Good ol’ Steve Badger and I had an awesome debate this morning on the RCAT convention in Austin. He instructed a correction on a degree the place I said that the insurance coverage trade originated the hourly billing system for attorneys. I’d moderately admit I’m flawed or mistaken than perpetuate one thing that isn’t supported. From my speedy follow-up analysis, I’ve discovered nothing to assist my assertion and should publicly withdraw it. I’ve heard the identical from others, however myths ought to die in the event that they can’t be supported.
Right here’s what the report reveals. The billable hour didn’t begin with insurance coverage firms. It grew out of early Twentieth-century regulation workplace administration. A Boston lawyer named Reginald Heber Smith pushed attorneys to maintain each day time sheets and measure “hours and tenths,” so corporations may perceive prices and cost based mostly on time spent. His agency’s personal historic word credit him with bringing timesheets and the billable hour into fashionable apply, many years earlier than at the moment’s provider pointers existed. 1
Courts and bar teams later strengthened timekeeping. In 1975, the U.S. Supreme Court docket struck down bar affiliation minimal payment schedules in Goldfarb v. Virginia State Bar, 2 which helped push attorneys towards hours-and-rate pricing as a result of posted “minimums” have been not allowed.
So the place does insurance coverage slot in? I may discover nothing to counsel it was in the beginning. However as soon as hourly billing was already the usual, insurers grew to become large repeat patrons of protection work and pushed the system to be extra uniform and auditable. For instance, the Protection Analysis Institute’s revision to the litigation codes explains that insurance coverage protection grew to become the dominant consumer of task-based billing and that carriers helped drive code updates for readability and management billing. 3
If you need a readable authorized historical past of the billable time by attorneys, I counsel the connected regulation assessment article by Stuart L. Pardau, “Invoice, Child, Invoice: How the Billable Hour Emerged because the Main Technique of Legal professional Charge Technology and Why Early Stories of Its Demise Might Be Drastically Exaggerated.” 4 The article lays it out over a century of change. It reveals how fastened charges, retainers, and contingency charges dominated early apply; how timekeeping emerged with industrial “scientific administration;” how Goldfarb and big-firm progress pushed hours to the middle; and why various payment preparations nonetheless typically hint again to time information for budgeting and reasonableness checks.
Placing all of it collectively, the origin story of hourly billing belongs to attorneys, not insurers. Smith’s time sheets and law-office accounting began the behavior. After the Supreme Court docket took down minimal payment schedules, hours and charges grew to become the best strategy to worth authorized work throughout unpredictable issues. Insurance coverage carriers, as main institutional shoppers, supercharged the standardization with job codes, budgeting guidelines, audits, and panel-rate payment caps.
If the parable is that the insurance coverage trade invented hourly billing, that delusion wants a respectful burial. If the declare is that insurers helped unfold and harden the hourly mannequin in protection work, that one is nicely supported by the sources above.
I’ll shut the place I started. In case you are studying this in your Royal Throne, Steve, thanks for the nudge. It’s higher to right the report than cling to a great story that isn’t true.
Thought For The Day
“A lawyer’s time and recommendation are his inventory in commerce.”
—Abraham Lincoln
1 Slice of Historical past: Reginald Heber Smith and the Beginning of the Billable Hour, WilmerHale, Aug. 9, 2010. (Out there on-line at https://www.wilmerhale.com/en/insights/publications/slice-of-history-reginald-heber-smith-and-the-birth-of-the-billable-hour-august-9-2010)
2 Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975).
3 UTBMS Litigation Code Set Revised 2007.
4 Stuart L. Pardau, Invoice, Child, Invoice: How the Billable Hour Emerged because the Main Technique of Legal professional Charge Technology and Why Early Stories of Its Demise Might Be Drastically Exaggerated, 50 Idaho L. Rev. 1 (2014).