Each year, an average of 24,000 legal claims are filed against New York City. Settling those claims costs taxpayers approximately $600 million annually in payments.
New York City is the largest defendant in the city court system, and as a result, the city's legal calendars are traditionally backlogged, said Michael Aaronson, bureau chief of the New York City Comptroller's Bureau of Law and Adjustment.
"Because of our tremendous workload, the city has had a very bad reputation when it comes to dealing with these cases prior to entering the court system," he said. "So we've spent a lot of time trying to reverse that opinion, working with the judiciary to show we are serious about cutting back on anything entering the system."
Part of that effort was the implementation of an online claim settlement system called Cybersettle. New York City, which is self-insured for legal claims, is the first government entity in the world to embrace the new automated approach to negotiating claim settlements.
"I am a strong advocate of harnessing technology to improve services in government," said New York City Comptroller William C. Thompson Jr., noting that the online tool helped his office accelerate claims resolutions and reduce operational costs.
The Comptroller's Office said it expects Cybersettle to save taxpayers many millions of dollars annually as it goes into full use. Those savings, however, could be just the tip of the iceberg as Cybersettle becomes a routine part of the thousands of claims the city responds to each year.
Cybersettle saves the Comptroller's Office considerable time and energy that's usually taken up in correspondence, meetings and potential case litigation, said Michael Bott, assistant comptroller for information technology and CIO of the New York City Comptroller's Office.
"We definitely view Cybersettle as a vehicle to help reduce the amount of payments made, principally through avoiding litigation," Bott added. "The types of claims involved are things like slipping and falling on the sidewalk, injuries on city property, traffic devices and personal injury cases. There are around 9,000 such cases each year."
The Comptroller's Office already maintains a sophisticated in-house database called the Omnibus Automated Image Storage and Information System (OAISIS). The database holds all information regarding claims filed against the city, and also incorporates an imaging database so images of documents such as accident and police reports can be filed. It includes workflow capabilities, too.
"Processing a claim is a fairly automated process," explained Bott. "We already use OAISIS to route that claim to various representatives who are investigating and negotiating them, or who may be preparing for litigation."
Part of the current adoption of Cybersettle involves building direct interfaces between OAISIS and Cybersettle. "That way, it is really a one-click process to load up a claim into Cybersettle off our system," said Aaronson. "It is almost transparent to our adjusters. For us, because of our heavy volume, that is really key as it avoids a lot of the clerical tedium and mistakes that would happen, and it ensures both systems are in sync."
The Birth of Cybersettle
The original idea for Cybersettle was conceptualized in 1995, when Cybersettle CEO Charlie Brofman, then a practicing trial attorney, was in the process of settling an insurance claim that was negotiated to an unrealistic demand of $1 million. According to Brofman, both parties were aware of what the case was really worth -- far less.
"But we reached an impasse," he said. "We really couldn't talk to each other because I didn't want to tell him what I was willing to pay, and he didn't want to tell me what he was willing to take, which is the usual stuff that goes on. Attorneys don't want to disclose that because it weakens their negotiating hand."
Finally they secretly wrote their bottom line numbers and handed them to a court clerk, who was instructed to give a thumbs-up if they were within a few thousand dollars of each other. If the case didn't settle, the clerk would destroy the papers and never reveal the figures. He flashed a thumbs-up. The amounts were within $1,000 of each other. They split the difference and settled the case within minutes.
"We said, 'What a great concept. Too bad we can't do this a thousand times a day,'" Brofman recalled.
In 1995, technology that offered a solution was not commercially available. The two co-founders worked on different strategies and concepts until 1998, when the Internet became a viable way of doing business, and they decided the Net was the place for anonymous settlement deals.
"We could put a black box in cyberspace where plaintiffs and defendants can spin offers and demands in absolute anonymity and in the blind, without fear of anybody knowing what the numbers were," he said. "Only when the offer and demand crossed, would the system split the difference in real time and settle the case. If it didn't, nobody would ever know the offer or the demand, so attorneys or claims adjustors were not harmed in the negotiation process."
Brofman said the company is expanding internationally and has earned the legal establishment's trust -- in 2001, it was named the official and exclusive online settlement tool of the Association of Trial Lawyers of America. In the private sector, more than 90,000 transactions have been settled through Cybersettle, and the system has facilitated $600 million in settlements.
The majority of these claims are less than $50,000, according to Brofman, but Cybersettle facilitated online settlements as large as $12.5 million. Approximately 60 percent of all cases entered into Cybersettle are settled within 60 days.
Cybersettle employs a team of security experts to monitor its servers around the clock, and all demands, offers and transactions are protected online via 128-bit SSL Verisign encryption.
By using a multilevel encryption scheme, case demands and offers are protected from unauthorized viewing, even by Cybersettle staff, Brofman said. There is never a risk that either a demand or offer could leak or be disclosed to the opposing party -- or to anyone else for that matter.
Because Cybersettle is a double blind system, only if an offer and demand cross does either party know the amount that will settle the case. That is important to New York City.
"That is one thing most people don't realize," said New York City's Aaronson. "We've had problems settling claims pre-suit because we were reluctant to give our top settlement number. We felt that once we gave this number, if the claim went into litigation, that number would be the starting point to drive settlement costs higher. Using Cybersettle, since it is a blind process, we can give our best number without fear that this will disadvantage us in any way."
Using the system, there still is room for offer and counter offer. There are three iterations per round, and an unlimited number of rounds.
"So we can keep on going, and we do many times go into additional rounds if we feel we are still getting a response," Aaronson added.
Hitting a Milestone
New York City took a gradual, phased approach in its adoption of Cybersettle, starting with a demonstration project that went live Feb. 12, 2004.
"Plaintiffs' attorneys are usually very traditional in the way they do business, and we are not the easiest people to change either," Aaronson said. "The part of our use of Cybersettle that is not driven by technology is changing the culture of our own folks. It is a huge jump to convince them that they can get just as good a settlement and save time without having a face-to-face conversation. That is a big change for them. So part of our challenge has been to get our people to embrace this new way of doing business."
Aaronson said the pilot was viewed as a success.
"In approximately 90 days, we broke the 200 settlement mark, which was a pretty big milestone for us," said Aaronson. "By that, I mean we've successfully entered into 200 settlements using Cybersettle, and our overall average settlement for these is a little over $11,000. For the same types of claims, if they go on to litigation, the average is about $27,500. So it is about $16,000 per claim in settlement savings."
According to Aaronson, both the plaintiffs and defendants know the approximate value of these cases, but in the claims business, nothing good ever happens as a claim ages. "It took the city many years to figure that out," he added. "Cybersettle has already proved a big help. We've had prelitigation settlement programs before, but this has really increased our numbers in a relatively short time. The real plus for us is not even the settlement savings. The real savings are those we enjoy when we don't have to go into litigation, and when we can resolve cases that should be gotten rid of early in the process. Then our limited resources can concentrate on those cases that must be litigated."