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Twenty years ago, Thomas Herlihy did what many other insurance defense attorneys were doing: He left a larger firm to start a boutique practice, recently known as Kelly, Herlihy & Klein. But lately, Herlihy and others like him have been backtracking. Some lawyers in the bad-faith insurance defense niche report that consolidation in the insurance industry has made the boutique practice a riskier platform. At the same time, diversifying a law practice through lateral hiring has grown more expensive in a market where top first-year associates command a $160,000 salary. Lawyers say such trends are making midsize and big firms more attractive to those who want to expand their practices. On April 1, Herlihy, who defends insurers in first-party bad-faith and punitive damages cases, started as a partner at Wilson Elser Moskowitz Edelman & Dicker, a giant with roots in insurance defense. Four other senior attorneys left the 12-lawyer Kelly, Herlihy with him to join the roughly 800-lawyer firm’s San Francisco office. Convinced he’d have to hire more lawyers at the boutique to handle what he perceived as an upswing in litigation last fall, Herlihy said: “The question was, do you grow as part of a bigger practice, or would we fund the growth ourselves?” He decided to follow two former colleagues who had worked with him at Kelly, Herlihy in the past. “There were clients that suggested bigger cases were going to other places because bigger cases required bigger staffs,” Herlihy said. “As long as you have loyal clients and you do quality work, I think you can have boutiques that thrive and survive,” he added. “But there will be certain cases and certain clients that you will never get.” According to court records, Herlihy has represented national insurance carriers including Northwestern Mutual Life Insurance Co., Unum Life Insurance Co. of America and subsidiaries of the Zurich Group Insurance Co. Herlihy and an office managing partner at his new firm declined to discuss hourly rates. Other bad-faith insurance defense boutiques have merged into larger firms for similar reasons. Last year, after 22 years of independent operation, Galton & Helm, a seven-lawyer boutique in Southern California that represented life, health and disability carriers, merged with Burke, Williams & Sorensen, which now has about 60 lawyers. In 2003, nine-attorney New Jersey firm Wright, Pindulic & Hamelsky merged into the 230-lawyer White and Williams. Robert Wright, now a partner at White and Williams in New York, said that in the late 1990s he watched as three of his large institutional clients merged into one: Unum Provident. “I experienced significant risk because one of our clients comprised north of 50 percent of our annual revenues,” he said. “It was a very good client to have and remains a very good client. But there’s always the risk that either their volume of business is going to go down, or there will be more competitors for that business, or they’ll just go somewhere else.” So in April 2003, the lawyers in his firm joined White and Williams. Melissa Cowan, a Los Angeles partner with Burke, Williams & Sorensen, said that Herlihy is highly respected in the field. She added that his move “would give him the greater resources to grow and handle bigger cases, particularly class actions.” She knows, because her former firm, Galton & Helm, which opened for business in 1985, was last year also looking to diversify and expand its practice. “You either look to a firm that already has that diversification, or you decide to grow yourself,” she said. “By looking to a midsize firm, we’d have the advantage of size and greater resources.” Plus, she noted, one-stop-shopping clients can turn to her as well as her firm’s labor and employment, real estate, environmental and natural resources lawyers.
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Meanwhile, Kelly, Herlihy elevated Thomas Hockel to name partner on April 1 and changed its name to Kelly, Hockel & Klein. The bulk of its remaining practice is employment and labor law, products liability and personal injury work. The firm also represents pharmacies, and counts Safeway Inc., Rite Aid Corp. and Longs Drug Store Corp. as clients. “I think a lot of Tom, he’s a great lawyer,” said name partner Jonathan Klein. “I was with him for 10 years.” Klein said Herlihy’s decision made sense from a business perspective. Their practices worked well together under one roof, but didn’t overlap enough to damage the firm financially, he said. “My clients tend to be self-insured,” and support higher billing rates; he said his range is between $300 and $350. Still, he would like to bring the head count back up. Kelly, Hockel now lists 10 lawyers on its Web site. “Ideally I’d like to be 15 lawyers,” Klein said.

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