Good Business Sense: Part 3

Saturday, April 23, 2005 | 0

This is the third in a series of six by Pamela W. Foust. Earlier installments can be read by clicking on the article title in the side-bar at right.

"A system that's easy to game destroys human character."
- Charles Munger

Part Three - Referral to Defense Counsel

The claims adjuster had forgotten about the machine operator's claims until she received the Declaration of Readiness that his attorney filed in order to get a hearing before the Workers' Compensation Appeals Board. She was sure she had already referred the case out to a law firm, but she couldn't find the information in the computer. With a growing sense of alarm, she ordered the paper file and reviewed it. Except for the usual reports and bills from the primary treating physician that came in on a regular basis there had been no activity for a long time which hopefully meant that her oversight hadn't done any irreparable damage. She selected a law firm from the insurance company's legal panel and hand-wrote a memo instructing them to take the claimant's deposition and to generally defend against the claims. The managing partner in the law firm received the referral and assigned the case to one of their associate attorneys. Although the individual case assignments were far in excess of a reasonable workload, the partners didn't think they could afford to take on the cost of an additional attorney at that time. The associate was pushed to the limit, but they couldn't be expected to turn down business, so there was no help for it.

The defense law firm was a large and successful one with multiple offices throughout the state. The partners prided themselves on their ability to provide their clients with quality legal representation, but first and foremost, they were businessmen. They had made many sacrifices and had risked their own money to build up the firm to its current level. It was only fair that they should be rewarded financially for their efforts. It might be unrealistic to expect a relatively inexperienced attorney with an excessive workload to provide quality legal representation. However, it was even more unrealistic for clients to expect to get more than what they paid for. The $120 to $130 per hour that the firm's insurance company clients were willing to pay was completely unrealistic in light of the prevailing costs of doing business. When you considered salaries and benefit packages and overhead costs, an associate attorney would have to generate a minimum of 300 billable hours per month to cover his share of the costs and at the same time provide the partners with a reasonable return on their investment. This could only be accomplished by working very long hours or by cutting corners and padding the bills or by a combination of the two. The partners had never suggested to any of the associates that they should bill for work they didn't perform or for time they didn't spend, but it was obvious that they couldn't afford to carry an associate who didn't earn his keep.

The young associate hurriedly skimmed the file. It looked as if the applicant was still treating because the last report he could find still had him temporarily disabled. He'd set the deposition and go from there. He instructed the firm's deposition clerk to schedule the deposition, calendar the date, and send out a confirming letter. Then he sent an email to the claims adjuster thanking her for the referral and telling her he'd report to her again after the deposition. All of this took exactly 8 minutes, but he entered it into his billing sheet as eight tenths of an hour or 48 minutes. Only then did he look at his watch and realize he'd have to break the speed laws to get to his afternoon appearance on time.

The defense attorney graduated from law school near the top of his class and passed the Bar Exam the first time. This was his first job as an attorney and although he had been with the firm for almost two years now, he still had a long way to go before he would have a good working knowledge of workers' compensation law and procedure. Yet there was no time to either research basic legal concepts or discuss them with more experienced attorneys. An attorney could bill the client for research necessary to prepare legal documents on a specific case, but not for acquiring knowledge that all workers' compensation attorneys were expected to possess and there was no time left over for anything that wasn't billable time. The defense attorney didn't feel entirely comfortable about padding the bills, but he really had no choice. Between the monthly payments on his student loans and the rent on his apartment two blocks from the beach, not to mention the rest of his expenses, he needed every penny he could get. Certainly the partners had a right to expect that he'd generate enough billable hours to cover his costs plus some. If he billed accurately and read up on the law to improve his knowledge, there wouldn't be time in the day to do anything else. Maybe it wasn't exactly ethical, but at least he wasn't alone. Everyone was doing it.

A week later, defense counsel found the machine operator's file in the stacks of cases with mail attached that were piled on the floor of his office. The files had been sitting there for several days now, but he had been busy with appearances and more pressing matters, and there had been no time to attend to the mail. The deposition hadn't been scheduled yet, but some new documents were clipped to the top cover under a transmittal from the claims adjuster. Among them was a notice of a Mandatory Settlement Conference scheduled for Wednesday morning of the following week. He looked for the Declaration of Readiness and couldn't find it so he sent an email to the claims adjuster asking her to fax it to him. When he received it, he realized the situation was even more serious than he thought. Permanent disability was listed as one of the issues and two medical reports that weren't in his file were referenced. He sent another email to the claims adjuster asking her to fax the reports as soon as possible.

The claims adjuster went through her file, but couldn't find the reports that the attorney had requested. Sometimes reports came in with bills attached and the entire packet went to the bill review section first so that she didn't get it until after the bills had been reviewed, if at all. She sent an email back to the attorney advising him that she didn't have the reports and in fact she had already sent him everything in her file. Most defense attorneys were such idiots these days and this one was particularly lame judging from the way he had performed on the two cases they had shared in the past. He could easily get the reports by asking the applicant's attorney to send them to him but maybe he couldn't even figure that one out for himself. To play it safe, she sent him another email telling him to get copies of the reports from opposing counsel and fax them to her when he received them.

Ten years earlier, the relationship between the claims adjuster and the defense attorney would have been very different. But that was back in the dark days when workers' compensation was teeming with all kinds of kickbacks and shady deals. The 1993 reforms had remedied the problem by making it a felony for anyone to give a claims adjuster anything of value in exchange for anything that the claims adjuster might have to give and vice versa. This eliminated the rumored ski condos in Mammoth and deep sea fishing trips to Baja. It also criminalized the business lunch under a concept that was popularly known as "use a fork, go to jail." The custom of defense attorneys taking claims adjusters to lunch had been the means by which they got to know each other and established the attorney-client relationship that was essential for effective representation. The lack of personal contact prevented the growth of trust and confidence between the claims adjusters and their attorneys. The defense lawyers felt much more loyalty to the applicants' attorneys whom they saw every day at the WCAB. At the same time, the claims adjusters were convinced that they knew more and could do a better job than their worthless attorneys who only cared about billing. As a result, the quality of legal representation that insurance companies received in workers' compensation cases generally ranged from unimaginative to woefully inadequate to outright disregard for the client's interests.

Reflecting back on those early days of her career, the claims adjuster realized that her job had been much easier. She paid the claims that appeared to be legitimate and fought the ones that looked phony. Then the whole thing had gotten so complicated and so fraught with technicalities that in a growing number of cases, she honestly couldn't tell what was legitimate and what wasn't. There were all of these rules that kept changing. There was no way she could remember them all and many of them made absolutely no sense to her. In this particular case, her instincts told her to fight, but she didn't have the faintest idea whether the law required her to accept liability or allowed her to continue to reject it. A good defense attorney would know what to do, but it had been a long time since she had a good defense attorney on one of her cases. She didn't particularly like this attorney and she didn't trust him for a minute.

The defense attorney was not oblivious to the fact that his clients held him in little regard. However, there was nothing to be gained by going above and beyond the call of duty or even doing more than the bare minimum. He learned that lesson the hard way during his first year of practice. He had been assigned a case that presented a novel legal issue that could be decided on the basis of written pleadings, without testimony. Experienced attorneys in his office told him it was a dangerous case that he couldn't win and to just pay whatever was necessary to get out from under. He knew they were wrong and persuaded the client to let him fight it. He spent long hours of his own time doing the legal research and produced a brief that would have impressed the Supreme Court. The judge found in his favor and after the decision became final, he waited for the claims adjuster to call him to express her undying gratitude. Maybe the claims manager himself would thank him as well. Instead, there was nothing; not even an email. He waited a couple of weeks and then called the adjuster. She couldn't remember the case and actually she was kind of busy so maybe he could just email her. He told her about his victory and how he had saved the company hundreds of thousands of dollars. "Well," she said, "that's what we pay you to do." She asked if there was anything else he wanted and he said no. She then hung up the phone without saying goodbye. He told the story to one of the partners and was chastised for putting in time on a case that wasn't billed to the client.

The defense attorney read the claims adjuster's emails without failing to pick up on the patronizing tone of the second one. He wrote a note to his secretary to call the applicant's attorney and get the reports. He couldn't simply ask her to do it because it was 7:00 at night and she was long gone. The following day he was facing another marathon at the Board plus an afternoon deposition of a doctor for which he wouldn't have time to prepare. In any event, by the time he got the reports, it would be too late to do anything so he wasn't going to sweat it. He had shelves of files in the same shape and if he worried about all of them, he'd have a nervous breakdown. The insurance company would end up paying way too much money to get rid of the claim, but that wasn't his problem. Defense attorneys were paid by the hour; not by the result. The real problem was how to bill enough hours to stay in the partners' good graces without being caught. Better still, if he could figure out ways to bill a little more, he might get a bonus or a raise. If he really played his cards right, someday they might even make him a partner.

Next in the series: The Settlement Conference



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