CALIFORNIA ATTORNEY'S FEES

Continuing Education: NALFA’s 2011 Attorney’s Fees Conference Panel No. 4

 

Discusses “Insurance Coverage Litigation: Who Pays The Legal Bills?”

Part 4 of 4

[Links to Parts 1, 2 and 3]

     The last panel of NALFA’s 2011 Attorney’s Fees Conference on November 17, 2011 discussed “Insurance Coverage Litigation: Who Pays the Legal Bills?” The panelists in Panel No. 4 were Andre E. Jardini (of KPC Legal Audit Services, Inc.), Susan P. White (of Manatt Phelps & Phillips, LLP), and Susan J. Field (of Musick Peeler & Garrett, LLP).

 

Insurance: True Bad Faith Action Must Be Resolved By Trial Court, Defraying The Timing Of Future Cumis Arbitration Depending On Bad Faith Ruling

 

Timing of Arbitration is the Result Here.

     Janopaul+Blocks Cos., LLC v. Superior Court, Case No. D059282 (4th Dist., Div. 1 Nov. 17, 2011) (certified for publication) is an interesting Cumis situation where an insurer did not agree to defend until 2 years after tender and, before there was a ruling on a Civil Code section 2860 arbitration request by the insurer to gauge reasonableness of Cumis counsel’s rate (and possibly work), insured filed a bad faith lawsuit. The trial court granted an insurer’s 2860 arbitration request, prompting a mandate petition by insured.

     Insured won.

     Because the bad faith action went beyond the normal 2860 arbitration narrow issues, the trial court needed to make a preliminary ruling on the bad faith issues. If the insurer wins, then the 2860 arbitration request could be resurrected. In the end, a timing issue in a case dependent upon very unusual defense acceptance “lag” circumstances.

     BLOG UNDERVIEW--Co-contributor Mike spoke at and attended the National Association of Legal Fee Analysis (NALFA) Los Angeles conference yesterday on 2011 Attorney’s Fees. There were four panels, which will be the subject of future blogs on each one. However, Susan P. White of Manatt Phelps & Phillips, LLP did speak on this case, opining it was correctly decided under the circumstances, as a panel member with Andre E. Jardini (of KPC Legal Audit Services, Inc.) and Susan J. Field (of Musick Peeler & Garrett, LLP) on “Insurance Coverage Litigation” Who Pays the Legal Bills?” More to come on the NALFA conference in future posts.

Insurance: Jury’s Allocation of Brandt Fees As Damages Upheld On Appeal

 

$2.755 Million in Fees Was the Ultimate Result Sustained Upon Review.

     Encarnacion v. 20th Century Ins. Co., Inc., Case No. B222313 (2d Dist., Div. 1 Oct. 31, 2011) (unpublished) was an arduous fight between certain parties and an insurance company over breach of contract/insurance bad faith relating to a $5.6 million wrongful death judgment. Justice Chaney, on behalf of a 3-0 decision, addressed a fee allocation verdict under Brandt v. Superior Court, 37 Cal.3d 813 (1985), which allows a jury to award as damages the attorney work attributable to obtaining contractual insurance benefits.

     Earlier, the same appellate court reversed the trial court’s ruling that the Brandt fee claim was not assignable and that the assignee could not recover such fees if the assignor recovered no damages. (See our December 31, 2008 post on this prior decision.)

     The matter then proceeded to a jury determination of what Brandt fees were properly awardable given that fee work is compensable for the obtaining of contract benefits but not compensable for work on the tort claims. Both sides presented interesting proof on what allocation was proper. Plaintiffs sought to obtain recovery for 85% of attorney time (even though no time records were kept), while the defense relied on a fee expert testifying that 22% of the total time was compensable. So, what did the jury do? You guessed it--close to a baby split, determining 50% of the time was allocable for fees so as to result in an award of $2,755,294.

     Insurance company appealed the fee award, while plaintiff appealed an order taxing certain costs.

Changes to the Policy Forms of an Intriguing New Insurance Product Make it Even More Beneficial to Potential Insureds

Contract Litigation Insurance Version .2 – An Upgrade.

     In our August 3 and 6, 2010 posts and our March 8, 2011 post, we have followed a particularly intriguing insurance product geared directly to the issue of attorneys fees -- Contract Litigation Insurance offered by Sonoma Risk Insurance Agency.  We described the coverage in depth in those prior posts -- but again, it is a new form of insurance coverage for an adversary's attorney's fee award after trial or summary judgment, subject to certain conditions, exclusions, and underwriting standards.
     We had the opportunity to recently speak with Sonoma Risk CEO, Kevin B. Martin, who offered up some valuable new information regarding their innovative product.

Insurance: Behnke Decision on Cumis Fees Now Published.

. . . So You Can Now Cite It.

     In our June 2, 2011 post, we discussed Behnke v. State Farm Gen. Ins. Co., Case No. D056898 (4th Dist., Div. 1), which was unpublished at the time. The decision discussed Cumis counsel fees. We can now report that it was ordered published on June 29, 2011, so the opinion can now be cited.

Insurance: Insurer Only Bound To Pay Reasonable Cumis Fees

 

Fourth District, Division 1 Reiterates Duty In Contentious Client-Cumis Counsel Dispute.

     In a decision that put an end to a long-standing dispute between a client and his Cumis counsel, the Fourth District, Division 1 reminds us that insurers are only responsible to pay reasonable and necessary defense costs to retained Cumis counsel. The decision so acknowledging is Behnke v. State Farm General Insurance Co., Case No. D056898 (4th Dist., Div. 1 May 31, 2011 unpublished), citing in support such case law and statutory provisions as San Diego Fed. Credit Union v. Cumis Ins. Soc’y, 162 Cal.App.3d 358, 375 (1984), Civil Code section 2860(c), and Aerojet-General Corp. v. Transport Indemnity Co., 17 Cal.4th 38, 60 (1997).

Insurance: Insurer’s Petition To Compel Cumis Fee Arbitration Properly Denied

 

Substantial Evidence Showed That Insurer Did Not Agree to Defend, So No Trigger Of Fee Arbitration Rights.

     In The Housing Group v. PMA Capital Ins. Co., Case No. A127581 (1st Dist., Div. 3 Mar. 25, 2011) (certified for publication), insurer defendant was sued by plaintiffs for alleged failures and refusals to defend plaintiffs in certain third-party actions arising out of The Views subdivision in Castro Valley, California (probably construction defect actions). Insurer petitioned to compel arbitration of an alleged Cumis fee dispute pursuant to Civil Code section 2860(c), arguing that plaintiffs disputed the fees that insurer was willing to pay Cumis counsel. In response, plaintiffs opposed primarily on the bases that (1) insurer did not offer any evidence showing it ever agreed to defend plaintiffs in the underlying litigation (making only one minor payment to reimburse plaintiffs’ damages arising out of fees after the case settled), (2) the two “reservation of rights” letters did not demonstrate any acceptance of defense tenders, and (3) Cumis counsel had not been actually retained in the underlying litigation in the first instance. The trial court agreed with plaintiffs, denying the petition to compel arbitration and finding that the insurer had not provided a defense.  Insurer appealed this adverse decision.

Prevailing Party: Sonoma Risk’s Contract Litigation Insurance Catching On

 

Increased Attention in the Legal Community; Co-Contributor Marc Quoted in California Lawyer; Co-Contributor Mike To Speak At July 8 Century City Panel.

     In our August 3 and 6, 2010 posts, we discussed contract litigation insurance (CLI), a product being offered by Sonoma Risk Insurance Agency. We described the coverage in depth in those prior posts -- it is a form of insurance coverage for an adversary attorney’s fee award subject to certain conditions, certain exclusions, and underwriting qualifying standards.

     We can now report that Sonoma Risk is getting more and more exposure in the legal community. Among other things, it is profiled in a November 1, 2010 article by Cynthia J. Larsen of the Orrick Law Firm and in a March 2011 article by Mike Rosen in the California Lawyer.

     In the California Lawyer article, Mr. Rosen reports that 95% of Sonoma Risk’s clients, including real estate and construction companies, are based in California and have collectively bought more than $9 million in policies to cover fee awards in specific contract cases, paying one-time premiums ranging from less than $1,500 to about $230,000. The article shows why our blog exists: of the roughly 4 million contract disputes filed annually in U.S. courts, as many as 70% involve contracts with fee-shifting provisions. Co-contributor Marc is quoted as saying, “Attorney’s fees are very significant in deciding whether to go to court. It’s possible for fee-shifting provisions to greatly add to the risks of litigation, and many lawyers and clients are risk adverse.” Interestingly enough, Sonoma Risk is apparently offering new coverage in this area as litigation heats up (because its standard CLI is usually obtained at an early juncture after a lawsuit is filed), although the premiums are obviously higher when coverage is bought when things are beginning to explode in a litigation matter.

     Ms. Larsen’s Orrick article concurs with co-contributor Marc’s perception that paying an adversary’s lawyers is one of the main risks worrying both plaintiffs and defendants in contract litigation. She also notes that parties will likely be asking for CLI coverage information in discovery as this form of insurance catches on, similar to the form interrogatory we have all seen relating to non-fee insurance. Mr. Larsen also makes the point that CLI coverage should be attractive to ERISA fiduciaries and bankruptcy trustees who want to protect corporate funds or the corpus of an estate from an adverse fee award, even though the fiduciaries and trustees are generally protected from personal liability by the business judgment rule.

     BLOG UPCOMING EVENT--Co-contributor Mike looks like he will be speaking at a July 8 Century City panel involving a Provisors Legal Affinity Group meeting. Mr. Ames of Sonoma Risk has put together a panel of various Southern California law partners and Southern California corporate counsel, which will explore such topics as effective attorney’s fees provisions, CLI, and drafting effective attorney’s fees motion. Mike will take good notes and report back on the highlights of this meeting.

Insurance And Costs: Substantial Brandt Recovery Sustained And Routine Costs Award Reversed/Affirmed

First District, Division 4 Discusses Brandt And Routine Costs In Catholic Priest Molestation Insurance Dispute.

     Howard v. American National Fire Ins. Co., Case Nos. A121569 & A123187 (1^st Dist., Div. 4 Aug. 11, 2010) (certified for publication) is a virtual primer for insurance litigators, involving substantial upholding of a substantial bench trial award against an insurer for bad faith failure to defend, settle and indemnify a case involving an insured bishop who retained a priest in a Catholic diocese accused of molesting a third party plaintiff. However, the decision also discusses Brandt recovery of fees and some postjudgment routine cost awards. That is where we pick up.

     Brandt [one of our Leading Cases] is a California Supreme Court case holding that an insured can recovery attorney’s fees in a bad faith insurance action as long as the fees were incurred to recover policy benefits. (Actually, the fees are recovered as damages in those situations.) Here, the trial court reviewed detailed time records, concluded that 57.44% of the attorneys’ time was attributable to insurance policy contract claims, and awarded half because the contingency fee contract with plaintiffs promised 50% of any total recovery to the attorneys. This came to $661,719.97 as fee “damages.” Although carrier challenged the computation on appeal, the First District, Division 4 found no error, determining the court had properly allocated out non-contract work and followed the post-Brandt methodology for calculation approved in Cassim v. Allstate Ins. Co., 33 Cal.4^th 780, 811-812 (2004).

     That brought the appellate court to some attacks of the total costs awarded to plaintiffs in the amount of $93,827.07. The first item challenged was $46,542.32 for plaintiffs’ fees paid to a private JAMS judge, an item that had to be reversed based upon the parties’ agreement to split the cost of the JAMS judge equally (“divided and borne” language in their agreement). Deposition costs of $44,588.78 were sustained, because all of the depositions were intertwined in the claims against the defendant insurer and no authority supported allocating costs to a codefendant for whom litigation remained pending. The trial court correctly did not award $9,400 in expert witness expenses, because the witness was not a court-ordered witness. Finally, $2,368 in attorney meals for an out-of-town attorney attending a deposition was a properly allowable cost in the discretion of the trial judge. (Code Civ. Proc., § 1033.5(a)(3).) The Howard court refused to interpret Ladas v. California State Automobile Assn., 19 Cal.App.4^th 761, 774-775 (1993) as establishing an absolute rule prohibiting reimbursement for attorney meal expenses “under any and all circumstances,” with meal expenses being “reasonably necessary” for out-of-state counsel who attends a local deposition if the lower court finds they are appropriate.

Prevailing Party: Details of Plaintiff/Defendant Contract Litigation Insurance

 

Sonoma Risk Insurance Agency Offers New Products to Manage Litigation Risks.

     In our August 3, 2010 post, we discussed a recent article written by Kevin B. Martin in the August 2010 edition of The Orange County Lawyer. Mr. Martin is CEO of Sonoma Risk Insurance Agency, which offers contract litigation insurance underwritten by individual member companies of Zurich in North America. The insurance, subject to certain terms and exclusions, will cover court-ordered attorney's fees in contract cases depending on the amount of coverage purchased by a particular plaintiff or defendant. (Of course, these contract cases will be ones with contractual fee clauses.)

     Co-contributors Marc and Mike were intrigued and met recently with Mr. Martin, who was formerly a partner with Bingham McCutchen. Here are the highlights of the contract litigation insurance policies offered through Sonoma Risk:

· Plaintiff Contract Litigation Insurance (PCLI) or Defendant Contract Litigation Insurance (DCLI) are designed to insure plaintiffs or defendants in contractual lawsuits against the risk of paying their adversaries' attorney's fees if unsuccessful in prosecuting or defending against breach of contract claims.

· The insurance policies must be purchased within 60 days of filing of a contract-based complaint (for PCLI) or within 60 days of service of a contract-based action (for DCLI).

· The insurance policies will pay whatever a court adjudicates to be reasonable attorney's fees after a merit-based "prevailing party" adjudication in a contract action. (This occurs even if there are tort or statutory claims involved, as long as the court finds they were intertwined with the contract claims for purposes of a fees award.)

· The insurance policies are subject to four exclusions and non-coverage caveats: (1) "bad boy" fraud; (2) no fees awarded if there is a resolution other than a merits-based prevailing party determination; (3) no fees awarded for post-rejection fees incurred after rejection of a Code of Civil Procedure section 998 offer (although pre-offer fees are covered); and (4) fees awarded as discovery sanctions or bad faith conduct sanctions.

· The carrier reserves the right to appoint, at its own expense, counsel to oppose a fee petition or represent the client in an appeal of a fees award.

· The insurance will follow if the plaintiff is compelled to arbitration by defendant; however, the insurance coverage will not remain if plaintiff compels arbitration or if the defendant under a DCLI compels arbitration.

     These insurance products are intriguing, given that 90% of lawyers in a recent survey said they would advise clients of insurance that can minimize their financial risk in litigation and 82% of clients surveyed indicated that they expect their attorneys to advise them of insurance that can minimize their financial risk in litigation. (Also, keep in mind that Bureau of Justice statistics show that defendants lose 2 out of 3 contract cases at trial.)

     Mr. Martin can be reached at 310.954.1522 ext. 224 or at kmartin@sonomarisk.com, for those readers who are interested. You can contact Sonoma Risk for the premium structure --it seems to be reasonable in nature.

Prevailing Party: Orange County Lawyer Article Discusses Middle Ground To English And American Rules On Fee Shifting

 

After the Event or Legal Expense Insurance Is the Middle Ground Discussed.

    Kevin Martin, founder and CEO of Sonoma Risk Insurance Agency, has written an interesting article, aptly entitled “Leveling the Playing Field in Contract Disputes,” in the August 2010 edition of The Orange County Lawyer.

     In some statistics directly relevant to this blog, he states that a quick search of reported California cases in the last year shows that more than $14 million have been awarded in the form of “loser pay” fees, with the average award being approximately $300,000. As he observes, serious money—wow (and then some)!

    Mr. Martin then contrasts the English rule (loser pays) with American rule (each side bears its own fees), but indicates that contractual fee shifting provisions often convert the American rule into a loser pays situation. He then argues that there is a middle ground: ATE (After the Event Insurance) or LEI (Legal Expense Insurance) products, which emerged in the English and Welsh insurance markets. According to a recent report from the Manhattan Institute’s Marie Gryphon, ATE insurance is now purchased for three in four civil lawsuits in the British market. Mr. Martin observes that actual experience shows that this type of contract litigation insurance actually deters the filing of frivolous actions.

     Now, he also discusses the fact that equivalent insurance products are available in the United States to cover attorney’s fees awarded against plaintiffs pursuant to “loser pays” provisions. Such insurance can be purchased within 60 day of the commencement of litigation and covers all attorney’s fees imposed under an adverse ruling.

     Interesting option. Mr. Martin did not discuss the carriers offering this insurance or the premium structure for such coverage. If anyone has had experience or has feedback on these features of this insurance, let us know by using the feedback email listed on our home page.

Insurance: In Which the Court of Appeal Rules Insurer “Must Lie In the Bed It Made”

Fifth District agrees the Case is “screwed up.”

     The story arc of this opinion begins at a low point, and plummets.  “What the heck?I?,” begins the Court of Appeal opinion.  “At one point, the trial court commented, ‘This is one of the most screwed up cases I’ve ever seen.’  We heartily agree.”  Essex Insurance Company v. Richard Heck, M.D., Case No. F058139 (Fifth Dist. July 29, 2010) (certified for publication).  Essex Insurance Company provided a defense in a personal injury action to a defendant who was not its named insured, but did not discover its mistake till after judgment was entered following a jury verdict in favor of one Mr. John Dompeling against one “Robert Abraham.”

     Mr. Dompeling, a diabetic, hired to move refrigeration units in a restaurant that was being refurbished, stepped on a nail, and sought treatment from his physician, the eponymously named Dr. Heck.  After a hospital discharge, the wound worsened, Mr. Dompeling was readmitted to the hospital, and an orthopedic surgeon amputated his leg below the knee.  Four months later, a second amputation was required, because an infection had developed on his stump.  In January 2004, a jury rendered a verdict in favor of Mr. Dompeling in the amount of $826,762.50, plus costs, against “Robert Abraham.”  “Abraham” and the restaurant were alleged to have hired Mr. Dompeling to remove a refrigerator on the premises. 

     Later in 2004 and 2005, Essex concluded that Robert Lincoln Abraham was the defendant in the personal injury action, but not the insured under its policy.  Instead, the insured was Robert Lee Abraham, against whom a default had been entered.  Oops.  Essex filed a declaratory relief action asserting it had no duty to indemnify Robert Lee Abraham or anyone else in connection with the personal injury action.

     After Essex refused to pay the judgment in the personal injury action, Mr. Dompeling sued Essex for bad faith, and the bad faith action was consolidated with the declaratory relief action.  Mr. Dompeling then amended his complaint to add a cause of action for fraud and misrepresentation against Essex and its law firm, essentially alleging that they knew the law firm was representing the wrong “Robert Abraham” in order to sandbag Mr. Dompeling, deny coverage, and avoid payment.

     In exchange for $700,000 from Essex, Mr. Dompeling released Essex, Robert Lee Abraham and Robert Lincoln Abraham.  Three separate lawsuits settled – a personal injury action, a declaratory relief action, and a bad faith action.

     In 2007, Essex pursued a subrogation claim against Dr. Heck, claiming that it stood in the shoes of that certain “Robert Abraham.” 

     Unfortunately for Essex, it settled three lawsuits for $700,000, without allocation.  Essex released its named insured, Robert Lee Abraham, but also the other Abraham.  “'[T]he settlement agreement did not specify which portion of the $700,000 was paid to settle which claim, what part constituted economic or non-economic damages, who the personal injury judgment was rendered against (either Robert Lee Abraham or Robert Lincoln Abraham), or whether that individual was an insured under the policy.  Without such specifications, the agreement left unsettled into whose shoes Essex was stepping, i.e. Robert Lee Abraham or Robert Lincoln Abraham, and what was being paid to compensate each claim.”  Not surprisingly, on a summary judgment motion brought by Dr. Heck, Essex lost its subrogation claim against Dr. Heck.

     Essex contended on appeal that it could have sorted out this mess by resort to extrinsic evidence of its intent in entering into the settlement agreement.  However, Dr. Heck would not have been able to present his own evidence of intent in entering into the settlement agreement, because that would have improperly required disclosing communications that occurred during mediation.  And unexpressed subjective intent with respect to the interpretation of a contract is irrelevant.  Foiled again.

     While acknowledging the absence of case law directly on point, the Court of Appeal also applied the “doctrine of implied waiver”:  “Essex’s act of entering into a settlement of the three lawsuits without identifying its insured or apportioning the payment is so inconsistent with an intent to enforce its right to subrogation so as to induce a reasonable belief it had relinquished that right.”

     Finally, Essex argued that Dr. Heck made a nominal settlement offer that was not “in good faith”, which Essex obviously did not accept.  But Dr. Heck had offered to waive expert fees, Essex did prevail on the summary judgment motion, and it was the burden of Essex to prove an abuse of discretion – which it did not do. 

       While the Court of Appeal may have agreed with the trial judge’s assessment that, “[t]his is one of the most screwed up cases I’ve ever seen,”  the case was not totally FUBARed.  Said the Court, “We agree with the trial court that Essex must lie in the bed it made and affirm.”

     Justice Gomes authored the 3-0 opinion.

Insurance: Cumis Arbitration Not Justified Where No Agreement Or Determination Exists That Conflict Exists Between Insurer and Insured

Second District, Division 3 Agrees that Arbitration Premature Until Conflict Exists.

     Here is a Cumis arbitration case that should be of interest to insurance practitioners.

     In Savvy Property Mgt. v. United National Ins. Co., Case No. B214549 (2d Dist., Div. 3 May 24, 2010) (unpublished), defendants in a tenant uninhabitability suit tendered defense of the matter to their insurance company, which accepted subject to a complete reservation of rights and subject to a right to seek reimbursement of any fees/costs advanced in favor of the insured. Defendants, as plaintiffs, bought a declaratory relief action against carrier, as well as sought an order compelling arbitration of the amount of hourly fees for independent Cumis counsel. The trial court denied the motion to compel arbitration under Civil Code section 2860(c). Plaintiffs appealed.

                   1868.  Library of Congress.

Insurance: Winning Insured Could Not Seek Brandt Fee Recovery From Court Based On Terms Of Open Record Stipulation

 

Case Teaches You to Be Careful on Your Stipulations in this Area, But Offers Guidance on How to Obtain Post-Verdict Brandt Fees.

     This next case is an interesting one, teaching that winning insureds’ attorneys seeking Brandt fees need to be very careful on what stipulations they make with the opposition. Courts, as the judge did here, will hold winners to the terms of their stipulations as far as post-trial fee recovery is concerned.

     In Essex Ins. Co. v. Professional Building Contractors, Inc., Case No. B215005 (2d Dist., Div. 2 Apr. 6, 2010) (unpublished), insured won a jury verdict consisting of compensatory damages of $682,264.22 in an insurance policy breach/bad faith action ($325,999.25 of which were Brandt fees) and punitive damages of $2.5 million. The trial court granted a conditional new trial unless insured remitted down to $682,264.22 in punitive damages, which it did not. Everyone appealed earlier, but the appellate court affirmed the trial court’s punitive damages reduction. However, that did not end the matter, because insured sought somewhere between $127,000-250,000 in fees incurred primarily for trial and post-trial work. The lower court denied the fee request altogether, because insured did not comply with the terms of a stipulation its attorneys made with the opposition—namely, that insured would only be seeking 1% of the entire batch of Brandt fees in the post-trial proceeding (something that did not happen because the $250,000 initial request was 78% of the attorney’s fees previously awarded by the jury). The lower court also denied some costs because insured did not apportion them between true routine costs versus Brandt-related costs.

In The News . . . . JPMorgan Chase Must Be Happy With New York Appeal Court’s Recent Ruling

 

$22.5 Million Must Be Paid By Insurer for Enron-Related Cases.

     The New York Supreme Court Appellate Division recently affirmed a lower court’s ruling that Twin City Fire Insurance Company must cough up $22.5 million to cover a portion of JPMorgan Chase’s defense costs and settlements in a host of lawsuits related to Enron’s collapse. The ruling came down on March 18, 2010.

Insurance: Insurer Not Entitled To Cumis Arbitration Against Insurer Where NO Duty To Defend Determination Has Been Made

 

Fourth District, Division 1 So Holds in Recent Published Decision.

     Certain Cumis (162 Cal.App.3d 358) fee disputes are subject to arbitration under Civil Code section 2860(c). However, the Fourth District, Division 1, in Intergulf Development v. Superior Court (Interstate Fire & Cas. Co.), Case No. D055459 (4^th Dist., Div. 1 Mar. 24, 2010) (certified for publication), decided that an insurer is not entitled to binding Cumis arbitration against the insurer for breach of contract and bad faith where there has been no determination that the insurer had a duty to defend and the parties dispute whether the insurer satisfied that duty and its obligations under section 2860. Insured’s complaint was for bad faith and breach of contract, not a dispute over the amount insurer should pay Cumis counsel, an important distinction with a difference for the appellate court. Otherwise, a premature determination that insurer is entitled to Cumis arbitration might “trump” critical factual questions at the heart of insured’s breach of contract and bad faith claims.

     We would predict that this decision is going to generate some controversy among insurance law practitioners.

Insurance Special Fee-Shifting Statute: Consumer Interest Intervener Entitled To Fee Compensation For Upholding Amended Regulations Under Insurance Code Section 1861.10(b)

$121,848.16 Compensation Award to Intervener Upheld on Appeal.

     In a very scholarly opinion, Presiding Justice Mallano—on behalf of a 3-0 panel—upheld a $121,848.16 compensation award (including attorney's fees) to a consumer interest intervener in an unsuccessful challenge to certain amended regulations made by insurance companies. The basis for the award was Insurance Code section 1861.10(b), with the appellate court determining that the insurance companies' petition for a peremptory writ of mandate—seeking judicial review of the amended regulations—was a qualifying proceeding for compensation under section 1861.10(b). The case is Association of California Ins. Cos. v. Poizner, Case No. B208402 (2d Dist., Div. 1 Dec. 30, 2009) (certified for publication).

Three-Fer From Recent California And ABA Monthly Magazines/Papers

 

No. 1: Ellen Peck Reviews “Fees, Fee Agreements & Arbitrations” in December 2009 Edition of CALIFORNIA BAR JOURNAL.

     Ellen R. Peck, an Escondido sole practitioner and former State Bar Court judge, made these points in her recent California Bar Journal article:

• Except in limited circumstances, most private attorneys have to notify clients they do not carry legal malpractice insurance or that it has lapsed/been terminated (Cal.Rule Prof. Conduct 3-410);
• Incentive awards to class action representatives are discretionary and should not be a bargain point in a fee or retainer agreement (Rodriguez v. West Publishing Corp., 563 F.3d 948, 958-959 (9^th Cir. 2009));
• Interest calculations for collecting attorneys must be based on a 365 or 366 day year, not a 360 year, under penalty of being a False Advertising Act violation (Karton v. Dougherty, 171 Cal.App.4^th 133, 138 n.1 (2009));
• A retainer agreement’s predispute agreement for binding fees/costs arbitration is enforcement after Mandatory Fee Arbitration Act requirements are exhausted, with the State Bar website having a good sample form for such an arbitration clause (Schatz v. Allen Matkins Leck Gamble & Mallory LLP, 45 Cal.4^th 557, 574-575 (2009));
• A lawyer must consider withdrawing from representation or making disclosures to clients if he/she contemplates including a Civil Code section 1542 waiver in a settlement agreement with a client over a fee dispute, based on the legal malpractice waiver repercussions flowing from the release (State Bar Standing Comm. on Prof. Responsibility & Conduct Formal Opinion No. 2009-178)); and
• Lawyers are generally prohibited from charging, collecting, or receiving any advance fees or other compensation in connection with loan modification legal services (Bus. & Prof. Code, sec. 6106.3(a); Civ. Code, sec. 2944.6).

No. 2: Hon. Edward G. Weil Indicates Prior Settlement Communications In Fee Disputes May Be Admissible in His Article, “Are Settlement Talks Confidential?”, Published in the December 2009 Edition of CALIFORNIA LAWYER.

     Hon. Edward G. Weil, a Contra Costa County Superior Court Judge and former California deputy attorney general, cautions that prior settlement communications may be admissible in fee dispute litigation, especially private attorney general fee hearings, fee “catalyst” cases, and ambiguous settlement agreement disputes. He also has a nice compendium about the confidentiality and admissibility of settlement discussions in other contexts.

No. 3: Four Substantive Legal Practice Areas Dominate Malpractice Claims Since 1985, Reports James Podgers in “Practice Pitfalls,” Found In the December 2009 Edition of the ABA JOURNAL.

     The ABA Journal article confirms that, between 1985 and 2007 (based on information published in the ABA Standing Committee on Lawyers’ Professional Liability’s annual Profile of Legal Malpractice Claims), four practice field areas have been and still are at the top of the list: plaintiffs personal injury; real estate; family law; and estate, trust and probate. The percentage of all claims reported in the ABA study for 2007 in these top four practice fields break down this way:

• Plaintiffs personal injury – 21.56% (pretty steady, with 21.65% in 1995);
• Real estate – 20.05% (up the most in the top 4, with 14.35% in 1995);
• Family law—10.33% (up slightly, with 9.13% in 1995); and
• Estate, trust and probate – 9.68% (up some, with 7.59% in 1995).

Insurance And 998 Offers: 998 Offer Made To Only One Out Of Multiple Insureds Imposes No Good Faith Duty On Insurer To Accept Or Provide Separate Counsel

First District, Division 1 Applies Lehto/Strauss to 998 Offers Made to Sued Insureds Rather that Offer Made Directly to Insurer.

     Both Lehto v. Allstate Ins. Co., 31 Cal.App.4^th 60, 72 (1994) and Strauss v. Farmers Ins. Exch., 26 Cal.App.4^th 1017, 1021-1022 (1994) held that an insurer has no “good faith” duty to agree to, or advise acceptance of, a policy term settlement offer made only to one of multiple insureds in pending litigation. Because the insurer’s duty extends to all of its insureds, the insurer acts within the boundaries of good faith by rejecting a settlement offer that doe not include a complete release of all insureds.

     The issue in Kauffman v. Calif. State Auto. Assn. Interinsurance Bureau, Case No. A123494 (1^st Dist., Div. 1 Nov. 24, 2009) (unpublished) presented a variation on this theme, namely, whether an insurer must either advise acceptance or provide separate counsel for the insured in a situation where a Code of Civil Procedure section 998 policy term offer is made to only one of several sued insureds.

     Kauffman firmly answered the issue “no.” It found Lehto and Strauss controlling in the 998 context, rejecting the proffered distinction that a section 998 offer to compromise made to a defendant is different from a settlement offer made directly to an insured. Rather, the rationale of these cases—based on the insurer’s duty to all insureds—prevailed on the issue.

Personal Injury Cases: Liability For Attorney’s Fees Not Includable Under the Made-Whole Rule in Auto Insurance Med-Pay Cases

 

California Supreme Court Decides Fee Are Subject to Separate Equitable Apportionment in a Pro Rata Sharing Manner.

     Here is one for personal injury/insurance defense cases in boutique first party, no-fault medical payment (med-pay) insurance payment cases. This may narrow our readers who have interest in this post, but here you go anyway.

     In 21st Century Ins. Co. v. Superior Court (Quintana), Case No. S154790 (Cal. Aug. 24, 2009) (certified for publication), our state supreme court held that liability for attorney’s fees is not included under the make-whole rule, which requires that an insured be made whole by third party recovery before having to reimburse the insurance company. However, it went on to hold that fees needed to be equitably apportioned under a pro rata apportionment rule as between insured and insurer. This holding was expressly limited to auto insurance med-pay cases versus other liabilities policies or homeowner’s property insurance.

     The decision was unanimous, with the majority decision written by Justice Chin and with concurring opinions from Justice Kennard and Werdegar.

Insurance and Poof!: Court Overturns $10,000,000 Judgment and $8,921.40 Award of Brandt Fees

 

Fourth District, Division Two, Concludes that Insurance Company Acted Reasonably, So Judgment and Brandt Fee Award Go Poof!

     Certain of our appellate justices write in their own distinctive and inimitable styles.  Justice Sills is the author of the following 3-0 opinion that begins, "At first we did not know what to make of this case. There was a $10 million judgment obtained by a nationwide groundwater pumping and control company, against its liability insurer. . . . What foul deeds had the insurer committed, we wondered, that merited such punishment?"  Though the opinion is 51 pages long, the short answer is:  none.  Griffin Dewatering Corporation v. Northern Insurance Company of New York, Case No. G036896 (4th Dist., Div. 3, July 31, 2009) (certified for publication).  Because this lengthy opinion includes paragraphs on the subject of Brandt fees, a subject we have written about in the past, we dutifully report about it.

     Justice Sills concluded that the insurance company had not committed a tort, because even if it had acted incorrectly, it had not acted unreasonably.  With the collapse of the tort judgment, the insured's claim to Brandt fees went poof:

     "[W]hat about the fees -- $8,921.40 -- that the insured had incurred in its bad faith case against the insurer up to the time of settlement of the underlying suit and payment of all of its defense costs? Can we at least uphold the judgment to this extent?

     No. As explained . . .  tort damages against an insurance company are premised on the unreasonable denial of a [sic] policy benefits. When an insurance company acts reasonably, though incorrectly, only contract damages are available. And Brandt fees are clearly tort damages. (See Cassim v. Allstate Insurance Company . . . 33 Cal.4th at p. 806 [explaining that when an “insurer fails to act fairly and in good faith . . . such breach may result in tort liability for proximately caused damages” including Brandt fees]; Essex Insurance Company v. Five Star Dye House, Inc. (2006) 38 Cal.4th 1252, 1257-1258 [explaining that Brandt fees are damages as a result of an insurance company’s tortious conduct].) Thus, in Cassim, the court observed: “Of course, without a tort judgment, there could be no Brandt fees.” (Cassim, . . . 33 Cal.4th at p. 808.) And in this case, there is no tort judgment."

Insurance Policy Construction: Second District, Division Three Affirms That Insured Cannot Recover Fees For Defense Of Noncovered Claim Under Supplementary Payment Provisions

Appellate Panel Affirms Trial Court Determination that Insurer Had No Obligation to Pay Hefty Fee Award.

     For your insurance coverage practitioners, the next one is for you.

     State Farm General Insurance Co. v. Mintarsih, Case No. B202888 (2d Dist., Div. 3 June 25, 2009) (certified for publication) decided that an insurer had no obligation to pay an attorney's fees award of $733,323.60 incurred by insureds under "supplementary payment" provisions where the underlying wage and hour claims producing the fee award were not even potentially covered under the pertinent homeowners/personal liability umbrella policies. The Second District, Division 3 relied on its similar interpretation of similar language in Golden Eagle Ins. Corp. v. Cen-Fed, Ltd., 148 Cal.App.4^th 976, 992-996 (2007) and declined to follow a statement in Prichard v. Liberty Mutual Ins. Co., 84 Cal.App.4^th 890, 912 n. 22 (2000) suggesting that an insurer's costs liability could arise solely from claims that were not even potentially covered. (Slip Opn., at pp. 12-16.)

John W. Dillard, real estate and insurance man.  Washington, Indiana, June 1941.  John Vachon, photographer (1914-1975).  Library of Congress.

Insurance: Brandt Fees—Provide Your Fee Agreement … Or Risk Bad Things!

Fourth District, Division One, in Unpublished Decision, Strongly Urges Disclosure of Fee Arrangement Between Client and Attorneys in Brandt Setting.

     In our category “Insurance,” we previously explored an insured’s ability to recoup Brandt fees for pursuing the benefits of contractual benefits under an insurance policy. In fact, the co-contributors to this blog have written an article last year, in California Litigation, addressing many of the issues that arise in this area of the law. (See our post of November 13, 2008.) Now, we report on an unpublished decision that strongly urges all prevailing insureds to reveal their fee arrangement to lower courts considering Brandt fee awards.

     Leeper-Johnson v. Prudential Insurance Co. of America, Case No. D051166 (4^th Dist., Div. 1 May 13, 2009) (unpublished) involved a plaintiff winning a judgment of more than $15 million against Prudential based on breach of contract and insurance bad faith claims. $14 million of the judgment represented punitive damages, a sum which was reduced by the trial court to $4 million (not accepted by plaintiff)—a 3:1 punitive-to-compensatory damage ratio that was deemed proper notwithstanding reversal of a past economic damages component and elimination of attorney’s fees (which were remanded, as we discuss below). However, plaintiff also was awarded costs and $548,408.84 in attorney’s fees, also challenged by Prudential on appeal.

     Prudential won a remand for reconsideration of the fee award.

Off Topic: Falling D&O Coverage Raises Fears of More Difficult Settlements of Plaintiff Securities Class Actions/Derivative Suits

Settlements May Depend More on Personal Contributions from Sued Officers and Directors, Reports Recent Article from The National Law Journal.

     According to Amanda Bronstad’s April 17, 2009 article, “As D&O Coverage Falls, Plaintiffs Lawyers Fees at Risk,” published in The National Law Journal and available for reading at LAW.COM, plaintiff shareholder actions—mainly securities class action or derivative suits—may get harder to settle with the shrinking nature of D&O insurance available for purchase or use.

In-House Counsel Fee Shifting Compensation: Lodestar Is the Presumptive Measure

PLCM Is the Leading Case Under Civil Code Section 1717, And Likely In Other Contexts.

     We would like to thank Michael J. Ireland, General Counsel of Majestic Investment Group in Woodland Hills, for this message: “I don’t know if there are many of us out there, but I would like to see cases discussing calculation of fees awards to In House Counsel.” We have not seen any along the way since we have been blogging in this area, but set forth what seems to be California law on the subject. Put another way, this one is for all you California in-house counsel out there that get involved in litigation with fee-shifting clauses or statutes.

Postscript to Ivers v. Allstate

Petition Pending in California Supreme Court

     One of the pleasures of blogging is that it is interactive, and we hear (if one can hear email) frequently from our readers.  Jeffrey I. Ehrlich, one of the appellate lawyers in Ivers v. Allstate, 2008, WL 5197119 (3d Dist. December 12, 2008) (unpublished), a case reported by us in a December 13, 2008 post, has written to us about the case.  With his permission, we share his comments with our readers:

Brandt Fees: Great Illustration On How To Apportion Fees Correctly

 

Fourth District, Division One Decision Shows the Right Way to Do It!

     In our category “Cases: Insurance,” we have highlighted the Brandt fees apportionment issue for insureds obtaining fee awards in their favor for purposes of recouping benefits under their insurance policies. The next case is a good illustration on how to properly posture recovery of Brandt fees at the trial court level so as to preserve the award on appeal.

     Major v. Western Home Ins. Co., Case No. D050479 (4^th Dist., Div. 1 Jan. 6, 2009) (certified for publication) involved a situation where an insured obtained a jury verdict of $1.3 million in an insurance bad faith case, $189,000 of which represented an award of attorney’s fees under a Brandt theory. (Note—the jury awarded Brandt fees in this case.) Insurer appealed, but lost upon review.

     Here is the showing that was sustained on appeal in favor of the insured—containing great “pointers” on how to correctly present a Brandt fee award for approval:

Cumis Fee Arbitration: “To Arbitration We Shall All Go”—“Mixed” Action With Bad Faith Allegations Does Not Take Cumis Dispute Out Of Arbitration Statute.

Second District, Division Seven Disagrees With Reasoning in Younesi.

     In the absence of contractual arbitration or other alternative dispute resolution process agreed upon by the interested parties, Civil Code section 2860(c) mandates final and binding arbitration of any state court dispute between the insured and insurer over fees to be reimbursed to insured's independent counsel chosen under San Diego Navy Federal Credit Union v. Cumis Ins. Society, Inc., 162 Cal.App.3d 358 (1984). Fireman's Fund Ins. Companies v. Younesi, 48 Cal.App.4^th 451, 459 (1996) held that section 2860's arbitration provision did not apply to an action that alleged claims beyond a mere Cumis attorney's fees dispute (including allegations of malpractice and fraud). The Second District, Division Seven recently departed company with this reasoning in Younesi. The case in which this occurred is Compulink Management Center, Inc. v. St. Paul Fire & Marine Ins. Co., Case No. B204797 (2d Dist., Div. 7 Dec. 17, 2008) (certified for publication), the subject of this post.

Brandt Fees: Don’t Be Stubborn—Apportion!

Third District Affirms Refusal to Award Any Fees to Insured Who Balked at Apportionment.

     Co-contributors Marc and Mike have written an article, “When The American Rule Doesn’t Apply: Attorney’s Fees As Damages In California Litigation,” published in 21 California Litigation, No. 3, at pages 19, 22-24 (2008), which has a discussion on attorney’s fees awardable to insureds for gaining the contract benefits of their insurance policies as damages under the venerable decision in Brandt v. Superior Court, 37 Cal.3d 813 (1985). In that article, we discussed not only Brandt, but the California Supreme Court’s follow-up decision requiring apportionment in Cassim v. Allstate Ins. Co., 33 Cal.4^th 780 (2004). This article can be accessed in our November 13, 2008 post, and we again give thanks to the State Bar of California for allowing it to be posted to our blog.

     The next case deals with Brandt/Cassim apportionment issues, reinforcing the lesson that a prevailing plaintiff insured needs to apportion rather than taking the draconian position that the entire contingency fee percentage had to be applied to the whole trial verdict. Such a draconian position can yield a draconian result: in this case, zero attorney’s fees even though the trial court seemed amenable to award something if apportionment had been attempted.

     Ivers v. Allstate Ins. Co., Case No. C054148 (3d Dist. Dec. 12, 2008) (unpublished) involved a plaintiff insured who ultimately prevailed in a jury trial against Allstate on the breach of contract claim, with the jury awarding him $676,532.80 for a fire loss incident. The first jury deadlocked on a tortious breach claim, but a second jury found in plaintiff’s favor but awarded no additional compensatory damages. No punitive damages were imposed by the second jury. Plaintiff moved to recover an attorney’s fees award as damages on his tortious breach claim, a request which was denied in entirety.

     The Third District affirmed, in a 3-0 decision authored by Justice Hull.

     Our state supreme court in Cassim considered the proper method of allocating Brandt fees under a contingency fee arrangement where a plaintiff pursues and recovers under both breach of contract and other claims (even though Brandt fees are only recoverable on the contract claim). Cassim set out an apportionment formula that was a midway approach between the draconian positions advocated by the insurer and the insured. The supreme court set forth this formulation: “To determine the percentage of the legal fees attributable to the contract recovery, the trial court should determine the total number of hours an attorney spent on the case and then determine how many hours were spent working exclusively on the contract recovery. Hours spent working on issues jointly related to both the tort and contract should be apportioned, with some hours assigned to the contract and some to the tort. This latter figure, added to the hours spent on the contract alone, when divided by the total number of hours worked, should provide the appropriate percentage.” (Cassim, supra, 33 Cal.4^th at 812.)

     That brings us to what happened in Ivers.

     Because the jury awarded no tort damages, plaintiff contended that no apportionment was appropriate at all, even though the trial court had afforded him an opportunity to make a Cassim-like allocation. The Third District found that this argument was inconsistent with Cassim. “Plaintiff’s argument to the contrary is essentially one of heads the insured wins, tails the insurer loses. If the contract portion of damages is small in comparison to the overall compensatory damages award, plaintiff would have the court compute Brandt fees by apportioning the overall recovery in accordance with the percentage of time spent by his attorneys on the contract claim, as in Cassim. However, if only contract damages are awarded, or the contract portion of damages is large in comparison to the overall award, plaintiff would have the court award Brandt fees based on the contract award alone, without apportionment. We conclude Cassim mandates apportionment in either case.” (Slip Opn., at pp. 8-9.)

     In denying attorney’s fees, the trial court indicated that plaintiff submitted $22,000 in billing statements, with $21,000 being for work preceding the denial of his insurance claim. Plaintiff then submitted an additional $72,000 in billing statements, but a substantial amount of the time involved work on non-contract claims. Thus, plaintiff failed to satisfy his burden of properly apportioning under Cassim—despite having been given an opportunity to submit further evidence for allocation purposes. The lower court was correct to reject the entire fee request based on plaintiff’s failure to satisfy his burden to properly apportion.

     The lesson from this one extends beyond the Brandt context: if a lower court gives you leave to submit further evidence because it wants apportionment, don't be stubborn -- you are prudent to take advantage of the opportunity and present further proof in line with its directives.

Co-Insurer Ordered To Contribute Fees To Defense Costs Of Settlement Reached In Mobilehome Residency Violations Case And To Pay Portion of Stipulated Fees Awarded To Plaintiffs In The Underlying Settlement

Stipulated Amount of Fees Found To Be “Taxed Costs” Under Insurance Policy, Second District Holds, in Affirming Fee Awards Against Co-Insurer.

     We welcome insurance coverage practitioners to our site through our review of a Second District unpublished decision involving a co-insurer’s contribution for defense fees/costs and payment of a portion of the fees paid out to mobilehome plaintiffs under a settlement of litigation brought under Mobilehome Residency Law (Civil Code section 798 et seq.) Lest we forget the fee authorization link, section 798.85 entitles a prevailing party under the Mobilehome Residency Law to recover reasonable attorney’s fees and costs. Also, most insurance policies are structured in a way that the insurer must pay the costs of retained defense and Cumis counsel once a tender of defense is accepted or adjudged if the matter of defense entitlement is litigated in a declaratory relief brought by the insured.

     In Employers Mutual Cas. Co. v. Philadelphia Indemnity Ins. Co., Çase No. B204550 (2d Dist., Div. 2 Nov. 18, 2008) (unpublished), co-insurer Philadelphia Indemnity was ordered to contribute to co-insurer Employer (who took an assignment of rights from yet another insurer) two things: $164,613.15 in defense fees/costs for the defense of an insured in a case alleging violation of the Mobilehome Residency Law and $400,000 of the $1.8 million in fees paid out to plaintiffs’ attorneys as part of the settlement of the case against the insured (with the fees being designated as section 798.85 fees).

Discontented with the orders, Philadelphia Indemnity appealed but obtained no reversal, with many of its argument rebuffed for an inadequate record or being raised too late in the appellate process.

     Philadelphia Indemnity’s main argument was that the $1.8 million settlement payment of section 798.85 fees did not constitute “taxed costs” under its supplementary payment coverage policy. It contended this was so because no court had entered an order of taxation. Both the trial and appellate courts did not buy this rigid interpretation, construing the term more broadly. “The dictionary defines the verb ‘tax’ as meaning to judicially assess the amount of costs; levying a tax on; making an onerous demand on. (Merrian-Webster’s Collegiate Dict. (10^th ed., 1999) p. 1208.) According to Philadelphia, the first definition is the one intended by the parties. But in our view the use of the word ‘taxed’ in Philadelphia’s policies is ambiguous. It could narrowly refer to a judicial assessment of costs or broadly to any levy of an assessment. Following precedent, we are required to interpret ‘taxed’ broadly if feasible. We find it feasible to do so without perverting semantics. Thus, we construe the term broadly.” (Slip Opn., at p. 9.) There was also a policy reason for this broader interpretation: “Additionally, if taxed costs did not include anticipated costs in a settlement, insurers would be discouraged from settling cases with high costs because they would be barred from seeking contribution. Our holding eliminates that dilemma.” (Slip Opn., at p. 10.)

     The appellate panel also affirmed the trial court’s determination that the $1.8 million in settlement fees was a “fixed cost” that did not change, notwithstanding that 79 new plaintiffs moved into the mobilehome park after Philadelphia’s last policy expired. Thus, there was no reason to reduce Philadelphia’s proportionate share downward.

     There is also an interesting discussion of the methods for determining an equitable allocation among multiple insurers on the same risk: time on the risk; policy limits; combined policy limits/time on the risk; equal shares; and maximum loss. The trial court in this case used the “time on the risk” allocation method, which was upheld on appeal. (See Centennial Ins. Co. v. United States Fire Ins. Co., 88 Cal.App.4^th 105, 112-113 (2001).)

     BLOG UNDERVIEW—The trial court was Los Angeles County Superior Court Judge John Shepard Wiley, Jr. Marc and Mike had a recent law-and-motion hearing before him, finding he ran a thoughtful, considerate courtroom. He also mentioned an interesting website which we have added to our home page sidebar—where one can get feedback and ratings on federal and state judges throughout the United States as well as add one’s own personal experiences on a particular judge. Appropriately enough, it is called “The Robing Room.”