How much is too much?

This article regarding Steve Beshear and the legal fees associated with the demise of Kentucky Central Life Insurance Company is likely the first of many on this topic. The article is focusing on the ramifications for Steve Beshear’s bid for Governor. There may be some mileage for that purpose in the story of the millions of dollars Beshear’s firm, Stites & Harbison, charged. The real lessons to be learned from the numbers is not political though. The H-L reports:

    Kentucky Central by the numbers
    Just before Kentucky Central Life Insurance Co. collapsed, it had built itself into a conglomerate including TV and radio stations, citrus groves and hotels, in addition to the nearly $50 billion worth of life insurance policies it had sold. It’s little wonder, then, that its dismantling would spawn a host of costly lawsuits.
    ——————————————————————————-
    756
    Employed by Kentucky Central Life Insurance at its peak
    ——————————————————————————–
    466,784
    Total number of life insurance policies at Kentucky Central’s peak in 1992
    ——————————————————————————-
    13
    Subsidiary companies held in 1993
    ——————————————————————————–
    44
    Separate lawsuits occurring simultaneously at the height of liquidation in the mid ’90s
    ——————————————————————————–
    103
    Different law firms paid by Kentucky Central between February 1993 and March 2006
    ——————————————————————————–
    $79,601,030.63
    Paid, in total, to legal, accounting and consulting firms
    ——————————————————————————–
    $40,914,503.79
    Paid by Kentucky Central to law firms during that span
    ——————————————————————————–
    $21,170,543.57
    Paid to Stites & Harbison, Steve Beshear’s firm

Nearly 80 million dollars is a tremendous amount of money. I suspect at least a substantial portion of those fees could have been eliminated resulting in better pay outs to the consumers most intimately affected by the insurer’s collapse. No, politics is not the main story. The main story will be a critique of the economic efficiency of biglaw. The questions that should be raised include: What value was added for the Department of Insurance through Stitesand Harbison’s representation? Was the value added for the state more or less than the $20 million spent? Was there any discussion up front about value and expected outcomes or did the Department just turn the firm loose to bill whatever hours they saw fit? Was the firm’s strategy driven by billable hours or driven by maximizing value to the client (the Dept. of Insurance)?

There is a presumption in dealing with large businesses that the bigger the law firm and the higher the hourly rate, the better your representation will be. This story gives the opportunity to challenge that belief. While there are some incredibly experienced attorney’s in biglaw, there are also some incredibly experienced solos. One obvious difference between the two is that there is huge overhead in operating a large law firm. A second difference is that the client has little awareness or control over what attorney actually does the grunt work involved in the case. With a small firm, you form a relationship with the person or persons who actually handle your matter. Large law firms do carry political clout and have tremendous networks of influence. Does that change the result in the courtroom? I suppose it occasionally does. Is it worth the additional $150 to $250 dollars per hour charged? Because one is never certain when that influence might come into play or to what extent, I suggest it is not worth the additional cost. So, what big business is left paying for is the really swanky offices (marble, mahogany, great view of the city, etc.). I have been in those offices; they are really nice.

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