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Getting the Most from Litigation Budget

by James Chapman

Litigation budgets are required by almost every insurance carrier today. Yet, according to a recent Altman Weil survey, legal budget forecasting by outside counsel was the number two service improvement wanted by the nearly 250 responding in-house legal departments. Is there a disconnect?

Budget as a Roadmap

Experienced lawyers know what the litigation process involves. Aligning the estimated amount of work with the assigned attorneys and paralegals — and their billing rates — is the essence of litigation budgeting.

The budget is a great tool for thinking strategically about the case at the outset: expected pleadings, motions practice, written discovery and depositions — all the way through trial — and how much time will be needed for each. While it is an estimate, it is a useful forecast tailored to the type of case, the known facts, and intangibles such as the civility of opposing counsel (including co-defendants).

Unexpected Developments

While unexpected case developments sometimes occur, given that over 95% of lawsuits are settled, the attorney’s own historical data can help identify potential outliers. These can then be explained in the initial report.

Unfortunately, some attorneys submit perfunctory litigation budgets to “check the box” in the litigation guidelines. Worse is when a budget is submitted that over-estimates the cost to ensure coming in “under budget.” Artificially high litigation budgets can result in excessive reserves, tying up precious capital.

What about Budget Changes?

Unquestionably, sometimes budgets change. It cannot be sugar-coated, so don’t even try.

Instead, to get the most from the budget, track case milestones or budget thresholds. That way, when a predetermined milestone is not achieved as planned — or a percentage of the budget is reached — it can be re-evaluated. It is critical to be proactive and have the conversation before the budget is exceeded.

Real Time Budget Monitoring

Do you monitor legal spend in real time?

While attorneys and paralegals record their time daily — and review it monthly during the billing process — tracking tools provide a great way to notify attorneys before the fees or expenses exceed the budget. The goal of tracking is fewer surprises and better client communication.

ABA Task Codes

The American Bar Association introduced the Uniform Task-Based Management System (UTBMS) litigation codes in 1995. Virtually all insurance carriers today require use of these codes for billing. Litigation codes track the four primary categories up to trial, and follow the standard litigation roadmap. For a downloadable Litigation Budget Calculator with built in formulas, check out our ClaimEdge tool below.

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