Liberty Mutual Initiative Aims at Reining In Rising Litigation Costs

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. Lawyers also were advised that ``we periodically conduct on-site audits of our outside counsel, using both independent legal auditing firms and internal teams of auditors, claims personnel, and lawyers.''

Liberty Mutual recognized a need for better information about the costs of legal services. To evaluate the cost-effectiveness of various providers, the company needed to be able to ``compare apples with apples,'' Welborn says. Moreover, both the company and its outside lawyers had to develop accurate data about legal costs in order to devise flat-fee arrangements. ``I'm finding that a lot of attorneys don't have the data to show things like their average cost per case,'' Welborn says.

Consequently, all the outside lawyers are participating in a ``task-based billing'' project, whereby lawyers break down their Liberty Mutual bills according to designated procedures and disbursements in a format prescribed by the corporation. Information from these bills is being computerized into a data base that soon will be accessible to all Liberty Mutual executives, attorneys, and claims personnel.

``We will continuously monitor this tracking system to see who are the most efficient service providers,'' Welborn says. She doesn't expect the Litigation Management Program to be fully in place until about 2000. She calculates that litigation expenses last year were about $20 million below projections.

Welborn says she gets calls from other companies interested in Liberty Mutual's program. Some of the company's procedures may be uniquely applicable to an insurance group's vast litigation portfolio. But, she says, ``the same principles hold true for other corporations in the legal marketplace.''

Above all, Welborn insists, ``It's important to put down in writing exactly what you expect from outside lawyers.''