Good ol’ Steve Badger and I had a great debate this morning at the RCAT conference in Austin. He suggested a correction on a point where I stated that the insurance industry originated the hourly billing system for lawyers. I would rather admit I am wrong or mistaken than perpetuate something that is not supported. From my immediate follow-up research, I have found nothing to support my statement and must publicly withdraw it. I have heard the same from others, but myths should die if they cannot be supported.
Here’s what the record shows. The billable hour didn’t start with insurance companies. It grew out of early 20th-century law office management. A Boston lawyer named Reginald Heber Smith pushed lawyers to keep daily time sheets and measure “hours and tenths,” so firms could understand costs and charge based on time spent. His firm’s own historical note credits him with bringing timesheets and the billable hour into modern practice, decades before today’s carrier guidelines existed. 1
Courts and bar groups later reinforced timekeeping. In 1975, the U.S. Supreme Court struck down bar association minimum fee schedules in Goldfarb v. Virginia State Bar, 2 which helped push lawyers toward hours-and-rate pricing because posted “minimums” were no longer allowed.
So where does insurance fit in? I could find nothing to suggest it was at the beginning. But once hourly billing was already the standard, insurers became huge repeat buyers of defense work and pushed the system to be more uniform and auditable. For example, the Defense Research Institute’s revision to the litigation codes explains that insurance defense became the dominant user of task-based billing and that carriers helped drive code updates for clarity and control billing. 3
If you want a readable legal history of the billable time by lawyers, I suggest the attached law review article by Stuart L. Pardau, “Bill, Baby, Bill: How the Billable Hour Emerged as the Primary Method of Attorney Fee Generation and Why Early Reports of Its Demise May Be Greatly Exaggerated.” 4 The article lays it out over a century of change. It shows how fixed fees, retainers, and contingency fees dominated early practice; how timekeeping emerged with industrial “scientific management;” how Goldfarb and big-firm growth pushed hours to the center; and why alternative fee arrangements still often trace back to time data for budgeting and reasonableness checks.
Putting it all together, the origin story of hourly billing belongs to lawyers, not insurers. Smith’s time sheets and law-office accounting started the habit. After the Supreme Court took down minimum fee schedules, hours and rates became the easiest way to price legal work across unpredictable matters. Insurance carriers, as major institutional clients, supercharged the standardization with task codes, budgeting rules, audits, and panel-rate fee caps.
If the myth is that the insurance industry invented hourly billing, that myth needs a respectful burial. If the claim is that insurers helped spread and harden the hourly model in defense work, that one is well supported by the sources above.
I’ll close where I began. If you are reading this on your Royal Throne, Steve, thanks for the nudge. It’s better to correct the record than cling to a good story that isn’t true.
Thought For The Day
“A lawyer’s time and advice are his stock in trade.”
—Abraham Lincoln
1 Slice of History: Reginald Heber Smith and the Birth of the Billable Hour, WilmerHale, Aug. 9, 2010. (Available online 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, Bill, Baby, Bill: How the Billable Hour Emerged as the Primary Method of Attorney Fee Generation and Why Early Reports of Its Demise May Be Greatly Exaggerated, 50 Idaho L. Rev. 1 (2014).