Does Use of Paralegals Save or Cost More in Legal Expenses?

Reese Morrison in an article posted in Inside Counsel on March 24, 2011, states that “available data suggests that having more paralegals correlates with more legal spending, not less as some might expect.”   http://insidecounsel.com/Exclusives/2011/3/Pages/Morrison-on-Metrics-Paralegals-and-Total-Legal-Spendingg.aspx?utm_source=ic&utm_medium=email&utm_campaign=iccommentarya

Morrison, a management adviser to general counsel and the founder of General Counsel Metrics LLC, was writing about in-house use of paralegals.  Interestingly, though, Morrison’s research parallels what I have found in reviewing legal bills for insurers.  By far and away, the number one billing problem I see with outside counsel bills is the use and mis-use of paralegals.  In checking some of my past reviews, I note that overbilling and misbilling by paralegals can easily add 5% to 6% to legal bills. Continue reading

Training the Claims Staff to Review Legal Bills

I have yet to do a department-wide audit of legal bills for an insurer who was not being overcharged at least 15% to 20% (or more) by their outside counsel.  That means for every $5 Million an insurer pays out in outside legal expense, they could be  paying out up to $1 Million more than they should. 

Paying out more than you should in claim legal expense is called “leakage” in insurance claim parlance.  This claim legal expense leakage is bad enough by itself.   But, it also known that increased legal expense can lead to files pending longer.   Longer pending files can affect staff productivity.  Just as important, longer pending files can also lead to increased indemnity payouts.  Remember the old adage that “a claim file does not get better with age?”

In my post on January 23 I stated that “a company that is intent on eliminating such a large source of leakage in litigated claim files can choose from among these three solutions:  establish a separate legal bill review (LBR) unit, train (and monitor) all litigated file handlers on proper legal bill review techniques, outsource the legal bill review.”  My post on February 6 addressed the issues involved in deciding whether or not to establish a separate LBR unit.  My post today is the first of a two-part post that will address the issues involved in deciding whether training all department litigated file handlers is the best way to go about controlling legal costs in litigated claim files.

Facially, training all litigated file handlers on appropriate legal bill review techniques may seem the best (and cheapest) route for an insurer to choose.  In theory, the conventional wisdom is that the file handler is the best person to review their own bills.  

Reality, however, tells us a quite different story. Continue reading