Construction Lawyer Magazine
By Dan Rafter
Glen Amundsen has heard the complaints: His fellow attorneys bemoan the fact that the economy has made it more difficult to earn a living in the insurance defense and coverage practice.
Their insurance corporation clients expect them to do more while charging less, attorneys working in this practice area say. And they worry that as construction activity has ground to a halt across most of the country, there are fewer insurance defense and coverage cases to go around.
Amundsen, chairman and chief executive officer of Chicago’s SmithAmundsen, has little sympathy.
“In my view, it is harder to be a plumber now than it was 10 years ago. It’s harder to be in the newspaper business than it was 10 years ago. It’s harder to be an electrician now. In fact, it’s harder to do just about anything now,” Amundsen said. “Instead of sitting around complaining, enlightened firms are asking what they can do to prove that they are worth more to their insurance-company clients today than they were last year. The firms who do that are the ones that will fare well even in this economy.”
Amundsen isn’t alone in this view. Attorneys specializing in insurance defense and coverage acknowledge that the weak economy has brought several changes to their industry.
This may come as a surprise to some. Many have considered the insurance defense and coverage industry as one of the most recession-proof areas of the law. People slip, fall and injure themselves whether unemployment is high or low. There are still auto accidents.
But the struggling economy has changed the way insurance companies view their working relationships with outside legal counsel. Insurers want their legal representatives to bill them for fewer hours. They want them to resolve cases more quickly. And they want them to provide extra value for their services.
Like Amundsen, though, many top players in this field aren’t wasting time worrying. Instead, they’re adapting.
And they’re not feeling sorry for themselves for two important reasons: First, that never helps matters. Secondly, insurance defense and coverage is far from the only field of law in which practitioners are struggling with a new economic reality.
“My understanding, from talking to friends of mine who work at firms that don’t do insurance work but instead work litigation for corporate America, is that they are seeing the same things,” said Daniel Litchfield, a partner at Litchfield Cavo.
“There is a fair debate from firm to firm, from issue to issue, whether a particular matter should be part of your overhead and accounted for in the rate you charge, or something that should be seen as a disbursement that should be reimbursed to you by the insurance company client,” he said.
In today’s economy, this is a debate that isn’t likely to end anytime soon.
Watching the pennies
Litchfield said insurance companies, like all businesses today, are trying to cut their costs. This sometimes leads to tensions between insurers and their outside legal teams.
Insurance companies have long requested that the attorneys they hire provide an early case assessment of any claims brought against them. Attorneys provide this assessment to give their clients a basic idea of how much they think the case will cost them to defend, which strategies might be most useful in resolving the case, and how long it will take to close the books on the claim.
These are all estimates, of course. But in today’s economic environment, insurance companies want these estimates to be as accurate as possible, Litchfield said.
For Amundsen, the early case assessment is one of the keys to providing insurance companies with the assurance that their outside legal representation is not overcharging them. At SmithAmundsen, attorneys are required to measure how the ultimate result of a legal case compares to the estimates they provided in the early case assessment phase.
“Every carrier with whom we work has some form of initial suit analysis,” Amundsen said. “They have some document intended to help the management of the company understand the risks and exposures that they are taking on in a given case.
“We try to compare the outcomes three or four years later to what we said in the first case assessment. As simple as that sounds, many firms don’t do that. If you do well at early case assessment, you are showing some real value to the insurance company. Over- or under- reserving cases costs companies money. They don’t like that.”
Showing this real value is more important in today’s economy, Amundsen said. Insurers are under pressure to reduce as many costs as possible. Legal representation is not immune from this cost-cutting mentality.
SmithAmundsen attorneys are encouraged to keep careful track of how long it takes them to close a case. Amundsen said the goal is to keep reducing this time, something that, again, provides real value to insurance firms struggling to control their costs in a challenging economic environment.
“Our effort to keep reducing that number is also a distinguishing factor for us,” Amundsen said. “Most firms don’t do that. They don’t implement policies to help big cases resolve quicker. Most insurance firms think that the longer a case is open, the more it costs and the more difficult it gets. They’re right. Quickly resolving cases is almost always better for the insurance companies. And today, there’s more pressure on legal firms to do that.”
Different cases
Bruce Lyon, a partner with LaBarge, Campbell & Lyon, said the economy has changed the type of insurance cases his firm handles.
The insurance defense and coverage attorneys at LaBarge, Campbell & Lyon are seeing more construction defect cases and not as many construction injury cases, Lyon said. He points to economic pressures as the reason for both of these trends.
“During the whole building boom, there was so much construction going on that you saw more workers and bystanders getting hurt on or near construction sites,” he said. “That’s slowed now, so we’re not seeing as many of these injuries.”
At the same time, the sluggish economy has meant that the owners of single-family houses and condominiums have seen the values of their residences plummet. Many homeowners are actually “underwater”: they owe more on their homes than what the homes are worth.
When this happens, owners are more likely to react negatively to building flaws, Lyon said. And they’re more likely to seek legal action for remedies to sagging foundations and improperly installed plumbing.
“They become more concerned about issues with the quality of construction,” Lyon said. “I have seen a lot of cases where we have claims regarding masonry problems, roofing problems or window problems. And I’m seeing this at various buildings across Chicago. I still continue to see construction injury cases, of course. But I’m just surmising that the fact that there is not as much construction going on means that not as many people are getting hurt on construction sites.”
Of course, certain areas of the insurance and defense coverage industry are nearly recession-proof.
“When you get back down to auto, slip-and-fall pedestrian cases, you’re not going to see the economy impact them as much,” Lyon said. “You have the same number of sidewalks out there. You have the same number of cars on the road. You will not see a change in the volume of that type of claim. You may see a drop in construction injury cases, but the activity might just be moving to a different area.”
This movement of business from one area to others has helped the insurance and defense coverage industry weather the recession, Lyon said. The law firms specializing in insurance work haven’t seen the major upheavals that other litigation-based firms have seen in the last year or so, Lyon said.
“You just have to read the pages of the Daily Law Bulletin to see that many large firms have had to lay people off,” Lyon said. “We haven’t seen this as much in the insurance defense business. People are still working.”
This isn’t to say, though, that the economy won’t eventually catch up to the business, Lyon said.
“It may be that we are a little bit more behind the curve,” he said. “We are handling cases that may have happened a year or two before they get filed. We might not see this year’s economic conditions manifest themselves until next year when the cases from this year will be filed. I think people still fall and hurt themselves no matter what the economy is doing. But I’ll be able to better answer the question of how the economy has impacted business in a year or so. Then we’ll see what filings were like in 2010.”
No such thing as recession-proof
Attorneys in the insurance defense and coverage area agreed their field is more resistant to the bad economy than are others. But they stopped short of calling their field recession-proof.
The reason for this is obvious: They’ve noticed a slowdown — not as dramatic as in other areas, but a slowdown nonetheless — since the economy began to struggle.
“We certainly have not seen the kind of changes that have happened in the mergers and acquisitions area or in the real estate law area, but we have seen changes,” said Gordon Broom, a partner with HeplerBroom. “But we haven’t seen the big layoffs that have happened in a number of practice areas. There is no question that filings are down. There is less activity, whether you’re looking at insurance defense or otherwise.”
HeplerBroom hasn’t suffered big layoffs like many other firms. But the firm is not hiring new attorneys at the moment. And when people leave, they are often not replaced, Broom said.
“The fact of the matter is that our business is dependent on the number of lawsuits that are filed,” Broom said. “The recession has affected the number of lawsuits being filed. There are fewer people on construction sites today. There are less people, then, getting hurt and filing lawsuits.”
But the recession isn’t the only thing that has lessened the insurance defense and coverage workload, Broom said. The world is a safer place today. New federal laws govern workplace safety. Officials with the Occupational Safety & Health Administration are strict about enforcing these rules.
This has reduced the likelihood of workplace accidents. It’s hard to argue that OSHA and its enforcement policies haven’t made a difference, Broom said.
“There is a tremendous focus on workplace safety today,” Broom said. “Everybody realizes that the cost of preventing an accident is far less than the damages that the accident might cause. This increased focus on safety, not to mention the economy, has impacted the number of lawsuits being filed today.”
Broom also points to a less obvious change to the insurance defense business: The economy has changed the way juries view injury cases.
You might think that the weak economy would cause juries to award more generous judgments to plaintiffs who have suffered injuries. Broom, though, has seen the opposite.
“Juries today are more conscious of what impact a verdict will have on the employer or corporation,” he said. “They’re more conscious of the impact their judgments may have on other people’s jobs. They are now less sympathetic to giving plaintiffs a larger award. They know that everyone is having a hard time today. The people sitting on that jury may be having just as bad a time as the fellow sitting in the plaintiff’s seat. That has become a factor. Juries don’t want to hurt an employer, and they don’t want their judgments to lead to an employer having to let workers go.”
An uptick?
Although most attorneys say that they’ve seen business in the insurance defense field drop slightly because of the economy, others have reported an increase in certain cases.
Tom Segalla, past chair of the insurance coverage committee of the Defense Research Institute, a trade association serving the defense bar, said he’s seen the number of slip-and-fall cases increase. This traditionally happens when the economy falters, said Segalla, a partner with the Buffalo, N.Y., law firm Goldberg Segalla. Segalla said people are more likely to pursue these cases when money is tight. They’re looking for extra dollars wherever they can find them.
But he sees a bigger change coming to insurance defense in the next several years: He predicts that attorneys in general will see more antitrust and intellectual property claims. They’ll spend more time working on employment cases that focus on discrimination and fair-wage practices.
Segalla sees an uptick in all of these cases as the federal government, led by the Obama administration, gets more involved in regulating corporations, including insurance companies.
“You’ll often see the mix of cases change whenever there’s a political changeover in the country,” Segalla said. “In this case, we’ll see more antitrust cases being filed against corporations. We’ll see more regulatory fines associated with practices going on in the construction industry. And all of this will result in a different kind of caseload for attorneys working in insurance defense and coverage.”
It’s now up to attorneys and law firms to adapt to the many changes that are or will soon be hitting the insurance defense industry, said Litchfield, from Litchfield Cavo. Those who do will find that this industry can be as rewarding as it ever has been.
Firms will now have to pay closer attention to what they are billing their insurance corporation clients, he said. Insurers will certainly be watching expenses more closely than ever, and it’s a trend that may not go away even after the economy improves.
“There has always been in the legal profession in general, and not just for insurance, a wide variability when you get down to the nitty-gritty level of what particular clients and insurance companies will and will not pay for,” Litchfield said. “Will they pay for postage or not? Will they pay for photocopies? And if so, how much per page? Will they pay for your time involved in travel, either in the metro area or more broadly? These procedures vary from company to company. And today, you have to be very specific with your clients in determining up front what will be paid and what won’t be.”
Worrying about this doesn’t pay off, said Amundsen, from SmithAmundsen. Although law firms face challenges on the road ahead, their struggles do not set them apart from many other fields.
“It’s clear to me that insurance companies are trying to reduce overhead and produce the same quality of services for less cost,” Amundsen said.
“I’ve seen that they’ve had layoffs internally. That makes it harder for the people who remain to accomplish the work they need to do. But that is ‘Welcome to America,’ lately. I don’t think that is endemic or unique to insurance companies.”
I’ve previously written on the flurry of trademark infringement lawsuits filed by 3700 Associates, LLC (“3700 Associates”) – the developer of the troubled Cosmopolitan Resort & Casino in Las Vegas – against various named defendants (link here), including one prior post (link here) discussing reverse cybersquatting claims against 3700 Associates arising from one of its first cybersquatting lawsuits filed in Nevada which was dismissed for lack of jurisdiction, but subsequently refiled in Florida.
Earlier this year, 3700 Associates found itself in some financial troubles with respect to its $3 billion project (part of the Las Vegas condo-hotel craze that has fallen victim to the nationwide downturn in the housing marker along with rising construction costs and tighter credit markets). See articles here and here regarding the notice of loan default delivered by Deutsche Bank AG on January 16, 2008, on the bank’s $760 million construction loan to 3700 Associates, the construction developer of the Cosmopolitan Resort & Casino, and the attempts by 3700 Associates to find new investors in a credit market that has become incredibly tight.
Even before 3700 Associates’ default, most observers knew that the Cosmopolitan project was on shaky ground, which is why I often wondered why 3700 Associates was putting so much time and money into aggressively pursuing these trademark infringement lawsuits (mostly over domain names incorporating the word cosmopolitan) when it would seem to need every single penny it can get.
Well, 3700 Associates now finds itself on the defensive side of a trademark infringement lawsuit filed by Hearst Communications, Inc. (“HCI”), the publisher of the Cosmopolitan magazine and holder of several registrations for the mark COSMOPOLITAN.
Reuters reported yesterday (link here) that HCI had filed a $500,000 trademark infringement lawsuit against 3700 Associates and Cosmo Senior Borrower LLC (likely the special purpose entity formed to be the actual owner of the Cosmopolitan Resort & Casino being developed by 3700 Associates) over the use of the name Cosmopolitan, which HCI claims is likely to cause consumers to believe that HCI is involved in developing or had licensed the Cosmopolitan name for the resort and is likely to dilute the distinctive quality of HCI’s famous Cosmopolitan mark.
While the lawsuit may seem new, it appears to be a carryover of the Trademark Trial and Appeal Board oppositions that HCI filed against 3700 Associates over a year ago. See Hearst Communications, Inc. v. 3700 Associates, LLC, Opposition No. 91177407 (T.T.A.B. Filed May 21, 2007). In the consolidated opposition, HCI opposed several pending applications filed by 3700 Associates which contain the word COSMOPOLITAN, including THE COSMOPOLITAN BEACH CLUB and COSMO BEACH CLUB – all on the basis that registration of such marks will cause confusion in violation of Section 2(d) of the Trademark Act (15 USC §1052(d)) and will cause dilution of HCI’s famous marks under 43(c) of the Trademark Act (15 USC §1125(c)).
HCI is seeking injunctive relief as well as an order to the PTO to deny 3700 Associates’ pending applications and to cancel any registered marks, including apparently the registrations that 3700 Associates currently has for THE COSMOPOLITAN RESORT & CASINO word mark and stylized variation thereof covering real estate services featuring condominiums and likely the still pending applications for THE COSMOPOLITAN RESORT & CASINO word mark and stylized variation thereof covering vacation time shares, casino services, and resort hotels (which have received notices of allowance and are awaiting Statements of Use).
While one could characterize this is a case of 3700 Associates getting a taste of its own trademark infringement medicine, one does question why HCI waited so long to file this action. Where was HCI back in November 2004 when 3700 Associates first announced its intent to use the name? It is interesting (although perhaps coincidental) that HCI only sought to stop the use of the name Cosmopolitan after the project became financially unstable. Or perhaps HCI, seeing blood, decided to take this opportunity to kill 3700 Associates’ use of the name entirely – recognizing that it might not have a better opportunity to do so given that it had allowed 3700 Associates to use the name in promoting its project for so long.
