by Russ Reed

In 2000 Oregon workers’ compensation insurance carriers and self-insured employers (together referred to as “insurers”) paid almost $23.3 million for attorney salaries, attorney fees, and other cost of legal services incurred in accordance with Chapter 656, Oregon Revised Statutes. These costs are primarily to defend the insurer against claims or compensation benefits believed to be unwarranted, but may also include costs to represent the insurer in responsibility disputes (where the outcome may not directly affect the worker) and for services provided outside of litigation (such as negotiating a claim disposition agreement). These costs are distinguished from fees paid to attorneys representing injured workers.

Table 1 summarizes these costs. The bottom row of the table depicts the breakdown of costs by category: 67.4 percent of all costs were for retained counsel, compared to 65.2 percent in 1999.

Table 1. Insurer defense legal costs by category, 2000

The graph below depicts total defense legal costs for the past 10 years. Total costs in 2000 were about 3.1 percent less than in 1999. The cost decrease was due to the reduction of in-house costs (this was true, also, for the past two years), as costs for retained counsel increased slightly (less than 0.1 percent) from 1999 to 2000.

Recent history of total defense legal costs

For each insurer classification, information on share of costs, numbers of litigated claims, in-house attorney staff, in-house costs as a percentage of all costs, and 1999-2000 cost changes are given in Table 2.

Private insures’ share of total costs (column 1) increased over 1999 by 4.1 percentage points, while SAIF’s and self-insured employers’ shares decreased by 2.2 and 1.8 percentage points, respectively. SAIF’s share of total costs was just 18.9 percent, the lowest percentage on record and the first time below 21 percent. The number of claims (column 2) is the number of claims that had a change in the litigation status during the year; it is used to approximate the number of litigated claims. The total number of such claims fell every year from 1990 to 1998, increased in 1999, and then dropped again in 2000.

The numbers of in-house attorney staff (full-time equivalent, or FTE) are given in column 3, and the percentages of all costs that are composed of in-house costs are given in column 4. The number of in-house attorneys (FTE) has declined steadily since its peak in 1993 (80.6). SAIF’s use of in-house staff has always exceeded the other insurer classifications. For 2000, 95.4 percent of SAIF’s legal costs were in-house costs, slightly below 1999’s near-record 95.9 percent. Finally, column 5 gives the 1999-2000 changes. Total costs paid by private insurers increased by 6.2 percent over 1999, while SAIF and self-insured employers paid 13.2 and 8.1 percent less, respectively.

Table 2. Other information about defense legal costs, 2000

A total of $19.8 million – 85.2 percent of all defense costs – was paid to attorneys (attorney salaries plus retained counsel), up from 83.9 percent in 1999 and the highest percentage on record. (We assume for this purpose that billings for retained counsel are all attorney fees, but other costs to the law firm may be included, as well.)

This report is based on data submitted by insurers as required by ORS 656.388(5). Surveys were sent to 373 companies that had claims in litigation during the year. About 96.5 percent of the companies completed the survey; responding companies were responsible for over 99.8 percent of the litigated claims.

More information is available from the Department of Consumer & Business Services, Research & Analysis Section, (503) 378-8254.

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If you have questions about the information contained in this document please contact by e-mail or phone: Russ Reed, Research Analyst, Research & Analysis Section, Information Management Division (503) 947-7343.

This document was originally published in April 2002.
[Printed form: 440-2314 (04/02/IMD)]

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