Are Insurance Defense Lawyers Being Boxed in?
Massachusetts Attorneys Who Represent Insurance Companies are Facing a Grim Reality: Make Sure Your Office is ‘Lean and Mean’
Published: 1:00 am Mon, February 26, 2001
By AMY JOHNSON
While insurance-defense lawyers in Massachusetts have long lamented the persnickety habits of their cost-conscious clients, the mass exodus of defense lawyers from Burns & Levinson last month was more than just an indication of the tough state of financial affairs for such practitioners.
It was a loud message to anyone who dares to practice insurance defense in a firm of even medium size. Insurance companies will always need lawyers. But in Massachusetts, attorneys are scrambling for ways to get lean and mean.
Take Boston lawyer Maynard M. Kirpalani.
Kirpalani says his work is steady, and his fees are low in comparison to what other practitioners can charge.
Yet he apparently had little choice but to leave Boston’s Peabody & Arnold for another Boston firm, Wilson, Elser, Moskowitz, Edelman & Dicker, where he believes his insurance defense practice will be appreciated not only for its merits, but for its financial contribution to the bottom line.
It is now apparent what certain defense lawyers have feared for years: that practice groups within large firms must break away to form more-efficient boutiques or leave the practice altogether.
Considerable Fallout
For several years now, insurance companies have been trying to control litigation costs by refusing to pay more than about $150 per hour in attorneys’ fees, and setting rules that require lawyers to ask permission before making any moves associated with substantial costs, such as hiring an expert witness or taking a deposition, according to those in the industry.
This parsimony has created considerable fallout for insurance practice groups.
Trial attorney legend Thomas D. Burns of Burns & Levinson says he “see[s] it as something that a large, multi-discipline firm such as this will not be able to handle because the rates that the insurers are willing to pay are almost ridiculous in this day and age.”
Just last month, 40 of Burns & Levinson’s 110 attorneys left the firm to set up their own shop, Hatem & Donovan.
The two principals, David J. Hatem and John A. Donovan Jr., are not discussing specifics of their new venture, as terms of disengagement at B&L are still being worked out.
But the firm will apparently not concentrate solely on insurance defense work.
“Unless a firm specializes only in that kind of work, the difference in the hourly rates that can be charged are so diverse that you really have to have a two-tier law firm,” Burns says. “The disparity in profitability for the firm is extreme. If you look around at the large firms … they just cannot operate with this kind of practice because there’s too much disparity.”
Although most insurance defense lawyers could not point to a specific incident where a colleague questioned the financial viability of their practice, they agreed that the disparity in hourly rates that Burns points to seeps through as an underlying attitude among lawyers in a firm.
“It can cause a lot of friction within the firm, and when you’re trying to bring in associates working in one department and those associates are able to generate half the revenue [of] somebody in mergers and acquisitions or tax or probate, you can see what’s going to happen,” Burns says.
Lawyers charging a lower hourly rate do not fuel the bottom line the way all the partners would like.
Richard W. Renehan of Boston’s Hill & Barlow observes that “you’re finding within firms that the business and corporate people are reluctant to subsidize as they would view it trial work, which is less financially rewarding. It doesn’t follow that the two can’t coexist, but you have to deal with that reality.”
Alan R. Miller of Robins, Kaplan, Miller & Ciresi says it is becoming even more difficult to defend insurance companies paying cut-rate fees because the price of office space in Boston is so high and the competition for good associates so fierce.
Miller is hopeful that rate pressures may ease in the future.
“There are insurers who recognize that in order to handle these cases effectively against the powerful firm that represents a major corporation, they have to get rational in their billing. Hopefully, we’ll see more people willing to do that,” he says.
Rather than abandon their insurance defense practice group outright, some firms refuse certain types of work, and others focus on only one aspect of insurance defense.
Hill & Barlow does not take on the defense of small architectural firms anymore, “because we priced ourselves out of the market,” Renehan says.
Robins, Kaplan, Miller & Ciresi’s insurance work is limited to insurance coverage issues, Miller says.
Boston’s Morrison, Mahoney & Miller handles insurance defense almost exclusively.
As a result, Jean M. Kelly says she and her colleagues charge similar hourly rates and aren’t faced with internal tensions found in large general practice firms.
Those tensions, however, are understandable, Kelly says.
“It’s going to be very difficult for insurance defense practices to co-exist with other practice groups.”
Illustrating the Trend
Kirpalani, who’s been a practicing lawyer for 22 years, spent his first 17 years at Parker, Coulter, Daley & White.
It had a substantial insurance defense practice, but became one of the casualties of the changes in insurance company rules.
After the firm disbanded in 1995, Kirpalani landed at Peabody & Arnold, where he stayed for five years as a partner. He left two months ago for Wilson, Elser, which he believes offers a better atmosphere for the practice of insurance defense.
One of the motivations behind Kirpalani’s leaving was what he saw as increasing tension in his firm and others like it between the insurance defense practice and other practice areas.
“The long and the short of it is that the rates that the kind of work I do command are not the rates not even near the rates that are commanded by business lawyers, or corporate or commercial litigators,” he says.
Kirpalani said the tension came from simple economics.
“I viewed it as difficult for my practice to co-exist alongside those other practices because of things like associate starting salaries,” he says. “Like many firms, it was raised significantly last year and that was somewhat of a warning sign to me that an insurance defense practice could not contribute in the same way to the firm’s growing overhead.”
Kirpalani continues: “The ultimate [outcome] may be economic consequences for lawyers working principally for clients whose rates are closely controlled.”
After watching all this evolve, it became clear to Kirpalani the insurance defense practice at Peabody & Arnold might not be where he wanted to be in the near future.
“For me, it was more of a stock-taking of where I was and where I wanted to go and how much control I wanted to have over my destiny. Peabody & Arnold is a great firm and was a good place to work, but I wasn’t sure where the insurance defense practice was going to be five years from now,” he remarks.
When he began looking for a new firm, he set his sights on finding one that focused on insurance defense.
“I wanted to come home to a place where what I did was valued both in tangible ways and economically,” he notes.
The fact that Wilson, Elser focuses on insurance defense and is set up to be profitable under that rate structure, was clearly a good fit, Kirpalani says.
“My rates are compatible with most of the firm. There’s not the differentiation between lawyers based on what their client base is and what their average billing rate is,” he says.
Effect on Plaintiffs’ Bar
Some plaintiffs’ lawyers say those insurance defense practitioners who have broken away from big firms to start stand-alone insurance defense practices have had an impact on their practices.
Douglas K. Sheff, a Boston personal-injury lawyer and president of the Massachusetts Academy of Trial Attorneys, says some defense lawyers litigate in an overly aggressive way and refuse to settle all so they can make a name for themselves both in the community and with their clients.
Not all share his view, though.
Anthony Tarricone of Boston believes cases are being drawn out just as much by the larger firms as the new smaller firms and that it all stems from the insurance company itself.
“Most cases are controlled by the insurance company and the insurance companies draw things out interminably,” Tarricone contends.
Another problem Sheff experiences with more lawyers on their own, is that when he has a problem with “an S.O.B. litigator,” there’s no one in that lawyer’s firm with whom Sheff has a relationship who can put in a good word and help smooth matters between the opponents.
Daniel Shapiro of Boston disagrees with Sheff’s assessment of the attitude of insurance defense lawyers who have started their new firms.
He sees litigating cases as a large part of the job of being a lawyer: “That doesn’t bother me if somebody wants to litigate the case.”
Tarricone points out that since more lawyers are practicing now, it is harder to form relationships with those representing insurance companies because a new lawyer tries every case.
“The business gets moved around more than it used to because there’s no loyalty between the insurance company and defense counsel. They’re quick to pull [business] to save a couple dollars,” he says.
Tarricone also believes that the lack of civility between attorneys in general these days can be partly attributed to the insurance companies’ desire to save a buck by finding the cheapest hourly rate they can find which sometimes means inexperienced lawyers lacking a sense of professionalism are handling cases.
While plaintiffs’ lawyers can list the inconveniences, they admit there are advantages.
“A lot of these folks are limited in their resources and limited in terms of experience,” Sheff observes. “On the reverse side, they don’t know me that readily and maybe I can perhaps surprise them or be creative in ways they won’t anticipate.”
Another plus is that the growing number of boutiques may create more business, he says.
“I see a huge splintering off of smaller firms and what happens as a result is that the new entities are trying to compete against each other for all the business,” Sheff says.
“It will be good for plaintiffs because these small firms will have to compete and come down in hourly rates and that may mean more work for us to do,” he continues. “If they’re billing at $70 rather than $150, they have to do more work to keep even.”
