Joining me on the panel were Art Meade, Vice President & General Counsel of Crowley Maritime and Attilio M. Costabel, Adjunct Professor of St. Thomas University School of Law, my alma mater.
The conversation was lively and moved very quickly. Art Meade lead off with a PowerPoint presentation discussing various aspects of salvage operations generally and the costs involved. Attilio Costabel was asked to explain the history and current status of the various cases filed in the U.S. and elsewhere and to opine on dollar values.
The thrust of my discussion addressed the need to have a Casualty Response Plan in place before any event, which is necessarily required by the new regulations for Non-Tank Vessel Response Plans (VRPs). On Sept 13, 2013, the USCG issued its final rule making outlining requirements for non-tank vessels trading in U.S. waters. The new regulations address the need to identify appropriate response resources, including diving, salvage, firefighting or lightering equipment and personnel within VRPs. The regulation applies to all vessels greater than 400 GT that are not tank vessels. These regulations will begin being enforced on January 30, 2014.
VRPs have a tiered approach such that a risk analysis is required based on a putative vessel's perceived risk and this is based on the vessel’s oil carrying capacity (See Table 155.5050(p) of regulations). The point of my input is that the VRPs should be a springboard for a full evaluation of casualty management and preparedness.
Of course, after the casualty occurs and the VRP has been put into play, the litigation eventually begins. The management of litigation is both an art and a science. The issue that every company must face is how to best spend dollars on defense costs to minimize the amount paid in indemnity. In addressing this, lots of questions come to mind. Does the size of the claim matter when deciding how much to spend on defense costs? Does a higher rate buy a better defense? Do flat rates buy a better defense for certain claims? What is the effect of a looming trial date on the claimant’s view of case value? And of course every company is different and has its own philosophy.
I have a few points on how to do this. First, secure the insight of local counsel. The perspective of local counsel can be helpful in developing a defense philosophy and how to best spend defense costs so that they have a maximum impact on indemnity payments. Local counsel has a unique perspective on key issues as they are on the front lines. They meet the claimants face to face. In most cases, a good defense firm will know the local plaintiff’s bar well. It knows which plaintiff’s lawyers settle cases early in litigation and which ones will try the marginal case (and which ones do it well). Defense counsel usually know which plaintiff’s lawyers drive up defense costs at every opportunity, which ones are able to fund expensive litigation and which ones fail to work up a case. It knows how judges manage their dockets and how likely a trial date is to put pressure on plaintiff’s counsel. The company needs this insight in managing the litigation.
Second, stay focused on Aggregate Claim Cost. The global goal for the management of claims as a cost center is simple; to minimize the sum of both indemnity costs and defense costs in such a way that has the best possible effect on the bottom line. This had been referred to as the Aggregate Claim Cost. The Aggregate Claim Cost is the claim value (either the verdict estimate or settlement value) plus defense cost (fees and expenses both internal and from the outside firm). In a normal claim with an accurate evaluation and a well prepared case, the cost at which a case can be settled goes down closer to trial. This is true because of the pressure put on claimants to 1) avoid the risk of uncertainty at trial and 2) avoid rising litigation costs that come with deposing defense experts and treating physicians, preparing experts, and preparing for trial generally.
However, this general Aggregate Claim Cost model does not work with a Costa Concordia type casualty. This is because in such an emotional, traumatic casualty involving a cruise ship, having numerous claims "moving parts" including thousands and thousands of passengers and crew, the Aggregate Claim Cost is generally not known, nor can it be known if it has never occurred before.
Third, use uncertainty to your advantage while staying aggressive. With these two factors in mind, companies should use defense counsel to use the uncertainty that comes with trial (developing any liability defenses and minimizing damage claims) during discovery. It also needs to keep the case on an aggressive discovery track when possible. Staying on top of deadlines and keeping a rapid pace during discovery is important. It puts the plaintiff in a responsive and reactive posture during discovery and helps avoid surprises.
Fourth, early and accurate evaluations are critical. It is essential to have an accurate estimate of the claim value early in litigation. Plaintiff’s lawyers pay attention when a company settles a case for significantly more than the last offer once trial is imminent. This is not to say that the value can never change upward. A doctor can testify in an unexpected way or a corporate or company witness deposition can go south (despite thorough witness preparation) which will change an otherwise accurate valuation early in litigation. However, these deviations are usually the exception, not the rule. The ability to pick an accurate final value and stick with it throughout discovery is paramount. Defense counsel and the company need to have a clear strategy supporting any negotiations and need to agree early on the potential verdict range. The estimate should only change based on significant case developments.
Fifth, find defense counsel you can count on. The effective use of defense counsel significantly improves the bottom line. Functional communication about issues and strategies with defense counsel can ultimately save indemnity dollars. Of course, the worst defense counsel you can use is the one that can’t be reached or doesn’t return calls or requests for reports. Finding defense counsel you can count on saves in both Aggregate Claim Cost and indemnity.
If you are interested in learning more about non-tank vessel VRPs, creating a VRP or claims litigation management of a matter before it happens, please feel free to contact me at email@example.com.