At the beginning of litigation and selection of the law firm that will handle the case, the in-house lawyer must assess the case—the strengths, weaknesses, costs, etc., involved. Case evaluation is very important. Evaluation can be made through an early evaluation by outside counsel, knowledge of potential costs, use of employee interviews, and formulation of a plan/budget. When a company has a good idea of the chances of winning, as well as the potential costs, it is in a better position to determine whether to proceed to trial. Therefore, at the beginning of litigation, the company or organization should obtain a thorough evaluation of the case and use internal risk management tools to assess the cost of a trial. Is the cost of litigation worth it?
Risk analysis of litigation can be a useful tool in evaluating a case. One such tool that is often utilized is the decision tree. A decision tree analysis can be used to evaluate the probability of outcome of certain events during trial. Each event can then be analyzed in the context of the probability of the entire outcome. A decision tree risk analysis provides a systematic method of analyzing cases from the beginning
Besides the use of a decision tree, a properly formatted litigation budget should address the fees and costs of going to trial. Using a budget helps to establish a realistic framework for litigation as it should cover expected fees and costs. Remember however, a law firm’s fees at trial could skyrocket for a number of reasons, including:
-The number of lawyers involved.
-Time: Most trial lawyers will work long hours during a trial, so fees will add up.
This especially true if the trial is a complex one involving patent disputes or
Competition/ Anti-trust claims.
-The cost of expert witnesses.
If a company wants to identify the major legal risks it faces, it needs to come up with a process to assess risks. But how?
When thinking in terms of legal risk management (LRM) in-house counsel or risk managers should ask some questions. First, what is the degree of risk the company is comfortable with? Or what degree of risk is a department in the company comfortable with? Also, what perception of risk does the various levels of management in the company have towards risk? Remember, this requires talking to all departments and the various department heads as well as middle managers, etc. to get a good grasp of their perception of risk or at least their perception of legal issues facing them. Only after that happens and an assessment of the legal risk environment is completed can you then proceed with a risk analysis. Of course, the accounting department may be looking at things under a COSO standard while the HR department may be looking at risks under the ISO standard.
A risk assessment can cover the areas and/or departments that are important to the company. Such areas may include:
• All insurance matters, including the renewal of insurance carrier and recommending obtaining additional or different types of insurance when needed.
• Handling all product liability claims, including product safety claims, subrogation claims, investigations, discovery, and product liability lawsuits for the organization.
• Reviewing product warranties, warnings, and manuals to ensure compliance with relevant laws and regulations.
• Reviewing processes regarding product recalls, government-related complaints, and government investigations and inquiries, including the FDA, and FTC in the United States, etc.
• Working with the Service Department or QA Department and other departments to analysis potential safety issues and report the findings to management.
• Performing due diligence reviews of safety-related issues and evaluating such findings.
• Reviewing PR/marketing processes, other departments and outside PR on responding to the media with respect to safety-related issues (media crisis team/crisis management team).
• Assessing the training given to the service/call center (if any) personnel on how to handle consumers complaining about safety issues and how to recognize product liability issues and escalate them to the proper people.
The above areas are a fraction of what con be looked at or considered when conducting a risk assessment. But it’s a place to start. It depends on the nature of the company and the primary business drivers of the company. And of course, the company's perception of risk.
As companies begin to dig out of the current pandemic and consider or re-evaluate business continuity plans, it is time for in-house counsel, risk managers and CLOs to consider ways in which to mitigate risks, including legal, operational and corporate. Here are a few considerations when contemplating risk assessments:
1. Conduct an Insurance Risk Assessment
i. Conduct a risk assessment of insurance policies. Such an assessment must be conducted to create a business risk profile to identify factors that have the greatest financial impact on the company as well as to identify appropriate risk transfer strategies to:
a) Stabilize insurance costs;
b) Mitigate extraordinary financial impact;
c) Ensure cost effective protection against catastrophic losses;
d) Optimize tax and accounting issues.
ii. Conduct an analysis of current coverage, amounts, deductibles, excess.
iii. Evaluate all insurance policies and insurance companies- coverage, costs, etc.
iv. Investigate establishment of captive insurance company.
v. Review insurance brokers to determine if the right programs are being put out to bid
vi. A review of all claims should be performed
2. Review Litigation Considerations of the Company and /or its Foreign Business Operations or Subsidiaries:
i. Affiliated companies or subsidiaries can be named as defendants. These companies will need coordination of defense and discovery matters. How do the companies handle this?
ii. Consider jurisdiction over foreign entities, including the parent entity.
a) Jurisdiction Issues
b) Maintaining Corporate Compliance
iii. Litigation Respecting Same Products in Multiple Jurisdictions-issue for electronics companies and home appliance manufacturers
iv. Insurance coverage-is it adequate? Has it been reviewed?
v. Litigation issues must be reviewed such as:
a) Coordinating billing from local counsel.
b) Insurance coverage notices and claims and updating carriers.
c) Budgeting for cases.
vi. Currently, many large US companies and subsidiaries of non-US based companies have numerous insurance related lawsuits involving class actions, product liability claims, bankruptcies, employment cases and antitrust and regulatory issues. These should be reviewed.
a) Product Liability Actions
b) Patent Actions
c) Regulatory Proceedings and Investigation
d) Commercial Disputes
e) Product Liability Costs
3. Consider Typical Legal Theories on which a Plaintiff May Base a Products Liability Claim and Class Actions In US and Elsewhere:
i. Breach of Express Warranty.
ii. Breach of Implied Warranty.
iv. Strict Liability.
v. Deceptive and Unfair Trade Practices ("DUTP").
vi. Consumer Class Actions
4. TO ADEQUATELY PROTECT AND DEFEND AND MITIGATE THE RISK OF A COMPANY AND ITS U.S. AND FOREIGN SUBSIDIARIES, NUMEROUS PROCESSES AND PROCEDURES SHOULD BE IMPLEMENTED AND REVIEWED BY LEGAL COUNSEL AND/OR RISK MANAGERS. SUCH PROCESS GOALS ARE:
i. Product Risk Management Goals.
a). Encourage correct product use, increase customer satisfaction and minimize possible injury from use.
b). Improve ability to defend the company in the event of litigation by developing and substantiating defenses to liability, reducing exposure to liability, for example, by removing grounds to impose punitive damages.
ii. Adopt Product Loss Control Policy and Procedures which include:
1. Requiring product group or divisional officers to develop programs consistent with corporate guidelines.
2. Establishment of a group Claims Defense Committee.
3. As a part of the Research – Design – Development process, conduct formal hazard/failure evaluations on all new products.
4. Publish Quality Control Standards and Procedures for all components, materials, and processes critical to product, service, safety, and reliability.
iii. Product Management Consideration Respecting Limiting Potential Liability Exposure – Develop Checklist to include in Product Readiness Approval Objectives Including Product Design Considerations:
a) Written procedures for the design program, including:
b) Design choices – consideration of alternatives.
c) Specifications – definition of acceptable ranges of variation for each characteristic to assure that all designs are reviewed before they are released to manufacturer.
d) Establish a design review committee.
a) Review all published statements about the products including advertising, product listings and catalogues to assure that they do not: mislead users, encourage users to disregard directions and warnings contained in the labeling, or promote unapproved or inappropriate uses.
b) Include provisions in distribution and purchasing agreements so that distributor and/or purchaser will:
(i) complete and return surveys and questionnaires
(ii) notify the company of any product failures or malfunctions