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By DAN REYNOLDS, senior editor of Risk & Insurance®

Insurance companies don't hesitate to throw their weight around when it comes to how much conflict, or even the appearance of conflict, they will tolerate on the part of a law firm.

Gone are the days when the bar threw up obstacles to third-party review of legal billing on the grounds that it violated attorney-client privilege.

"When this whole concept started back in the early 1980s, it took the defense bar about 10 years to come up with an ethics opinion to say that it wasn't ethical for a third party to review the bills," said Chris Charlton, a solution marketing and strategy manager for Falls Church, Va.-based CSC, which provides a quiver of software solutions to manage not only legal bill review but other claims-related processes.

"It put some pressure on companies who were using companies like us to review, but we quickly adapted and said, 'OK, we'll build systems and sell them to you, and you can do this type of work yourself," Charlton said.

Now insurance companies and law firms have gotten comfortable with third-party reviewers and the technology they utilize.

"That has actually gone out the door," Charlton said.

So what has come in the door? Good old market forces like the prices insurers are paying for their legal representation and pressure on the part of insurers to take technologies (like CSC's Legal Solutions Suite) and use them to engage in the data-sharing that will enable the industry to better control legal costs.

"Industry data-sharing is the hot topic right now because there are some opinions out there that industry sharing is not always the best way to go," said Charlton: Make those legal opinions.

THE CATCH-22

In his example, a large carrier could be working with and paying a lower rate to a legal firm on the East Coast, and as part of its negotiations with a legal firm on the West Coast, it could be tempted to use that information to leverage a more competitive price out of the West Coast firm.

The Catch-22 that scenario creates works both ways. Sure, the insurer might be able to push one of the firms into a lower price. But if it engages in industry data-sharing, it also opens itself up to the possibility that the firm charging less will want to make what the better-paid firm is earning.

That doesn't mean that insurers aren't going to keep looking for an edge. In fact, you can bet on it.

"I think we're having companies coming back to us and saying, 'Well, you know, we'd like to see other companies' redacted data on billing trends without naming names,' "CSC's Charlton said.

"We are careful in that area. It is something our legal people are looking into and ensuring that this is the proper way to go," said Charlton.

"We're looking into it. We're not doing industry data-sharing at this point," he added in an attempt to keep things perfectly clear.

INSURER STILL ON TOP

Short of that, it's still the insurer, especially a larger insurer, that holds the upper hand in determining what technology they use and how they perceive the above-mentioned conflict issue.

"They will have some approval rights over what law firm will represent their firm," said Michael Nannes, the chairman of the Washington, D.C.-based law firm Dickstein Shapiro LLP. "Insurance companies still have lots and lots of business to hand out."

That means, according to Charlton, that if a law firm decides that it doesn't like the technology that an insurer is using to check bills, or even the way that insurer is using that technology, they might just have to like it or lump it.

"All law firms are submitting to some type of system to have their bills checked for compliance," said Charlton.

For insurers, which deal with so many law firms, bill-review technology has some substantial upsides.

For one, it can help them determine whether a firm is charging attorney rates for work being done by paralegals, or that could be done by paralegals.

"There is stuff like that that we will educate them about, what is reasonable and customary for different types of activities," Charlton said.

December 1, 2009

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