Defense Legal Costs of Oregon Workers' Compensation Insurers, 2002
by Russ Reed

In 2002 Oregon workers’ compensation insurance carriers and self-insured employers (together referred to as “insurers”) paid over $24.8 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 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 67.3 percent of all costs, down almost 2 percentage points from 2001’s record-high 69.2 percent.

Table 1. INsurer defense legal cost ($ thousands) by category, 2002

The graph below (see note about data corrections for 1998-2001) depicts total defense legal costs for the past 10 years. Total costs in 2002 were about 1.4 percent less than in 2001. Total costs dropped because costs for retained counsel dropped by 3.5 percent, while in-house costs increased by only 3.0 percent.

Recent history of total defense legal cost ($ millions)

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 2001-2002 cost changes are given in Table 2.

SAIF’s share of total costs in 2002 (column 1) was well above 2000’s record-low 18.9 percent. Its share increased by 0.9 percentage points from 2001, while private insurers’ share decreased by 0.8 points. 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, but since then has alternatively increased and decreased each year; there were 1.7 percent fewer in 2002 than 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 43.8 in 2002. SAIF’s use of in-house staff has always exceeded the other insurer classifications. For 2002, 95.1 percent of SAIF’s legal costs were in-house costs, slightly below the record- and near-record-high values in 1997-2000 (95.4-96.0 percent). Finally, column 5 gives the 2001-2002 changes. Costs of private insurers decreased by 3.2 percent, while SAIF and self-insured employer costs changed only slightly.

Table 2. Other information about defense legal costs, 2002

A total of $21.1 million – 85.0 percent of all defense costs – was paid to attorneys (attorney salaries plus retained counsel), down from 2001’s record-high 87.3 percent. (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 255 insurers that had three or more claims in litigation during the year. Costs for insurers with one or two claims were estimated at $0.23 million. Costs for six non-responding insurers were estimated to be $0.26 million. Altogether, estimated amounts constituted about 2.0 percent of total costs. Estimates were based on average costs per litigated 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 September 2003.
[Printed form: 440-2314 (09/03/IMD)]

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