Insurers and third-party payors frequently retain our firm to determine whether the bills generated by outside counsel are reasonable. At times, in-house counsel and law firms also will hire us to ensure that the bills they intend to submit to insurers and other third-party payors will pass muster. There are benefits to conducting this type of prophylactic analysis: The exercise minimizes disputes arising from fee reimbursement arrangements and often facilitates more timely and reliable payments. This article will provide in-house counsel with some tips that we employ to prepare bills incurred in big-ticket litigation.
Our work in this area arises in high-profile, complex commercial litigation of all types. Once retained, we typically conduct a thorough analysis of the bills and supporting documentation generated by the outside law firms to determine if the bills will satisfy a third-party payor’s requirements.
At the outset, we often identify problematic discrepancies between the numerical totals on the invoices and the cost backup and charts supporting the invoice submission. These are immediate red flags to insurers. In such instances, we typically find it necessary to independently verify the firm’s calculations. If the total between the invoices submitted and the spreadsheets differ, the discrepancies must be rectified. Sloppy documentation leads to delays in obtaining reimbursement and can even result in serious reductions of the total claim payable.
The importance of line items
Care should be taken to provide a line item description of the services submitted for reimbursement. Nothing draws the scrutiny of an insurance company or a third-party payor more quickly than a poorly documented submission for fees, particularly where the fees are substantial. The situation becomes especially problematic when the fees are presented in a block billed format or, even worse, with vague descriptions of the work performed. We have observed situations in which large portions of the legal fees were categorized in a conclusory manner, such as “defense expenses,” or are presented merely as a “retainer” or as a fixed monthly fee.
Regardless of the particulars, this general format is highly disfavored, and third parties typically reject such bills outright. There are good reasons why. Block billed and vague entries do not provide sufficient documentation for a third party to determine if the time spent on a particular task was reasonable or necessary. Moreover, such entries violate generally acceptable billing practices and, likely, applicable billing guidelines.
Doing due diligence
Due diligence prior to submitting bills is a prudent precaution. In large complex litigation, it often makes sense to retain a consultant to assist in presenting the billings in a manner that will establish confidence and satisfy the scrutiny of a third-party payor. Where the invoices are in the millions of dollars, the bills can be entered into an electronic database and balanced and cross‑checked for accuracy prior to submission. Once the overall accuracy of the totals is verified, the component parts of the monthly fees and costs can be isolated and balanced to the penny. The next step is to run specific reports documenting the major projects and tasks performed.
This due diligence equips and prepares the law firm to explain and defend the litigation strategy (i.e., the number of billers, their status in the firm and the services rendered). We may also run additional reports to compare the efforts by the various billers to determine whether there has been a duplication of effort or other practices that could raise concerns. Once that process is completed, we can put together a cogent, thorough explanation of why the staffing and litigation strategy was reasonable and necessary under the circumstances. Such prudent preparation can also assist in identifying discrepancies and inefficiencies prior to submitting the bills for reimbursement. This pre‑work up provides the firm with a further opportunity to exercise billing judgment, which minimizes disputes.
Other elements of our analyses include a thorough review of expert reports, briefs and other work product that the various law firms generated. In major litigation, it is quite common to retain a number of firms to work on specific roles in the case or cases. Through such an effort, we often clarify the roles of the law firms involved and develop evidence as to why their roles were proper and not duplicative or unnecessary. We can assist in building a record as to why the firm was hired and why their efforts were reasonable.
Case law is clear that it is the party seeking reimbursement of fees that has the initial burden of submitting documentation that the charges were both reasonably and necessarily incurred. For an insured to meet this burden, it is necessary to provide unredacted invoices containing sufficient detail to support a conclusion that the applicable litigation management guidelines were followed and that the invoices submitted comply with generally accepted billing practices.
In coordinating our pre‑review, we will often analyze the applicable billing guidelines promulgated by the client to determine whether the firm took adequate steps to ensure cost‑effective management of the case. We also review copies of all correspondence between the client and the firm reflecting billing issues; copies of the retainer agreements; a spot check of the timekeepers’ timesheets; copies of the firm’s pre‑bills (to compare with the invoices and to determine whether the firm exercised “billing judgment” in writing off any excessive or unnecessary fees); and copies of all expense invoices (to determine whether the firm has complied with ABA Ethical Opinion 93‑379 as to the billing of costs and disbursements). All of this evidence can be useful in substantially strengthening the request for fees.
Experience has shown time and again that an advance confidential analysis of billings to be submitted to third-party payors has huge financial benefits. The fees incurred by us in getting the bills ready for submission result in substantial financial returns, minimizing disputes and speeding up the time it takes for the bills to be processed and reimbursed. We hope these observations are helpful to in-house lawyers as they seek reimbursement of major legal expenses.