by Russ Reed

In 2001 Oregon workers’ compensation insurance carriers and self-insured employers (together referred to as “insurers”) paid over $24.7 million for attorney salaries, attorney fees, and other costs 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: costs for retained counsel were 69.2 percent of all costs, the highest percentage on record (since 1990) and almost 2 percentage points above 2000’s figure.

Table 1. Insurer defense legal costs by category, 2001

The graph below depicts total defense legal costs for the past 10 years. Total costs in 2001 were about 6.2 percent more than in 2000. This cost change was due to the increase of costs for retained counsel, which increased by 9.1 percent from 2000 to 2001 (total in-house costs increased slightly, by 0.1 percent).

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 2000-2001 cost changes are given in Table 2.

Private insures’ share of total costs (column 1) decreased from year 2000 costs by 2.2 percentage points, while SAIF’s increased by 2.4 percentage points. (SAIF’s share of total costs in 2000 was a record-low 18.9 percent). The share for self-insured employers remained about the same. 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, dropped in 2000, and then increased again in 2001.

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 it’s peak in 1993 (80.6) to a record-low 44.3 in 2001. SAIF’s use of in-house staff has always exceeded the other insurer classifications. For 2001, 94.1 percent of SAIF’s legal costs were in-house costs, slightly below the record- and near-record-high values of the previous four years. Finally, column 5 gives the 2000-2001 changes. All insurer classes showed increases, with SAIF the greatest at 19.2 percent and private insurers the smallest at only 1.2 percent.

Table 2. Other information about defense legal costs, 2001

A total of $21.6 million – 87.3 percent of all defense costs – was paid to attorneys (attorney salaries plus retained counsel), up from 85.2 percent in 2000 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 250 insurers that had three or more claims in litigation during the year. Costs for insurers with one or two claims were estimated at $0.14 million, about 0.6 percent of total costs. Costs for nine non-responding insurers were estimated to be $0.48 million, about 1.9 percent of total costs. Estimates were based on average costs per claim for similar insurers and historical costs per claim for the insurer in question.

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 December 2002.
[Printed form: 440-2314 (12/02/IMD)]

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