By JODI SOKOLOWSKI
Buffalo Law Journal

When an insurance company seeks legal support, it can take matters into its own hands or it can hire outside counsel.

Lately, the pendulum has been swinging toward the former option, said Dan Kohane, a partner at Hurwitz & Fine PC.

"It's a cyclical nature of staff-counsel operations opening and closing as insurance carriers consider the efficiency of using staff counsel," he said.

And it's not just insurance companies that are retaining staff counsel, who are often located offsite rather than at company headquarters. Many self-insured businesses are now handling their own defense as well.

"So work that may have gone out to firms stays inside," said David Brock, a partner at Jaeckle Fleischmann & Mugel LLP.

The staff-counsel model helps companies save money, as they often pay flat or bulk rates, and encourage efficiency, as they deal with the same attorneys on a regular basis.

That's how it works at the Law Offices of Daniel Archilla, where Archilla, Frank Housh and Timothy Hedges serve as staff counsel for Geico.

"They know what they'll pay me. If I spend 40 hours (on a case), they'll pay the same (as) if I spent 10 hours on a file," Archilla said. "I try to work smarter, not just go through the motions."

On the outside

But if a case involves complex issues such as claims of severe injury, it will require more time and expertise, and the work may therefore go to outside counsel.

Outside counsel also will be hired if both the plaintiff and defendant have the same insurance carrier, creating a conflict of interest, Archilla explained. To avoid accusations of favoring one policy holder over another, he said, "you just wash your hands of it and send it to outside counsel."

While hiring outside counsel may cost more, Brock explained, companies may be well-served by making sure that they're getting experienced partners working on their case. Staff counsel, meanwhile, have to pay close attention to staffing and overhead.

Pressure to cut costs, he says, has "forced firms (hired as outside counsel) to actually push work down to lower levels to better leverage resources," he said, noting that the dynamic helps law firms to train their associates.

And if a claim - particularly a commercial claim - comes with significant risk of a large award, if the insurer is held responsible for coverage, staff counsel may hire outside counsel to lessen the chances of a large loss.

"In big-exposure cases, you have to look at the risk-benefit analysis," Archilla said. "Chances are I'm going to recommend that Geico resolves the case, because I have a fiduciary responsibility."

The bottom line could be the determining factor for insurance carriers, said Tom Liptak, a partner at Kenney Shelton Liptak Nowak LLP. Companies may even hire auditors to review and scrutinize the bills from their outside counsel, he said; auditors may adjust those costs through negotiation.

"They're outsourcing the work to third-party vendors. I think that's all part of the trend to minimize their costs for out-of-house services," Liptak said.

Alternative dispute resolution is another tool that lawyers, both staff and outside counsel, are using to make the practice more cost-effective.

"The overall philosophy is, carriers want defense counsel to get more creative in bringing resolution to more cases," he said. "It saves the carrier substantial time and reduces the risk for both sides."

Expanding the practice

All this has put increased pressure on law firms that focus on insurance defense.

"You have to have something to offer to your clients that sets you apart from the competition," Liptak said.

Many firms are offering new or expanded services, as well as branching out to other markets.

Goldberg Segalla LLP opened up offices downstate and in New Jersey and Pennsylvania to meet clients' needs.

"It's in response to clients saying, ‘If you have (staff) in these regional areas, we'll provide you with the work,' " said founding partner Thomas Segalla. "It's a strategic move to address the needs and interests of our clients, which in turn results in the growth of our firm," Segalla said.

Law firms in all parts of the country are looking to expand for similar reasons, he said. Kohane agreed, saying many firms are getting new business from regional and national contacts.

"Decisions are being made now by people who have a broader perspective in insurance defense. The decisions used to be made on the golf course, but now the regional and national offices want better control (over) who is selected to defend insurers," Kohane said.

"They're hiring fewer firms," he said. "Smaller guys will either have to jump in the regional or national circuit or get to know people on a broader scale, or the firm will get swallowed up or disappear," Kohane said.

Buffalo firms are in a good position, with the relatively low cost of doing business here compared to New York City.

Both Kohane and Brock predict that the pendulum will eventually swing back to sending all work outside.

"In X number of years, (companies) may determine it's not cost-effective (to handle insurance cases in-house), and you'll see companies closing in-house (departments) and going to outside firms," Brock said.

"We've seen that shift go back and forth probably a half a dozen times. It's just a trend, it's fluid."