CALIFORNIA ATTORNEY'S FEES

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.”