A message from our Owner
When I was on secondment at Lloyd's of London in 2010, I noticed a disturbing pattern: nearly every third-party administrator (“TPA”) I encountered routinely took unsupportable coverage positions without thorough legal analysis, often missing coverage defenses entirely, and clumsily handling coverage denials. At my law firm, I continue to see the same problems manifest, now that we are receiving referrals from TPAs when they realize they are in “over their heads.” I recognized that there is a fair proportion of assigned work that clients prefer to be handled by TPAs. The problem manifested later for clients is the consequence of an arbitrary decision of assigning “all” claims to either a TPA or a law firm, when the best solution is to delegate each file to the correct level of professional. That is the objective with ideal3 and the handling law firm being both involved on each program.
I have seen too many instances where TPAs, trying to “protect their turf,” failed to report claims that threatened or exceeded the TPA’s designated authority, and failed to timely call for help when a law firm level of sophistication and intensity is needed. Conversely, law firms suffered the problem of not referring the simpler, uncontested matters out to a TPA. At first, I thought the reason for these routine mistakes was simply incompetence. Upon further investigation, I discovered that the reason was just plain “turf wars”: the TPAs were afraid to report a problematic file due to concerns that the TPA would lose that file, or a program, to a competitor. In several cases, due to lack of depth of knowledge on coverage law or bad faith law of a particular state, the TPAs failed to recognize when they were getting in too deep. They missed coverage issues. They were not prepared to handle limit demands except to cave. As a result, many claims involve problems created by TPAs when they handled claims beyond their purview or authority, which problems were compounded by the TPAs errors of omission or commission in the “gap” between when the matter first became more complex and should have been referred to legal counsel, and when it was actually referred.
The biggest problems are that TPAs do not want to refer cases to lawyers, and vice-versa. To resolve that problem, I began the development of a TPA that could maintain full legal independence from a law firm, but that would be able to refer cases to a firm and receive referrals, without being concerned about “who gets the business.” The reality is that, by allocating files to the correct level of service provider, I will best serve my clients and thus keep my clients.
I have been discussing my idea with my clients to eliminate these “gaps” and “conflicts” by introducing a new model in which the independent TPA would have the full backing of a reputable law firm. Based upon my experience, this sort of arrangement would have eliminated the conflicts and “gaps” created by TPAs that were more concerned about losing a file or program when claims got more complex. By having a trusted firm to which to turn in such situations, at the very least, the trusted firm would serve as “quality control” for the TPA and eliminate the obvious conflict.
This model has been used by U.S. claims departments and certain coverholders who have their own high quality internal claim managers, who acted as “in-house TPAs” to handle routine matters and notifications, but who have none of the outside TPAs’ reticence to refer problem cases (or particular situations in problem cases) to outside counsel. This in-house claims staff refers the complex and contentious cases to the approved firm. That model had functioned very profitably for those carriers and coverholders. However, most coverholders do not have such claims departments. That is where ideal3 can step in and serve that function.
Recognizing the competitive environment in which we function, my partners fully support this new endeavor, and consent to my functioning in this “dual role,” which is not seen as presenting conflicts, but rather solving the inherent conflicts that otherwise exist. My role at ideal3 is overall management and direction. This is separate from law practice, but the goal is for the two organizations to handle “program” or “bordereaux” types of claims most efficiently and most effectively by assigning the simpler and less contentious matters to ideal3, and more serious or contentious matters to the approved firm. My role is to make certain claims are assigned to the best party for each claim. The goal is to ensure that the best service is provided to our mutual clients at the lowest possible cost.
Some other law firms have been setting up “captive” TPAs within their firms. We see this as problematic structuring, as there is no legal separation to ensure that, for contentious matters, the attorney-client privilege can be invoked to bar discovery of attorney-client communications. TPAs do not have that privilege to protect their communications with clients; merging the two functions puts the attorneys’ privileged communications at risk of discovery.
With this new model, files can be set up either at ideal3 or my law firm, dependent on which skill sets and levels of costs are appropriate; and files can be transferred between the two entities as may be appropriate.
In 2014, I started ideal3 with my brother, Max, who had worked with me at my law firm as a law clerk. ideal3 is now a successful venture with a steady and growing flow of business. In January 2018, a senior associate at my firm, Terri Stough, joined ideal3 as head of claims. Her experience at the firm included handling general liability, professional liability, premises liability, accident and health, and property claims. In the general liability sphere, Terri handled hundreds of claims in her prior position as counsel for Wal-Mart stores; and at at my firm handled hundreds of cases in the sports, entertainment, and amusement fields (including a large volume of trampoline cases) throughout the United States. Her experience will continue to ensure quality at the TPA level with the full backing of the quality our clients have come to expect from my firm. Most importantly, when matters become more complex and should be referred to our clients for review by coverage and complex litigation monitoring counsel, my firm stands ready to assist.