PLUS Podcast
PLUS Podcast
Expanding D&O Knowledge: The Experts’ DOmain - Episode 2
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Defense costs in securities litigation and other matters are skyrocketing. This affects both the D&O policy’s cost and the ultimate availability of its limit of liability to settle cases on behalf of individuals and entities. In this episode, Justin Kudler, Senior Vice President and Senior Claims Counsel at ARC Excess & Surplus, LLC – a CRC Group Company and Doug Greene, who leads BakerHostetler’s firmwide Securities and Governance Litigation team, discuss several factors encouraging increasing defense costs, as well as potential solutions.
Thank you for listening to this PLUS podcast, Expanding DL Knowledge, the Expert's Domain. Our host, Justin Cutler of Art Excess and Surplus, a CRC group company, will be joined by featured guest Doug Green of Baker Hotsteller. Before we get started, we would like to remind everyone that the information and opinions expressed by our speakers today are their own and do not necessarily represent the views of their employers or of Plus. The contents of these materials may not be relied upon as legal advice. With that said, I am pleased to turn it over to Justin Cuddler.
SPEAKER_03Thanks, Takia. Welcome everyone to Expanding DO Knowledge, the Experts Domain. I'm excited to drill down on today's topic by exploring with today's guest, which is who is Doug Green, who will introduce himself.
SPEAKER_00Hi, everybody. It's an honor to be here today. My name is Doug Green. I lead Baker Hostetler's securities and governance litigation team. I've defended securities and governance litigation full-time for more than 30 years. Part of my job, of course, is to win cases and to get successful outcomes for my clients. But I regard it as very, very important to keep them comfortable in addition to getting them through the litigation safely. One of my main philosophies is I can do that best when I work collegially with the broker and with the DO insurers. Together we form a triad relationship. We put our common clients in the middle and we keep them safe and protected that way. So thank you, Justin. It's a pleasure to be here.
SPEAKER_03We're happy to have you. So I am going to give a brief introduction to today's issue, which is skyrocketing defense costs in securities litigation. What can be done? So a brief introduction to the defense cost issue in securities litigation. So defense costs are covered, uh are covered loss under a GNO policy. Policies typically say no insured may incur any defense expenses without the insurer's consent, such consent not to be unreasonably withheld or delayed or conditioned, something like that. Insurers generally approve counsel with occasional limited discussion of rates or other issues. Defense costs are paid inside the limit. So they erode the money that is available for settlement. And it's worth noting that there are no defense protocols typically in the policy. So there is an open-ended blank check model. The only check here is reasonableness. There are no staffing or total hour constraints that are stated in most policies. Now, if the core purpose of DO insurance is protecting individuals serving as directors and officers, uh the question we have to ask is whether the system protects them. So that is the issue in defense costs in securities litigation. And I will start, Doug, with a question to you. How do you break down the defense cost problem from the just defense perspective rather than from the insurance perspective? And I'll toss in some things about the insurance perspective.
SPEAKER_00Well, that's a that's a good question, Justin, because um when we think about defense costs, often we think about it from the insurer's perspective. We is uh we defense counsel say, well, the insurers are trying to save money. But I I would posit that it's really uh a significant strategic consideration for me and fellow defense counsel in defending our clients. Um, I regard myself as a steward of my clients' DNO insurance proceeds. It's my job, one of my jobs, to handle those responsibly so that I preserve enough money to defend the litigation on the merits, and then if if need be to settle the litigation. So it's a really important problem on our important consideration on the defense side. You know, the defense costs have skyrocketed in in the last 15 years, especially. There are component different components of that. We tend to focus on billing rates, but really I think the and obviously those matter, but so too does staffing. And staffing, uh uh a lot of that, a lot of staffing is driven by law firm profitability. Um, you know, law firms have leveraged models where partners utilize other people and make money on their hours, and so there is a natural tendency to staff people and to bill hours, and you know, nature abhors a vacuum, and law firms abhor unfilled productivity budgets, and so that's a component too. We just have to be honest about that. One thing also that a key thing that people don't think about that much is that uh in terms of the um skyrocketing defense costs is the lack of strategic focus that a lot of lawyers unfortunately have. They do things and often don't think them all the way through why they're doing them. Every single task, every single person on a team needs to have a purpose grounded in a strategic goal of the litigation or a or a strategic work stream as part of the goal and the strategy in the litigation.
SPEAKER_03Yeah, good point.
SPEAKER_00Yeah, I I think the the taking it one step further, I think the root cause of the skyrocketing defense cost problem is that the defense bar is splintered. There are probably I'd say 10 to 20 full-time defense lawyers who dedicated their lives and their careers to securities and governance litigation defense. But I would guess that there are more than a hundred lead lawyers defending securities class actions right now. That means 80 or 90 percent of the lawyers leading the defense of a securities class action currently, pending cases pending in courts, are not full-time securities litigators. Um, they do other things as well. They do commercial litigation, IP litigation, they do white collar work primarily, but then they're venturing over into securities class action litigation. And that's unfortunate. Um I think it oh, go ahead, Justin.
SPEAKER_03I'm sorry, I was just gonna ask. Um, obviously, the securities, the federal securities litigation uh atmosphere is uh governed today by the PSLRA, which uh came into law in 1995, I believe, over President Clinton's veto. Uh and um what the so so that's the current uh state of affairs. What was it like before the PSLRA? And I don't want to date you, I don't know whether you were practicing before the PSLRA was passed or not.
SPEAKER_00I was I I I practiced started practicing securities litigation before the Private Securities Litigation Reform Act, which I call the Reform Act because it was meant to reform.
SPEAKER_02Uh and uh I come in just after, by the way.
SPEAKER_00Just yeah, we've been around for a long time, you and I. Um and and before the Reform Act, and then in the wake of the Reform Act for maybe 10 years before after the Reform Act, there was a very relatively small defense bar that defended cases. I can go into the whole history of it, but there were um there were really were about a dozen lawyers or so who really folk lead lawyers who focused on securities litigation. And it makes it makes a big difference in how in the uh outcomes, it makes a big difference in the difference in the budgets. And here's why the fringe players or rando as my kids would say, um, why they impact defense costs. I mean, first, um people who don't do this for a living have to reinvent the wheel, they have to research things that uh I and other people who are also full-time securities litigators know by heart. They've been through all sorts of things, so they go in a straight line, we tend to go in a straight line. Um, and that's part of the strategic focus that I talked about a few minutes ago. They those folks, it's not their fault. They just they lack it because they haven't developed it because they don't do this work full-time. The splinter defense bar also create it creates another problem. There are some of us who have robust practices, who have plenty of work and who litigate with what I would call an abundance mentality. We have plenty of work, we litigate everything in a straight line. The small cases are small, the big cases we do our best to keep manageable. Um, but there are there are securities litigators with good practices, but they don't have an abundance of work. And I I don't presume anybody overbills on purpose, but sometimes I think in those situations, people stretch the cases to fit their budgets or fit their internal expectations or their own expectations for what how big their practice ought to be. And then I would say I can't, I'd be remiss if I didn't throw in a third defense cost problem, which is that there are some firms that just have very, very large economic structures. I don't need to name names, we all know who they are. The going into so the going into a little bit more depth on the splinter defense bar. What why is the why is the defense bar splintered? And I think there are two problems. One is that there's no single buyer of defense council legal services and securities class actions. Um and second, do you know insurers who are in the best position to manage defense counsel um don't have any control or have minimal control over defense counsel selection because it's not a duty to defend policy public for public companies.
SPEAKER_03Well, clients clients control the presumably control the the defense as well.
SPEAKER_00Clients do, and and um I'll make this point now since you brought it up. It was it's a that's a good point. The vast majority of of companies that are sued in a securities class action have never been involved in one before.
SPEAKER_03Right. Right. And the general counsels likely have never been involved in one either.
SPEAKER_00That's right. I would guess that fewer less than 10% of the general counsels or heads of litigation, uh public companies who get sued in a securities class action have never been through one before. And undoubtedly those folks know good lawyers. The uh and they um, you know, they work with a corporate firm and um they have worked with other lawyers that that they like that are litigators, and sometimes they think, well, those people can do just fine in a securities class action. Um, but that's you know, the most important the strategic decision in the whole litigation is defense counsel selection. It determines so many things.
SPEAKER_02It's interesting.
SPEAKER_00And clients.
SPEAKER_02That's a hot take, Doug. That's a hot take.
SPEAKER_00Well, it is, it's true. It's it it's it determines so many things. It's certainly the it's certainly the first one, and I think it's it's the most important one because it dictates how so many things go. Um, and and and because it's their the policies are non-duty to defend, the the uh defendant company makes the defense counsel decision unless they seek broker in in insurance, but they do it without that. So um, you know, um the unfortunately though, public companies um um unfortunately there's no real organizing mechanism for companies to choose defense counsel in these cases.
SPEAKER_03So take take a different kind of take let's take another and and maybe we'll get to this, but there certainly could be the the insurance policy uh or the insurance process certainly lends itself to that. Maybe we'll get to that later.
SPEAKER_00Yeah, we'll let's let's talk about that in more detail at um in a little bit. But let me first explain another issue about why the splinter defense bar um impacts defense costs. So let's take a hypothetical company, ACME, ACME Corporation. ACME has a lot of commercial litigation. Okay, ACME can do a couple of things that um public companies and DNO insurance, DNO insured litigation can't do. ACME knows the right lawyers to put in its cases. So it it has a lot of commercial litigation, it has relationships with various litigators, and it can pick the right lawyer for the particular case. We can't do that with in in you know, DNO insurers and brokers have a good feel for who would fit well in a particular case. For you know, there's some cases where you have to send 20 associates to Germany for a month. Well, you know, there's a there are a few firms that can do that. You know, that's not something my firm does, but you know, there's other kinds of cases that have different characteristics that are really good for other firms. Well, there's no one size fits all in this, it's all sure.
SPEAKER_03And but before you go on, you know, another thing about defense counsel selection, I think, is that you know, you talk about the relationship that ACME has with its firms. Well, ACME trusts their counsel and they want their firm to do the work. And I think that sometimes plays a big part in council selection as well.
SPEAKER_00Yeah, no, that's right, that's right. And and and the lawyers who work for ACME have an incentive to make the small cases small and and and and so that they can continue to get a volume of work, and every once in a while acme will have a really big case, and so they have the lawyers have the incentive to really make the economics work in all the cases in the spectrum for big to small. And you know, do you know in um securities class actions are filed the the the the median uh market cap is about two billion dollars of a of a of a securities class action defendant company? That's very small, and then there's 50% of those are below two billion dollar market caps, and so that's very small in the context of publicly traded companies.
SPEAKER_03Maybe it's not correct, very small in the context of all companies.
SPEAKER_00In the companies, but yeah, in publicly traded companies, a two billion dollar market cap company is not very big. So the uh, you know, half are against very, very small companies, and about two-thirds are against under under 10 billion. And so where the uh like acme has the ability to scale and put the right lawyers in the smaller cases, and and lawyers have an incentive to do those smaller cases in an efficient way. So that those are those are that's a little bit more of a breakdown on why uh on why the Splinter Defense Bar in um uh impacts defense costs.
SPEAKER_03Sure. So now another another observation here though is that sometimes um, you know, they don't you say that the the uh acme doesn't know who's who in the securities litigation world. But I I always wonder whether there's an issue with general counsel um, you know, not wanting to go in front of the board if the case doesn't turn out the way everybody wants, and and having to defend hiring a firm that nobody's heard of. And so they say, oh, well, you know, look, I hired the best firm, and and you know, the the board is maybe not sufficiently sophisticated to realize that even though such and such may be the best firm, it may not be the best firm for this particular case. But at least that I feel like maybe that gives the general counsel some cover.
SPEAKER_00Well, I you know, my my view, and I I I've advocated this for a long time, and I have a paper that that focuses on defense counsel selection that goes through the steps that a company should take in engaging defense counsel. The first thing is involve your broker and involve your insurers in the defense counsel selection process because they know who's who. Another is involve your board, involve your board in the decision making here. You know, the the directors are going to be defendants in related derivative litigation that gets filed in most alongside most securities class actions. And so, and there's a director oversight function. So, what I would say, Justin, is I agree with the cover that the general counsels want to have. Um on the other hand, I think if they do it right, they're getting bored buy-in um early on and explaining why a particular lawyer is right for this case and why why uh you know another firm that maybe has a a bigger brand name may not be right for the particular case.
SPEAKER_03And if so, if any general counsel is uh is listening to this, then on the one hand, yeah, you want to uh when you involve the board, that is your cover, you know, you can then to the extent that somebody were to come to you and say, oh, you know, you you didn't hire the right firm, it's like well, no, it's like we didn't hire the right firm, right? Because if you're if you have their involvement, no, that that's an interesting point. Um, so let's let's move on. Doug, how does this defense cost problem impair the outcomes of these cases?
SPEAKER_00Yeah, it uh in a couple of ways. The first is that it higher defense costs than necessary um just it it takes away defendants' leverage in the litigation. Let me explain. Most securities class action defense practices without strategic focus can't organically litigate many cases through class certification and summary judgment and still leave enough left on the on the DNA insurance policies to settle the case.
SPEAKER_03Enough money.
SPEAKER_00Not enough money to settle the case. So um the the the the outcome is that uh if a case it doesn't get if a case gets past the motion to dismiss, the economically rational thing to do if if the wrong firms are defending the litigation or the firms that have with defense costs that are too high, you need to settle the case rather than defend and win. Uh and which is really unfortunate because we have great law and class certification that we've we as an industry have spent a lot of money to develop. We can win summary judgment motions and securities class actions, but for about the first 15 years of my career, if we didn't win the motion to dismiss, we move for summary judgment. We litigated the case, tried to get things adjusted.
SPEAKER_03Well, right, yeah, you can't you can't move right away. You have to conduct all the discovery, which you know, obviously with the PSLRA is stayed until after the motion to dismiss is decided.
SPEAKER_00That's right. And then we, yeah, you know, so now the defense costs associated with discovery in in a great many cases uh are just too much to be able to litigate down the road, make a summary judgment motion, and then settle the case at that point. Um so it's unfortunate because our practices become a motion to dismiss and settle practice, which is you know not very it's not satisfying for defense lawyers, but more importantly, it's not satisfying for clients who um it might, I mean, they want to win the litigation, right? And so we have a whole we have class certification and summary judgment that we that we seldom use. We won, and you can win summary judgment in securities class actions. Like I won summary judgment a year ago in a securities class action. And they're very, very winnable, but you have to have the right strategic focus and you have to have the right economic discipline to do it. So, you know, so take a take let's take an example of a two one of my median two billion dollar market cap company that has a 20% stock drop or a $400 million uh market cap drop. So let's let's assume that after running damages, the damages are through $300 million. Um and let's so let's take we've let's think that company has $30 million of insurance. And what oh first what I I mean uh that case, let's assume it has a $20 million settlement value. So um not quite 10, not quite 10% of its um market cap drop, um, about 10% of or a little less than 10% of its plaintiff's style damages, and it has $30 million of insurance. So the set the settlement value is only $20 million uh $10 million less than the available DNO insurance proceeds. It is very difficult for a great many defense firms to litigate the case through summary judgment for less than $10 million, especially considering related derivative litigation that erodes the policy.
SPEAKER_02And so there's keep in mind also sizable, potentially sizable uh retention or deductible as well.
SPEAKER_00Yeah, so but but in the context of 30 million and 30 million dollar tower, we have a 2 million maybe retention in today's market, right? So there's really not there's really not enough money for a lot of defense practices to defend the case through summary judgment and still have enough money to settle, at least not comfortably. It may work out, but it's very difficult. So we throw in the towel, and so it leaves the impact, is that it leaves clients insufficiently defended, and it creates and we don't have leverage when we go to mediation because the defense the plaintiff's bar knows that a great number of defense firms literally can't defend the case down the road, and so the plaintiffs have all the leverage, the defendants have none, and the settlement value becomes the lowest amount the plaintiff's lawyers will take.
SPEAKER_03Well, but don't but don't we also know that the that the plaintiff's firm may not have the ability to try the case either?
SPEAKER_00Well, I you know, I I I I think that is what we think a lot of times, but it's not it's not really true. Plaintiff firms are banding together now. In in the you know, the the reform acts specifies that there's to be lead plaintiff and lead plaintiff's counsel, but plaintiff's lawyers now are putting in additional plaintiffs and additional plaintiffs' firms. They have more resources than I think a lot of times we on the defense side assume, and they have litigation funding that can help them in the in the right cases.
SPEAKER_03Right. And and you know, to our point earlier, where the um post um plra, there there has been this splintering of the defense bar, and there used to be a a smaller collegial uh defense bar, uh more focused. Uh the I think the PSLRA probably did the opposite for the plaintiff's bar. They it took them, there were a bunch of people, whoever could win the race to the courthouse would be the lead plaintiff. Now, uh, because you need what what some people call the largest loser, and a lot of times it is a an institutional entity as opposed to an individual, um, all by design, uh, it has focused the work on um certain firms.
SPEAKER_00That's right. That's right. So we have we have a double whammy. We have a splinter defense bar, and we have a very focused plaintiff's bar. Uh and and I've over the years I've written uh I've uh well about seven, eight years ago, I wrote a blog series called Who Who's Winning the Securities Litigation Award, Plaintiffs or Defendants. And I concluded that the plaintiff's bar is is ahead of the defense bar because of that dynamic. They're they're focused in our splintering.
SPEAKER_03Right. Well, and to your point also, the the PSLRA doesn't limit the number of lawyers you have in the case, so or the number of firms, so the uh the plaintiffs, the whoever is lead plaintiffs counsel can bring in whoever they want. Yeah, and then with additional expertise and or additional bodies. And you know, obviously this isn't a place for you to comment, Doug, or for me either, but they obviously split their fees, they come up with some kind of an arrangement.
SPEAKER_00Yeah, and yeah, and so I I think we you we can't assume that the that the plaintiff's lawyers in any particular case can't take a he can't litigate a case, can't withstand the barrage of defense work and all that. And again, we're talking about the negative impact, but one of the things we're talking about is a negative impact on our clients of too high defense costs. So sure, you know, we can't just bear try to bury the plaintiffs, and and really we can't even we can't do that. Um it just doesn't work, you know. So then that another another really negative impact to me on outcomes is that of defense costs, high defense costs, is that it creates friction among the insurers, broker, and defense counsel. Defense insurance.
SPEAKER_03What we need when what we need is collegiality.
SPEAKER_00Exactly. We need we need to work, you know, we're all on the same side. We're all again, we're in the we're in a tried relationship and we're trying to keep our climate clients protected. And when we start to fight about billing and things like that, the the tips of the triangle split apart and we leave our clients less protected. So it it's it's really unfortunate, you know. Insurers work to try to impose discipline on defense work and on billing through billing guidelines, but that's that doesn't get to the root of the problem. That just it really just cuts around the edges and it frustrates defense counsel and then it leaves brokers in this awful position where defense counsel are asking their clients to make up the difference between what what's billed and what the insurer pays, and and and it and it strains the broker's relationship with insurers and and their clients, and it it's a really it's a just a mess for everybody, it's no, it's no good.
SPEAKER_03All right. So, so what are the maybe short and long-term solutions, Doug, to this problem? And then I guess this is what we'll end with.
SPEAKER_00All right. Yeah, I think that in the short term, what I think we need to be able to do is put litigation back in securities litigation. Yeah, we have uh as we've been talking about, we don't have the ability as an industry overall. We do in particular cases from time to time, but not overall, to litigate securities litigation when when a case gets passed the motion to dismiss.
SPEAKER_02So, how do we do that?
SPEAKER_00Yeah, well, that's the $64,000 question. I think the right first step to do that is what I call a strategic summit. At the beginning of every case, what I advocate is that uh after defense counsel does some background review sufficient to know to be able to size up the case, that we sit down, defense lawyer, broker, insurers, and individual defendant clients, not just the general counsel, much much less just the risk manager, but individual defendant clients. And let's talk through the litigation. Defense counsel can can discuss the the background facts and how how he or she views the case. Is it a is it a really difficult case? Is it a really defensible case? There are some cases where if God were our judge, we'd win. And like we would just win. We know we have a human being for a judge, so we have a risk of losing. Then we have some cases in the middle, you know, 50% of all motions to dismiss are denied. So let's try to figure, let's try to really honestly project where this one is headed, subject to judicial, you know, the fact that judges are human. And then let's make a strategic plan for what we do if the motion to dismiss is denied. Is there a good economic issue for class certification? Is now we have to look at all the documents and everything later, but is the structure of the case one that's very, very defensible? And figure out what we're gonna do if the motion to dismiss is denied, and then also get a budget, a viscous budget, a real budget where the defense counsel has some responsibility for it. A couple months into the case, we can do this through summary judgment so that we can figure out the economics and how much through class cert, then how much past class cert to summary judgment, so we can make good decisions, strategic and economic decisions about what to do about the litigation should we lose. Again, it's a coin flip. 50% of the time, we're not gonna win the summary judgment or the motion to dismiss, and we have to figure out a plan. The worst time to do it is right after the motion to dismiss is denied, a year and a half, sometimes two years down the road, um, because then we're not we don't have our feet set. Let's do that at the beginning. So that's the first near-term thing. And then, second, in the longer term, we have to figure out how we can get input from brokers and insurers to help get the right lawyers in the right cases. And I for for for years I've advocated small panels of defense lawyers where insurers have some more control. It doesn't need to be duty to defend, but insurers have more control over defense counsel selection. And I think ultimately, I predict that that's ultimately going to be the way things go. And with the smaller defense panel, there's more economic discipline, there's more collegiality, you get the more specialized lawyers defending more cases, and everybody would be better off if that were to happen. But more practical that's a longer term thing. But in the near term, there are things we can do at policy inception that start to create that dynamic. Uh, one is that up front, um the the insurer and the and the insured company can write in potential lawyers that would defend a case should a case arise and include rates or even staffing expectations. There's any, you know, all sorts of things that could be agreed upon. Um there also could be in the policy uh uh a requirement that the but that before hiring defense counsel, that the insureds consult the primary carrier about defense counsel before again, before engaging anyone. All too often, um I understand, I hear from insurers that they just are presented with defense counsel. Now the insurer has a right to consent, but uh it would be way better for everybody, especially the insureds, if the primary insurer could have a say in defense counsel selection uh before they engage anyone. And then, you know, I this here's an idea that I've had for a long time. As part of that, before and get as part of that, what I just described, a requirement that the insureds conduct an interview process of three or more firms, and that the primary insurer can recommend one of those firms or one of the lawyers. Um put one on the list, one on the list, and they need to interview them. You know, there's no high companies do interview processes for copiers and coffee makers and all sorts of things. Um, to take a day and interview three defense firms or half a day and interview three defense firms results in tens of thousands of dollars of free legal work, great strategic input.
SPEAKER_03And from yeah, yeah, from the from the from the insurance perspective, I'll say that the idea of consulting with the primary carrier about who the counsel is or conducting interviews, those things are easier to get done than you know agreements on certain firms um and and you know it allows for a flexibility. I like I like this idea. It allows for a flexibility of um, you know, the the insured can still pick who they want.
SPEAKER_00Yeah, yeah. And and and and they and they need to entertain a name, or even not. I mean, like even just an interview process requiring an interview process, would which probably doesn't I I would guess happens in less than 50% of all cases. Back thinking back in time, it used to happen in virtually all cases, and it was a broker-run process back at the around the time of the Reform Act and after the Reform Act for a decade or so. Brokers ran it. It would be a competitive process in the vast majority of cases. Um, and we've gotten away from that. And I think we need to get back to that. We'd be better off if we did.
SPEAKER_03Okay. Now, how about um alternative fee arrangements?
SPEAKER_00Yeah, so they're yeah, there are different kinds. Alternative fee arrangements can be economically helpful, help keep down defense costs. Um that I that I think are important. One is um either either a motion to dismiss fee cap or a success fee and a motion to dismiss. So I think a fee cap is a good way for a company to go because it um it helps them compare the economics of different uh bids that they get. I don't know bid isn't really the right word, but proposals, and um and they can kind of see what firms are the risk firms are willing to take. A success fee on a motion to dismiss where you get kind of some upside, is an intriguing thing. I think there I I I have mixed feelings about it, but but it's I think insurance companies do as well. Yeah. Um, but certainly a motion to dismiss fee caps is important. I think I think an em what what the problem with motion motion to dismiss fee caps is that you have to beware of a of um of of bids that are so low that they're just designed to get the case. And um, you know, if you win the motion to dismiss, great. If you don't, then you have a case um that's gonna be a good thing.
SPEAKER_03Also great for the law firm. Yeah, generate more bills, yeah.
SPEAKER_00Right. And and I think companies need to be careful about that. I also think that motion to dismiss work is a is a lost art, but I really care about the quality of motions to dismiss. A good reform act motion to dismiss tells a story, it tells a narrative, and you need to know the internal facts to be able to tell that story well with with the incorporated documents and the judicially noticeable facts. And I think what I what I see unfortunately, I hate to say this, but it's true increasingly, is low quality motions to dismiss, and you kind of get what you pay for, unfortunately. Um, and it goes back to the splinter defense bar. I mean, we you know, if you know the law by heart, you know.
SPEAKER_03Well, I don't know that we want to say, I'm sorry, Doug, I don't know that we want to say you get what you pay for. I mean, I think that a lot of quality work is done at lower prices.
SPEAKER_00Well, that that's true, but I I'm talking really I agree with that, Justin. What I what I mean to say is that sometimes you know firms don't don't put as much effort into the motion to dismiss as they should, or they don't treat it as the really important strategic thing that it is. And that's yeah, that that's what I mean to say.
SPEAKER_03Um so so I um oh, and also I guess on those, you know, you talk about capping it through the motion to dismiss, but then I guess you'll also you need to look beyond the motion to dismiss, right? Because that's where the fees really pile up, not so much before the motion to dismiss.
SPEAKER_00That's right. And as I mentioned, in the strategic summit process, I encourage companies to require the and insurers to require the defense firms to do uh a meaningful budget at that point. It's hard to do a full case budget before you get into the company, know how the documents are stored, know how many witnesses there are likely to be, et cetera. But that doesn't take long to do. And by a month or two into the case, uh a good defense lawyer, who's one, you know, certainly one of the specialized ones that I've been talking about, can meaningfully budget the case through summary judgment at least. And I think we need to start doing that. Uh well, two things. One, I think we need to start doing getting an indicative budget at the at the audition process. I think companies need to ask for an indicative budget of of the firms they're from the firms they're interviewing, and then a refined one at the strategic summit process. Um, because uh you need to you need to know uh you need to know what your ultimately economics are gonna allow for you to do. And that's that's where you can police whether you can defend the case economically through summary judgment and still leave enough money to settle the case. Should you not win or should you want to use the leverage of summary judgment to settle then?
SPEAKER_03Sure. Um I'm gonna throw out a few other ideas here, and I we're I'll I don't know if we're running out of time because I don't think we're time limited, but uh but we have been going for a while. So uh one idea, and I know I've seen it out there um in the wild, is premium credits or retention reductions, depending on if you hire certain firms or whatever. Uh those have pluses and minuses, and I would say they've never really fully caught on, but but those are possibilities. Um another possibility, and this I think goes to your um interviewing process, is if you could create, if you could create some kind of a standardized reasonableness review, in other words, you know, based on some or all of these characteristics, the venue, the claim size, like you were saying, maybe the severity, if you could make some kind of a standardized assessment. What is the firm's experience, the rates, the staffing model, all these things we've discussed? If there could be some kind of a standardized reasonableness review as part of the, maybe as part of the interviewing process, um, you know, I think that would go a long way toward ferreting out, for example, the people who lack strategic focus that you talked about earlier. Um another possibility, another possibility, um, or maybe I guess just something that should be kept in mind is these strategy discussion discussions, or I guess you call it a strat strategic summit. Um, you know, you have to remember, and this is um maybe a bit self-serving in all of my roles, although to be honest, I've actually played four, I've played four roles. I was uh I've uh litigated these cases on behalf of defendants, I've litigated these cases on behalf of plaintiffs, I uh spent many years as a claim handler on these cases, and and now I'm a broker on these cases. So, so having seen it from so many different perspectives, I will say that insurers see more of these cases than basically than any defense counsel. And um, and you know, and there are certain uh lawyers who represent uh insurers and they see even more, I would say. So it's so it's worth um you know keeping this in mind during strategic discussions or a strategic summit. Um, you know, everyone in the game shares the common interest of defending and helping the insured. So by staying positive and and working constructively, you know, we can all make a difference. Absolutely. So so I guess we'll we'll end on that on that positive note. Um so I hope I hope everyone learned something new uh from an expert on this defense cost issue. Uh I hope the uh listener picked up some defense expertise and some understanding of this issue, uh, which I think is a key driver on both the claim side and the underwriting side, because ultimately if these things cost more, the policies will cost more.
SPEAKER_00Thanks, Doug. Thank you, Justin, very much. I appreciate your having me.
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