Good ol’ Steve Badger and I had a fantastic debate this morning on the RCAT convention in Austin. He urged a correction on some extent the place I said that the insurance coverage business originated the hourly billing system for attorneys. I might quite admit I’m unsuitable or mistaken than perpetuate one thing that’s not supported. From my rapid 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 file exhibits. The billable hour didn’t begin with insurance coverage corporations. It grew out of early Twentieth-century regulation workplace administration. A Boston lawyer named Reginald Heber Smith pushed attorneys to maintain day by day time sheets and measure “hours and tenths,” so companies might perceive prices and cost primarily based on time spent. His agency’s personal historic be aware credit him with bringing timesheets and the billable hour into fashionable follow, many years earlier than at present’s provider pointers existed. 1
Courts and bar teams later bolstered 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 might discover nothing to counsel it was firstly. However as soon as hourly billing was already the usual, insurers grew to become big repeat consumers 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 person of task-based billing and that carriers helped drive code updates for readability and management billing. 3
If you would like 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 Era and Why Early Reviews of Its Demise Could Be Enormously Exaggerated.” 4 The article lays it out over a century of change. It exhibits how mounted charges, retainers, and contingency charges dominated early follow; how timekeeping emerged with industrial “scientific administration;” how Goldfarb and big-firm development pushed hours to the middle; and why different 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 simplest approach to worth authorized work throughout unpredictable issues. Insurance coverage carriers, as main institutional purchasers, supercharged the standardization with process codes, budgeting guidelines, audits, and panel-rate payment caps.
If the parable is that the insurance coverage business invented hourly billing, that fantasy wants a respectful burial. If the declare is that insurers helped unfold and harden the hourly mannequin in protection work, that one is properly supported by the sources above.
I’ll shut the place I started. If you’re studying this in your Royal Throne, Steve, thanks for the nudge. It’s higher to appropriate the file than cling to a superb 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 Start of the Billable Hour, WilmerHale, Aug. 9, 2010. (Accessible 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 Era and Why Early Reviews of Its Demise Could Be Enormously Exaggerated, 50 Idaho L. Rev. 1 (2014).
