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Litigation cost control seen as dominant issue.

Litigation Cost Control Seen as Dominant Issue

Throwing caution and perhaps physical safety to the wind, seven attorneys, six risk managers and one hybrid (an attorney from RIMS) braved a cold Chicago day to stage a forum. The meeting, held in mid-February, proved to be not only civil but informative.

The attorneys, Chicago members of the American Bar Association Tort and Insurance Practice Section's Self Insurers and Risk Managers Committee, and the risk managers, members of local RIMS chapters, established litigation cost control as the dominant issue of concern. A suggestion was made that risk managers control litigation through a hands-on approach, in conjunction with corporate counsel. One participant noted that risk managers often use the same attorneys for all disputes, even though they may not be the most qualified for handling certain cases. Some of the risk managers, on the other hand, complained that attorneys want litigation to drag on, greatly increasing defense counsel costs.

The discussion then turned to alternative dispute resolution mechanisms. Although one attorney cautioned that arbitrators do not always understand complicated legal issues, another attorney said risk managers do not fully explore ADR options. He noted that the U.S. Supreme Court has made a policy of enforcing arbitration contracts and suggested that arbitration between sophisticated parties be nonbinding for non-tort actions. In conclusion, participants discussed how ADR forces parties to think about their cases earlier. Nonbinding mini-trials, in particular, are good indicators of a case's strength, and at a minimum, ADR may settle some discovery issues.

When insurers and insureds are codefendants, risk managers were advised to discuss the handling of the case with their insurer and their insurer's attorneys because the parties' objectives may be different. An attorney suggested that insureds in such situations look for a conflict of interest so the court or the insurance carrier will allow the insured to hire its own attorney at the insurer's expense. One risk manager said he tries to get a conflict-of-interest clause in his insurance contracts.

The discussion turned to sharing agreements. An attorney suggested that, at a very early stage, all potential defendants meet to create a game plan. Any differences can be arbitrated at a later date. The attorney noted that self-insurers are often open to such an arrangement, but insurers usually are not. However, one risk manager had a bad sharing agreement experience because the codefendants did not act in his company's best interests. Another attorney advised risk managers who choose to enter sharing agreements to include an arbitration clause in insurance contracts.

The risk managers were also advised to obtain a litigation plan from their attorneys because it indicates approximate costs and timing of a case. The discussion on controlling costs concluded with a warning from two attorneys on arbitration clauses. They cautioned against including an arbitration clause at a contract's inception because it can always be added at a later date.

The group moved next into a short debate on the McCarran-Ferguson Act. Most of the discussion involved a number of RIMS members disagreeing with RIMS' position against repeal or modification. They did not believe it should be made easy for small insurers to enter the marketplace because they can become insolvent, close or withdraw from certain lines of coverage. It was explained that RIMS believes in open competition with more forceful solvency regulation. RIMS sees advisory rates and common policy forms as being in the consumer's best interest.

Risk retention groups were discussed briefly. The discussion focused on the dilemma of not being able to set up a risk retention group without capital or to obtain capital without having established a group.

Self-insurance was discussed in terms of practical limitations. It was mentioned that any self-insured which acts as an insurer cannot truly withdraw from the insurance marketplace. In response, a risk manager said self-insurers do not want to be like insurance companies; they just want the same tax advantages they would get if they paid a premium to an insurer.

A risk manager hoped he could get certificate of insurance-type paper for self-insurance. An attorney responded that risk managers can write a self-insurance policy and set up a fund to back it up. Then the risk manager can get a letter of credit from a bank. However, excess and reinsurance would have to be obtained for the fund.

Thoughts on directors' and officers' liability insurance were also shared. One risk manager reported going bare, while another said coverage was available but costly. All agreed that the purpose of D&O coverage is to encourage potential directors and officers to serve by making them feel safe.

On the topic of environmental cleanup litigation, a trend was noted in favor of insurers. One attorney said some insurers may allow insureds to buy out EIL policies. That way, the insured gets a pot of money for cleanup and the insurer has its liability limited.
COPYRIGHT 1989 Risk Management Society Publishing, Inc.
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Copyright 1989 Gale, Cengage Learning. All rights reserved.

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Publication:Risk Management
Date:Jul 1, 1989
Previous Article:Alternate methods for evaluating risk.
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