets on litigation. Overall, almost one-quarter of companies have legal budgets of over 2% of their total gross revenue and 10% spend over 5%, which for a $1 billion business would amount to $50 million.

Despite the increased attention given to issues such as class actions, tort reform and corporate fraud, contract claims and labor/employment matters are the most common types of cases on an organization's litigation docket, accounting for as much as half of the cases faced by mid-market (defined as revenues between $100 million and $1 billion) and $1 billion-and-over companies. For companies under $100 million, contract disputes accounted for about one-quarter of their caseload. …

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