Legal Bill Auditing: Is it About The “Relationships” or Is it More About The “Bottom Line Performance”?

A friend who is an insurance defense attorney on the left coast wrote me yesterday for some advice. He said that he was asked to serve on a panel at an upcoming insurer industry meeting in California to discuss the topic “Legal Bill Auditing: Does it Help or Hurt Building Legal Relationships.” He wanted to know my thoughts my on how he should handle the question.

Here is what I wrote to him.

“I have seen the exact question rippling through some of the LinkedIn discussion groups. Unfortunately, they mostly turn into gripe sessions by the lawyers who wind up embarrassing themselves (based upon my off-line discussions with insurers) with self-serving comments or describing incidents that may have been embellished. But, then again, you know how some lawyers are.  Some can always seem to be counted on to appeal to the sympathy factor if they think there is one out there or even bend the facts a little to try to win their case.

“Since you asked for my advice on how to handle the topic, here it is.  First, I would suggest endear yourself to your insurer clients by turning the legal bill auditing (whether done by an in-house legal bill review unit or is outsourced) into a positive from the attorney’s perspective.

“One such positive is that by demonstrating good compliance with an insurer’s billing rules, an attorney will get positive notice – and in many cases, more work.  To illustrate this point, consider that I just sent out my legal bill review monthly reports this week to my insurer clients and I spent most of the space in the reports extolling the positive things I was seeing from many of the firms whose bills I reviewed. I often include copies of the actual invoices or parts of the invoices to illustrate my points. My main point in doing so is to tell the insurers quite directly that these firms ‘get it’ are doing a good job in controlling defense costs and seem to have no problem at all in complying with their billing guidelines.

“On the flipside, I also know for a fact that many insurers just prune off the bottom 10% of their firms every year often based solely upon non-compliance with billing guidelines. And those firms never get any “official” notice of this, they just fewer or no files.

“Very importantly, you should also remind the attorneys in the audience that this is not about “relationships.” You should tell them that in business today, it is more about ‘bottom line performance.’ In the insurance industry, this most definitely includes not only measuring indemnity results obtained by the law firm, but their costs of defense as well.

“With regard to bottom line performance, I recall interviewing an attorney who was applying for a job as an in-house staff counsel at an insurer where I was a regional managing attorney. I recall him asking me how committed the insurer was to staff counsel. I told him that it was strictly a bottom line decision and  that if staff counsel can continue to get better indemnity results at less costs, the company will continue to be committed to staff counsel.  And so it is with outside counsel.  It is not about the relationship thingy, it’s about the bottom line performance.

“And since you know the inside of the insurance industry as well as I do, it would be good to tell the attorneys in the audience that if they really understood the industry, they would know that everything in the insurance world gets audited.  If it moves, it is audited!  It’s a fact of life in the insurance industry.  So just tell the attorneys in the audience that they should just recognize this fact of life in the insurance industry and ‘chill out’ when it comes to auditing their legal bills.

“As a concluding remark, I would tell the attorneys in the audience that rather than spending the time whining about ‘relationships,’ they should spend more time figuring out how they can better comply with their insurer clients’ billing guidelines to improve their ‘bottom line performance.’  Oh yes, and tell them quit embarrassing themselves with self-serving comments on the discussion groups.

“I am sure if you follow my advice, you will acquit yourself well on the panel with the insurers in the audience.  As for the attorneys in the audience – especially those who are into ‘relationships’ – I don’t know how they will take your remarks.  So as a precaution, it may be a good idea to check under the hood of your car before you start it up.”

One thought on “Legal Bill Auditing: Is it About The “Relationships” or Is it More About The “Bottom Line Performance”?

  1. Excellent post. As the face of CleanBill, I am constantly telling my clients and prospective clients that their resources are better spent on getting compliant versus resisting the growing business of legal spending management. As you posted, it increases their relationship with their clients. Thanks for another great post!

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