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Cooperative
Defense Agreements Reduce Costs for Insurers
by Jeffrey Krivis
Co-op-er-a-tion
~ 1: joint effort or operation. 2: the joining of persons in an
enterprise for mutual benefits or profits.
Multi-party litigation looks very much like strategic military maneuvers,
with each party looking for ways to ambush its opponents into judicial
surrender. Armed with troops of lawyers with discovery weapons and
indemnity cross-complaints, the co-defendants propel endless paperwork
at each other until the objectives of the battle all but disappear.
These strategies only serve to benefit the party who originally
brought the lawsuit. The defendants are in essence providing the
plaintiff with information at the defendant's expense, while concurrently
shifting the blame onto their co-defendants. The plaintiff is put
in the enviable position of sitting back and watching as the defendants
destroy each other with discovery and multiple cross-actions.
By turning the dispute into the typical battle described above,
defense lawyers often fail to deliver benefits to insurers, and,
in the process, weaken the civil justice system as a whole. The
blueprint for successful dispute resolution is to treat the conflict
as an opportunity for parties to understand each other, out of which
comes collaboration and eventual resolution.
In order to reach a favorable outcome, defense lawyers would be
well served to consider adding a collaborative strategy such as
a Cooperative Defense Agreement (CDA) to their arsenal. A CDA amounts
to a temporary cease fire between co-defendants.
What is a CDA? It is a private, confidential agreement among co-defendants
or potential co-defendants which provides a strategy to manage the
litigation in an economical and efficient manner. A key feature
of a CDA is an alternate dispute resolution mechanism for resolving
the indemnity claims of the potentially liable defendants. This
mechanism often is designed with both mediation and arbitration
components to allow flexibility in resolving indemnity disputes.
Collaborative
strategies among similarly situated defendants provide them with
a chance to concentrate their efforts on defeating the plaintiff's
claim, rather than defeating each other. Out of necessity these
strategies create an inherent accountability between the defense
lawyer and the insurer.
This
approach also minimizes the need to deal with disputes between similarly
situated defendants until the primary conflict is resolved, resulting
in cost savings to insurers. Given the fact that over ninety percent
of all cases are resolved out of court, it is unlikely that the
co-defendants ever will have to spend significant legal resources
fighting amongst themselves after a primary dispute has been completed.
Benefits Of A CDA
Significantly reducing defense cost to the insurers. By combining
resources among codefendants, dividing responsibilities, and avoiding
cross-claims, parties can keep litigation costs manageable and realistic.
For example, one law firm can be assigned the task of document assembly,
thereby eliminating the need for paralegal assistance in other law
firms. Similarly, the participants can select one law firm as primary
counsel to handle various discovery matters, such as depositions,
on a shared basis, resulting in profound savings in billable hours
to the insurers. In addition, joint investigation and retention
of one expert to perform a task which is often assigned to several
experts would be cost-effective.
Providing a path by which insurers can resolve coverage issues of
the plaintiff. Complex cases often present difficult coverage questions
for the insurers. Since the insurers usually err on the side of
caution and proceed to defend the cases (sometimes under a reservation
of rights), the insurer can privately resolve the coverage issues
without disrupting the main litigation. This can be accomplished
either within a CDA or through a binding alternate dispute resolution
process.
Reducing
arguments between codefendants. Traditional litigation warfare concentrates
on shifting liability among parties, which creates multiple layers
of costly discovery which doesn't necessarily deal directly with
the plaintiff's claim. This discovery swells into non-productive
and time-consuming tasks which increase the conflict between codefendants
at their own expense. By collaborating, the parties focus their
attention on defending the primary action, while utilizing powerful
alternative dispute resolution resources to shift blame privately,
or after the main action is handled.
Utilizing confidential alternative dispute procedures to allocate
liability and damage percentages among the codefendants. The CDA
route removes the customary posturing that occurs among codefendants,
and decides the issues through negotiation or binding arbitration.
This takes the secondary dispute out of the civil justice system
and puts it back into the hands of the disputing parties. The participants
(primarily insurers) regain the element of control which is lost
when a dispute is managed through the court system.
What Are The Risks?
Like any strategy to resolve litigation, Cooperative Defense Agreements
have perceived risks. Often, defense counsel summarily rejects the
thought of cooperating with their adversaries to avoid being viewed
as weak. This fear reflects an underlying uncertainty and lack of
a specific defense strategy for resolving the case.
A more realistic concern is that of decreasing control over the
litigation by individual defendants. Defendants who are accustomed
to performing some of the most important preparation tasks, such
as depositions, could argue that they are not willing to risk having
unknown counsel do their work for them. On the other hand, many
other tasks, such as research and document coordination, lend themselves
easily to cooperation. A cooperative approach to at least some of
the litigation preparation functions prevents a duplication of effort
and cost savings for the insurers. Obviously, important tasks could
be assigned to counsel whose client has the most visibility or exposure,
thereby assuring the necessary control in the case.
Another perceived obstacle is that potential conflicts of interest
may crop up between the parties after the agreement is entered,
consequently leaving the parties unprotected. While this is certainly
a predictable response from a defense attorney, a CDA can be drafted
to anticipate and deal with such potential problems in advance,
or at least address unanticipated problems by means of an alternative
dispute resolution device.
In reality, once the parties experience the inherent strength available
in working together toward mutual goals, most of the risks associated
with collaborating fade.
Concerns In Drafting The Agreement
The primary concern presented by a Cooperative Defense Agreement
is how to effectively share counsel while achieving common defense
objectives and maintaining individual control of the litigation.
Consideration should be given to: apportionment of legal fees; conflicts
of interest waivers; sharing confidential information among counsel
who may or may not have similar interests; and how long common representation
may extend.
A
secondary concern that needs to be addressed by the drafters is
how to resolve disputes among parties to the CDA. Typically, multi-step
alternative dispute resolution procedures are established in writing
so that the disputes, if any, can be managed out of court.
Another
point that must be covered in a CDA is how to share in the cost
of a judgment or settlement. This can usually be accomplished with
the assistance of a neutral facilitator hired by the group to assist
in hammering out these fine points both before the agreement is
signed and during the litigation.
Basic Elements Of A CDA
When drafting a Cooperative Defense Agreement, the parties should
ensure that each of the following elements are included. Other provisions
may be added, but these are the fundamentals:
- Identification
of the parties. Like any enforceable agreement, it
is imperative to clearly name the players. This is particularly
important in multi-party lawsuits, since it is possible that
not every defendant will participate in the CDA.
- Objectives
of the participants. A statement of purpose should
be set forth in plain English at the beginning of the agreement.
The statement should include a denial of any inference of
liability arising from the group effort, as well as the goals
of the group to reduce legal costs of each participant, promote
judicial economy, and to facilitate an early resolution of
the matter. The purpose should be stated in such a manner
that it assumes it might one day be read to a court or a jury.
This is due to the fact that the attorney/client privilege
and attorney work product doctrine have not developed to the
point where the shared information is completely protected.
- Neutral
facilitator. The group may need a neutral facilitator
to assist with discovery, resolve internal conflicts, and
help to keep the group sailing in the right direction. This
provision should include the facilitator's responsibilities,
the terms of compensation and payment, removal provisions,
and an assurance of confidentially.
- Cross-claims.
A fundamental reason for utilizing the CDA is to forego the
filing of cross-claims until the conclusion of the primary
action. Still, the parties should preserve their right to
claim indemnity or contribution. The resolution of such cross-claims
can easily be handled through a two-step approach, such as
mediation and/or arbitration. This keeps such claims out of
the court system, and makes them more manageable for the parties.
Statute of limitations tolling provisions should be included
in the section.
- Confidentiality.
Each party should affirm that their joint cooperative effort
may require the exchange of information, documentation, or
materials normally subject to attorney/client and work product
privileges. Any such exchange would be in confidence, and
solely for the purposes of advancing and enhancing each party's
defense, and for promoting an atmosphere for settlement more
quickly and economically than would otherwise be possible.
In the CDA, the privileges should be reaffirmed; the parties
should confirm that they are not waiving those privileges
without prior written consent of the producing party before
each separate exchange.
- Work
product. Shared confidential information can remain
protected under the attorney work product doctrine under certain
circumstances. The question turns on whether there is a commonality
of interest among the sharing parties. The agreement should
state that there is a common interest amongst the defendants
so as to avoid a potential waiver of the privilege.
- Expenses.
The parties to the CDA need to allocate costs. One party may
have insurance coverage, while another may be uninsured. The
uninsured party may not have the financial ability to participate
in a cost allocation on a pro rata basis. This should not
be a stumbling block to signing the agreement, but it must
be considered by the parties.
- Approval/withdrawal.
The CDA should be signed not only by the parties, but by their
counsel as well. It is important that signatories not be allowed
to argue later that they did not approve of the terms. The
agreement should also address the possibility that one or
more of the parties will go into bankruptcy or seek to withdraw
from the arrangement.
- Ability
of one party to act for another. Oftentimes a minor
party defendant will give authorization to another defendant
to act on its behalf. The ability to do so should be spelled
out in writing, as well as the extent of authority granted
to the particular party.
- No
admission of liability. The fact that a party enters
into a CDA is not an admission of liability; this should be
so stated in the agreement. It should also be stated that
each party intends to defend itself and the interest it represents
vigorously, and that it is in the parties' mutual interest
to cooperate without compromising the quality of the defense.
- Meetings.
Regularly scheduled joint meetings of all the defense parties
should be held. Provision for such meetings should be made
at the time the agreement is signed.
Conclusion
The value in collaborating in multi-party cases lies in the flexibility
and significant cost savings to the insurance companies. This factor,
coupled with the inherent accountability that develops among defense
lawyers and insurers, makes a Cooperative Defense Agreement an attractive
option. While the concept of walking into these unchartered waters
may instill apprehension in the litigator's strategic plans to win
the battle, it only takes one expensive war to develop creative
options like a CDA to help manage disputes.
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