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Understanding the legal costs behind commercial auto liability insurance

February 12, 2018

Legal costs are a big part of your overall auto liability claim costs. Find out why and what you can do to help reduce them.

legal costs auto liability insurance

Businesses across all industries are seeing an increase in auto liability claims or, at the very least, have seen its effects on buying insurance coverage. Frequency and severity have taken a sharp turn upward in recent years, caused primarily by more miles driven, distracted driving, and higher medical and legal costs.

The costs of litigation in particular have spiked, causing insurance buyers to wonder how much control (if any) they have over these costs. The good news is that you do have some control. It starts with a solid understanding of what drives up legal costs and building a strong alliance with your insurance broker and carrier.

Deciphering your legal spend claim data

Understanding the different types of legal costs within your auto liability claim will help you see more precisely what makes up the overall legal spend. When one of your business’s insured vehicles is involved in an accident and you report a claim, Zurich starts tracking the legal costs of the claim, coding and dividing them into categories called “pay kind” codes. The five pay kind codes can be described as follows:

  • 35 ATY — Costs for paying outside counsel’s attorney fees
  • 37 MCE — Defense expenses (travel, copies, court reporters, etc.)
  • 39 SLV — Staff Legal fees (fees for attorneys employed by Zurich)
  • 35 MON — Monitoring counsel (attorney retained by Zurich to monitor outside counsel)
  • 35 CUM — Cumis (fees for outside attorneys when a conflict occurs)

Besides putting measures in place to prevent auto claims in the first place, your best strategy for managing these costs is informed selection of defense counsel. Legal services are expensive, and evaluating and contracting legal services to handle auto liability claims can be complex, even for companies experienced in retaining counsel for other matters. Therefore, when choosing between hiring your own attorney and using Zurich’s Staff Legal team or an outside firm we select for you, it’s important to know what influences the cost of legal services and what to consider when making your choice.

Factors driving the cost of legal services

While numerous factors impact the cost of legal services, when you secure a law firm’s services, you’re paying a fee that is driven mainly by the law firm’s cost of doing business (payroll, rent, taxes, insurance and a margin for profit). For most firms, payroll is by far the single largest expense. You’re also paying for the firm’s credentials (experience, degrees, specialization, etc.). Keep in mind, you may pay more – often unnecessarily – for a firm’s location and education pedigree when you should be choosing a firm based on the outcome the firm can achieve.

For claims defense, most legal fees are charged on an hourly basis because it is the most straightforward method of billing. A law firm’s hourly rateattempts to incorporate the cost of doing business, including firm payroll and overhead.  But you should note that hourly billing can lead to inefficiency, since some firms may be tempted to overbill so that attorneys can fulfill their minimum billable hours. Therefore, negotiating reasonable hourly rates and having an outside team with the expertise to accurately review legal bills is critical in helping you keep the cost of legal services appropriate and aligned with the claim’s complexity.

What to look for in selecting a law firm

As mentioned earlier, law firm selection can be a complex and daunting task, which is why many insurance buyers choose to use their insurance carrier’s staff counsel or allow the carrier to select outside counsel. Regardless of how your legal representative is chosen, you should be sure that the firm meets these basic qualifications:

  • Does the firm have the experience they claim to have?
  • Does the firm have appropriate professional liability insurance and other controls, such as partner oversight of work product and billing, to protect clients?
  • Will the firm staff and bill the matter appropriately?
  • What is the firm’s work quality?
  • Can the firm handle all phases of litigation, including trial?

Finding the real answers takes substantial research and the stakes are too high to make assumptions. In fact, your overall legal spend can increase simply from the firm’s lack of experience in handling litigated claims and negotiating legal services. Having experienced professionals navigate these issues on your behalf is a large part of the reason you buy insurance.

Using Zurich’s staff legal counsel gives you qualified, experienced representation and is often the least expensive choice, followed by using Zurich’s outside panel counsel. These are highly qualified firms that have negotiated favorable rates with Zurich and are prepared to adhere to Zurich’s billing guidelines and reporting requirements.

What a litigation management team does for you

By allowing your insurance company to step in and provide legal services in the event of an auto liability claim, you’re relieving yourself of the burden of most of the legal issues in the claim. Still, it helps to understand what your insurance carrier is doing on your behalf to control costs in getting you the best possible outcome.

Zurich’s Litigation Management Group (LMG) helps customers obtain qualified, reasonably billed legal services. They address legal costs on many fronts, including selecting and reviewing counsel to ensure they are providing competent and appropriate services, negotiating fees and billing arrangements, auditing legal bills from outside counsel and finding quality non-law firm vendors necessary for the claim (e.g., discovery vendors, court reporters).

Learn more about Zurich’s Litigation Management Group.