Cooperative Defense Agreements Reduce Costs for Insurers

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.

> return to list<