CALIFORNIA ATTORNEY'S FEES

Insurance: Insured’s Brandt Fee Recovery Affirmed On Appeal Where Insured-Counsel Agreement Modified Before Trial But Disclosed To Insurer

No Manipulation Of Fees Shown, With Insurer Not Having Standing To Challenge The Fee Agreement As Unconscionable.

               Wietsma v. Foremost Ins. Co. of Grand Rapids, MI, Case No. C097885 (3d Dist. May 30, 2024) (unpublished) involved challenges to a Brandt fee recovery by the insured, although in a much reduced fashion from the original fee request.  Insurer brought lots of challenges to the fee award, but they were rejected on appeal.

               Insured filed an $84,000 rental property claim against insurer, hiring counsel who entered into a 2017 fee agreement based on contingency, attorney lien, and costs-of-proof sanctions components.  This agreement was produced to insurer during discovery.  After some more extensive litigation by insurer, insured entered into a new 2021 fee agreement with counsel providing for the same terms as in the 2017 fee agreement but adding a provision requiring compensation via an hourly rate if a jury panel was sworn.  Insured’s counsel produced this new agreement to insurer within 2 days of execution.  Insured won a jury trial against the insurer, winning $131,201.92 in damages although $55,223.64 consisted of policy benefits compensation that the insurer unreasonably failed to pay.  Insured moved to recover $606,278 in Brandt allocated fees.  Most of insurer’s arguments were rejected as far as denying fees, but the lower court awarded insured $384,825 in fees.  (The parties stipulated that Brandt fees could be considered by the lower court, post-trial, rather than putting damages evidence in front of the jury—not an uncommon stipulation.)

               Insurer’s appellate arguments for a reversal did not carry the day.  The appellate court rejected the idea that proof of occurring a debt to the insured’s counsel suffices to show fees were incurred, not actual payment.  (Contra Costa County Title Co. v. Waloff,184 Cal.App.2d 59, 68 (1960).)  “Furthermore, requiring an insured to specifically prove he or she has paid or will be held to pay the accrued fees makes little sense in the Brandt scenario,” especially in a contingency fee arrangement.  The appellate panel also rejected the idea that insured must show it secured the lowest contingency fees to mitigate damages, because it simply ignores the actual costs needed to vindicate the insured’s interests under the policy.  Because insurer did not have standing to challenge the fee agreements between insured and counsel, the challenge to the new 2021 new fee agreement did not prevail.  Finally, the Court of Appeal was sensitive to the “fee agreement manipulation argument,” but did not find it was persuasive under the facts on appeal.  Insured did not change the fee agreement after trial, as in a case cited by insurer (Pulte Homes, 14 Cal.App.5^th at 1129-1132), but simply changed the fee deal to reflect insurer’s tenacious litigation efforts to get to the ultimate result.  “We need not decide when the line between proper and improper modification is crossed as we conclude it was not crossed here.”

Insurance: Party Claiming Brandt Fees As Damages Impliedly Waives Attorney-Client Privileges As To Some Fee Information

However, Appellate Court Indicated Some Redactions Were In Order And No Bifurcation Was Required As To Liability Versus Reasonableness Of Fees.

               Byers v. Superior Court, Case No. A169321 (1^st Dist., Div. 5 May 7, 2024) (published) posed this issue and answered it:  Does a party seeking attorney’s fees as damages under Brandt v. Superior Court, 37 Cal.3d 813, 819 impliedly waive the attorney-client privilege with respect to producing fee agreements, invoices, billings, and payment information where the fees are claimed as damages?  Answer:  generally, yes.

               However, the opinion needs to be read carefully on this issue, given it is also circumspect in some nuances of the subject matter under consideration.  It decided that there is no automatic right of bifurcation of a right of liability versus reasonableness of fees on Brandt issues.  Just as important, the appellate court did not disagree that redactions could be made when producing privileged information to the extent non-Brandt fees were at issue. 

Insurance: Sixth District Determines That Brandt Fees Are Recoverable On Appeal

Although Damages At The Trial Level, Appellate Fees Decided By Lower Court Upon An Appropriate Motion.

            In Borjon Auto Center King City, Inc. v. Sentry Select Ins. Co., Case No. H048021 et seq. (6^th Dist. May 31, 2023) (unpublished), the Sixth District entertained the issue of whether Brandt (see our Leading Case No. 11) fees are recoverable on appeal.  Here is what the appellate court said:

            “Finally, Borjon Auto Center seeks an award of Brandt attorney fees on appeal. This court has determined that Brandt attorney’s fees are recoverable on appeal. ‘We agree with the Ninth Circuit in McGregor [v. Paul Revere Life Ins. Co. (9th Cir. 2004) 369 F.3d 1099] that attorney fees the insured has incurred to defend a judgment against the insurer’s appeal are a logical extension of the fees incurred in pursuing the recovery in the trial court. The collection of the benefits due is not complete when the insurer resists the judgment by challenging the judgment on appeal. Thus, to the extent that appellate attorney fees reflect the continuation of services performed to obtain the rejected payment of policy benefits, they should be recoverable under the rationale of Brandt.’ (Baron v. Fire Ins. Exchange (2007) 154 Cal.App.4th 1184, 1198 (Baron); but see Burnaby v. Standard Fire Ins. Co. (1995) 40 Cal.App.4th 787, 797 [Brandt attorney’s fees are not recoverable on appeal].)

            “Since Brandt attorney’s fees ‘are recoverable as damages, the determination of the recoverable fees must be made by the trier of fact unless the parties stipulate otherwise. [Citations.]’ (Nickerson, supra, 63 Cal.4th at p. 373.) We will therefore remand the matter for a determination by the trial court, on appropriate motion, of the amount of attorney’s fees on appeal to which Borjon Auto Center is entitled to under Brandt, supra, 37 Cal.3d at pages 817-819. (See Baron, supra, 154 Cal.App.4th at pp. 1198-1199.) “

Insurance: Appellate Court Determines That Brandt Recovery Does Entail Routine Litigation Defenses In Addition To Attorney’s Fees

Analysis Of Other Cases So Confirmed.

            In Vallejo v. Fire Ins. Exchange, Case No. C091547 (3d Dist. Nov. 21, 2022) (unpublished), the Court of Appeal faced a narrow issue:  under Brandt v. Superior Court, 37 Cal.3d 813 (1985), does an insurer receive routine litigation expenses as a recovery in addition to attorney’s fees to obtain the benefits under an insurance policy?  Answer:  yes, examining other California decisions to confirm that was the case. 

Insurance: Intervenor Obtaining Substantial Contribution Into Insurance Rate Making Process Entitled To About $650,000 In Fees

Proposition 103 Fee-Shifting Provision Was Liberally Construed In Favor Of Intervenor “Watch Dogs.”

            State Farm Gen. Ins. Co. v. Lora, Case No. D077731 (4^th Dist., Div. 1 Oct. 29, 2021) (published) is one of the first decisions under Proposition 103, which has a fee-shifting provision allowing an award of advocacy fees to a consumer representative which makes a “substantial contribution” to efforts relating to adoption of an order in an insurance rate hearing decision making process.   (Ins. Code, § 1861.10.)  The consumer advocacy intervenor was able to prevent an insurer from sealing certain records in a positive manner along the rate-making process.  The lower court awarded intervenor about $650,000 in fees, a conclusion affirmed by the appellate court.  The “substantial contribution” language was to be interpreted liberally, such that fee compensation should be allowed for unsuccessful alternative arguments (as opposed to losing on unsuccessful claims).

Construction, Fee Clause Interpretation, Indemnity, Insurance: Subcontractors Not Liable For Gen. Developer Defense Fees Not Relating To Their Work, And Equitable Subrogation Action Fees For Developer Not Recoverable Under Ambiguous Clause

At The End, Joint/Several Liability Theory On The First Issue Was Rejected, And Ambiguity Construed Against Developer Drafter On The Second Issue.

            This next post might interest construction and insurance practitioners, although it involves the interesting intersection of contractual and insurance equitable subrogation issues—with complexities teeming!

            In Berg v. Pulte Home Corp., Case No. C086890 (3d Dist. July 30, 2021) (partially published; fee discussions not published), developer Pulte was defended by insurer St. Paul in a residential construction lawsuit where cross-claims or intervention claims were asserted against various Pulte subcontractors.  St. Paul sued three of Pulte’s subcontractors for equitable subrogation based on the subcontractors’ failure to defend Pulte (such that the insurer had to come out of pocket) to the tune of $193,137.68 in attorney’s fees.  The lower court trifurcated the resolution:  the first phase was a bench trial on equitable subrogation entitlement (found in St. Paul’s favor); the second phase was a jury trial on amounts to be awarded insurer under equitable subrogation (the jury did award certain amounts to St. Paul); and the third phase was another bench trial on the settlement offsets/credits to be factored into the ultimate award (with St. Paul getting some positive judgments, but small amounts after offsets/credits).  However, along the way, the lower court (1) denied that the subcontractors were jointly and liable to St. Paul (as subrogaee to Pulte) for general defense costs not related to the subcontractors’ specific scope of work; and (2) denied insurer’s request for fees in prosecuting the equitable subrogation claim based on a performance default clause in a master agreement between Pulte and the subcontractors.

            The Third District affirmed the lower court’s fee determinations.  As to the first issue, the appellate court followed two prior decisions finding that the subcontractors are only liable for fees relating to their specific scopes of work, not general attorney’s fees relating to the overall defense of the case on behalf of Pulte.  (Pulte Home Corp. v. CBR Electrics Inc., 50 Cal.App.5^th 216, 225 (2020); Carter v. Pulte Home Corp., 52 Cal.App.5^th 571, 586-587 (2020).)

            With respect to issue #2, the appellate court did note that the default clause was ambiguous so that both sides had a colorable argument on whether it encompassed general equitable subrogation fees.  However, the killer for St. Paul/Pulte was that it was ambiguous such that the ambiguity was construed against drafter Pulte—with the absence of a specific attorney’s fees clause in the default provision not clearly establishing the basis for fee entitlement. 

Allocation, Construction, Insurance: Lower Court’s Denial Of Any Fee Recovery To General Contractor’s Insurer For Defending The GC, Based On Equitable Subrogation, Was Error

GC’s Insurer Was Entitled To Equitable Reimbursement Of Defense Costs Relating To Subcontractor Work As Well As A Reasonable Allegation Relating To Reasonable “Mixed” Defense Efforts.

            In Pulte Home Corp. v. CBR Electric, Inc. (St. Paul Mercury Ins. Co.), Case No. E068353 (4^th Dist., Div. 2 June 10, 2010) (published), a trial judge denied in entirety a general contractor’s insurer’s request for reimbursement of attorney’s fees expended in defending the GC  under an equitable subrogation claim even though GC-subcontractors’ contracts required some subs to defend the GC for their work which was alleged to have been defective in a construction defect suit.  The insurer had requested not only reimbursement of direct fees expended for defending on the work done by the subs, but also mixed, other defense work which it claimed was related to the overall defense of the case benefitting the subs—right around $189,000 out of $209,000 expended by the insurer in GC’s defense.  On appeal, the 4/2 DCA reversed and remanded.  It determined that insurer’s equitable subrogation action allowed an insurer to recoup from subs that portion of defense costs each sub owed as a result of its duty to defend the GC, but not entire defense fees attributable to other work (the overall defense of the case).  Based on Interstate Fire & Cas. Ins. Co. v. Cleveland Wrecking Co., 182 Cal.App.4^th 23 (2010) and Valley Crest Landscape Development Inc. v. Mission Pools of Escondido, Inc., 238 Cal.App.4^th 468 (2015), insurer was entitled to reimbursement of reasonably allocated fees from the subs.  If only the direct fees for sub defense had been involved, the appellate court would not have remanded; however, the claim for “mixed” defense fees of a related nature required an allocation—a division left for the trial judge to make in a remand proceeding.

Costs, Experts, Insurance, Section 998: Denial Of All But $11,753.94 Of Prevailing Personal Injury Plaintiff’s $83,048.06 Costs Request Affirmed On Appeal

An Invalid Section 998 Offer And A Failure To Reserve The Right To Seek Prevailing Party Fees In Agreements To Split Costs Sealed Plaintiff’s Fate.

            In Anthony v. Li, Case No. A156640 (1^st Dist., Div. 3 April 13, 2020) (published), a prevailing personal injury plaintiff, to whom a jury awarded $650,235.00 in damages which exceeded a $500,000 section 998 rejected by defendant, moved post-trial for recovery of $83,048.06 in costs.  However, the trial court granted only a small portion of the requested costs – denying the requested $62,082.50 for section 998 post-offer expert fees, $2,650 for mediation fees, and another $6,561.62 for court reporter fees.

            Plaintiff appealed, but the 1/3 DCA affirmed – finding the trial court had properly taxed the costs. 

            First, as to the expert witness fees, the simple explanation for the denial is that plaintiff had made an invalid section 998 offer.  However, as the saying goes – the devil is in the details.   

            Defendant Li resided outside of the United States.  He was driving a rental car at the time of the accident – for which he had purchased a $1 million liability insurance policy.  Plaintiff originally sued both Li and the holding corporation doing business as the rental car company, which held the insurance policy, but later dismissed Holding Corp. with prejudice.  Afterward, plaintiff tendered a joint section 998 offer that was not apportioned and required acceptance by, and entry of judgment against, both Defendant Li and Holding Corp.   Plaintiff argued his joint 998 offer was proper because: (1) Li and Holding Corp. were “one and the same” as plaintiff had included Holding Corp. in 998 offer as an insurer; (2) the law allowed plaintiff to make a section 998 offer to an insurer pursuant to Meleski v. Estate of Albert Hotlen (2018) 29 Cal.App.5^th 616 [discussed in our December 6, 2018 post]; (3) Defendant Li was not a participating in the action which was being litigated by Holding Corp., as the insurer; (4) Defendant Li was a named defendant solely for the purpose of reaching insurance under Civ. Code section 1939.33; and (5) Defendant Li was a foreign national who was unaware of the lawsuit, and plaintiff was not allowed to collect against Li because he had agreed to limit his recovery to insurance. 

            The 1/3 DCA disagreed.  First, plaintiff’s 998 offer did not advise defendants that the offer was directed at Holding Corp. as the insurer responsible for any judgment entered against Li.   Rather, it was presented as a section 998 offer to more than one defendant - as opposed to a defendant and insurer - and requiring acceptance by both defendants making it invalid. As such, Meleski was of no help to plaintiff.  Additionally, the 1/3 DCA determined that if plaintiff had made the 998 offer solely to Defendant Li, and Li had rejected it, then plaintiff – after judgment exceeding the 998 offer was entered against Li – would have had recourse by bringing a second direct action against Holding Corp., as the insurer, to recover any judgment and statutory cost award entered against Li.

            Next, as to the mediation and court reporter fees, the parties had entered into agreements for a voluntary mediation and for court reporter fees that stated that the fees were being equally divided and paid by plaintiff and defendant[s].  No language reserving the right to later seek the fees as prevailing party costs was added to either of the agreements.  The language in the agreements was unambiguous, and the trial court properly enforced those agreements as written.  (Carr Business Enterprises, Inc. v. City of Chowchilla (2008) 166 Cal.App.4^th 25, 30 and Howard v. American National Fire Ins. Co. (2010) 187 Cal.App.4^th 498, 539-540.)

Costs, Experts, Insurance, Section 998: Trial Court Properly Awarded Costs, Including Almost $70,000 In Expert Witness Fees, To Successful Defendant After Plaintiff’s Rejection Of Defendant’s Section 998 Offer

Plaintiff May Have Been Overreaching When He Followed Defendant’s $15,001 Offer With His Own $299,995 Offer Given Jury’s Return Of Defense Verdict.

            Grayfer v. Wawanesa General Ins. Co., Case No. B285554 (2d Dist., Div. 7 November 18, 2019) (unpublished) provides a cautionary tale about the risk involved in overreaching and rejecting reasonable section 998 offers.

            Plaintiff sued his insurance company after his car was stolen – valuing his car at $31,263.43 in his complaint.  Insurance company made a Code Civ. Proc. § 998 offer to settle plaintiff’s claims for $15,001, but plaintiff rejected the offer and served his own offer in the amount of $299,995.  The insurance company rejected plaintiff’s offer and the matter proceeded to trial.  Following the defense verdict returned by the jury and entry of judgment in its favor, the insurance company filed its memorandum of costs which included almost $70,000 in expert witness fees.  Plaintiff moved to tax costs – especially the expert witness fees – arguing insurance company was not entitled to recover fees because its 998 offer was unreasonable and made in bad faith, the experts were not court ordered, and the amounts incurred were unreasonable and unnecessary.  The trial court rejected plaintiff’s arguments – finding the 998 offer reasonable in light of Plaintiff’s claimed emotional distress, the value plaintiff placed on his stolen car, insurance company’s denial of liability for plaintiff’s loss, and the ultimate jury verdict confirming insurance company’s stance on liability.

            After entry of the order awarding its costs/expert witness fees, the insurance company levied plaintiff’s bank accounts, to which plaintiff filed a claim of exemption asserting social security and disability payments were deposited into the levied accounts.  After a hearing on plaintiff’s exemption claim, the trial court found one single account was exempt as it received social security benefits, but found no exemptions for plaintiff’s other accounts.

            Plaintiff appealed the rulings on both his motion to tax costs and his claimed exemption motion, and the 2/7 DCA affirmed – finding no abuse of discretion in the costs ruling and no error in the claim of exemption ruling.

Construction, Indemnity, Insurance: Subcontrator’s Insurer On The Hook To Indemnify It To The Tune Of $1,532,973.87 In Damages And Fees, Plus Prejudgment Interest, Following Entry Of Default Judgment Against Subcontractor

Homebuilder’s Insurer Sued Subcontractor’s Insurer After Fully Indemnifying Homebuilder In Underlying Action For Construction Defect Damages and Attorney Fees

        The Insurance Company of The State of Pennsylvania v. American Safety Indemnity Company, Case No. B283684 (2d Dist., Div. 8 March 1, 2019) (published) involves a dispute between insurers resulting from an underlying case. The underlying case involved a Homeowner Couple who sued a Homebuilder General Contractor for defective construction. Their home had been constructed on a lot that had been improperly compacted by a Grading Subcontractor under a contract with Homebuilder. The resulting settling damage to Homeowner’s home was so significant that a construction engineer concluded the entire structure was compromised and should be demolished and rebuilt at a cost of almost $1.9 million. The case went to arbitration, with Homeowner alleging “at least $2,347,592” in damages against Homebuilder. The arbitrator found in favor of Homeowner, and awarded damages of $1,026,750, attorney fees of $1,122,625, costs of $8,840.38, plus prejudgment interest of $28,417.84 – for a total recovery of $1,176,633.22.  

        Homebuilder initiated a lawsuit against Subcontractor pending the outcome of arbitration – obtaining a default judgment against Subcontractor for $1,532,973.87 (Homeowner’s arbitration award of $1,176,633.22 as damages, plus attorney fees of $356,340.65) pursuant to indemnity provisions in a contract between the parties (which also provided for attorney fees).

        Because Homebuilder’s Insurer fully indemnified it for the arbitration award to Homeowner, it then sued Subcontractor’s Insurer for recovery of the default judgment under Insurance Code section 11580 (a contractual action on the policy to satisfy a judgment up to policy limits), along with causes of action for declaratory relief, subrogation, and breach of contract – alleging Subcontractor Insurer had: (1) a duty to indemnify Subcontractor for the amount of the default judgment; and (2) policies that provided coverage for the entire amount of the default judgment. Homebuilder Insurer further alleged it was subrogated to Homebuilder’s rights to recover by virtue of having indemnified Homebuilder for the arbitration award.

        Both Insurers moved for summary judgment, with the trial court denying Subcontractor Insurer’s motion, granting Homebuilder Insurer’s motion, and entering judgment in favor of Homebuilder Insurer in the amount of $1,532,973.87 plus prejudgment interest. Subcontractor Insurer then filed a motion for a new trial, which was denied, so it filed an appeal.

        On appeal, Subcontractor Insurer made the same summary judgment arguments it had made in the lower court, but added a few additional arguments for the first time on appeal. The new arguments were not considered by the 2/8 DCA, and the remaining arguments proved to be of no avail to Subcontractor Insurer.

        In affirming the trial court’s summary judgment rulings, the 2/8 DCA determined that the underlying default judgment was valid under Code Civ. Proc. section 580 (default judgment cannot exceed amount requested in complaint) as Homebuilder clearly stated that it sought indemnity for the underlying arbitration in an amount of at least $2,347,592 – an amount significantly higher than the default judgment award. It further determined that the default judgment was indeed based upon property damage – not economic loss as argued by Subcontractor Insurer.

Insurance, Lodestar, Reasonableness of Fees, Special Fee-Shifting Statutes, Substantiation of Reasonableness of Fees: Third Circuit Upholds District Court’s Decision Denying Entire Almost $950K Fees And Costs Request To Successful Plaintiff

Amount Requested Under Bad Faith Statute Was “Outrageously Excessive” Allowing District Court To Deny The Request Altogether As Thoroughly Explained In Its “Well-Reasoned One-Hundred-Page Opinion”

            Ouch! Talk about learning a lesson the hard way! In a precedential opinion for a case decided by Justices Greenaway, Jr., Restrepo, and Bibas, and authored by Justice Greenaway, Jr., the Third Circuit Court of Appeals declares, in a very clear and unambiguous fashion, that the submission of a fee petition is not the “opening bid in the quest for an award.”

            In  Clemens v. New York Mutual Fire Insurance Company, [ Download Opinion here]No. 17-3150 (Fed. Cir., Sept. 12, 2018) (precedential), Plaintiffs sued insurer under a contractual underinsured motorist (UIM) claim and a claim under the Pennsylvania Bad Faith Statute following a serious car accident.

            The UIM claim was settled for $25,000 after insurer removed the case to federal court, and the bad faith claim proceeded to a week-long jury trial wherein Plaintiff was awarded $100,000 in punitive damages.

            Following the jury trial verdict, Plaintiffs filed a petition for $946,526.43 in attorneys’ fees and costs, and an additional $175,630 in interest on the claims. District court awarded only $4,986.58 in interest, finding Plaintiffs entitled to interest on only the $25,000 in UIM damages, and awarded not one penny of the requested fees/costs, denying $1,117,169.85 of Plaintiffs’ total request.

            Plaintiffs appealed on the denial of fees/costs claiming the requested fees/costs were mandatory under the Pennsylvania Bad Faith Statute which provides that “[in[ an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions: (1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%; (2) Award punitive damages against the insurer; and (3) Assess court costs and attorney fees against the insurer.” Plaintiffs relied on the word “all” in the “, , , may take all of the following actions” language. Both the district and federal appeals courts relied on the same language, but focused on the word “may.” This one, tiny little three-letter word gave the district court discretion in awarding attorney’s fees or in denying them altogether under circumstances such as the ones involved in this case.

            Here, Plaintiff’s counsel did not maintain contemporaneous time records. Instead, they had one attorney recreate the time records by retrospectively estimating the length of time spent on each individual task for not only herself, but for others – including colleagues with whom she could not consult because they had already left the firm. Ironically, Plaintiffs’ counsel included in the fee request $27,090 for the 64.5 hours spent recreating the time records.

            Failure to maintain contemporaneous time records did not automatically kill the fees request, but caused the court to conduct a “more exacting scrutiny than we would bring to contemporaneous and detailed records.” Grendel’s Den, Inc. v. Larkin, 749 F.2d 945, 952 (1^st Cir. 1984).

            So, what did that more exacting scrutiny reveal? It revealed that Plaintiffs’ counsel was entitled to only thirteen percent (13%) of the requested fees after disallowing time entries that were so vague (e.g. “Communicate,” “Other” and “Review/Analyze” with no additional explanation) that there was no way to discern whether the hours billed were reasonable, and other entries the court found to be unnecessary and excessive, such as the 562 hours billed for “Trial Prep.”

            Finally, Plaintiffs’ counsel failed to meet their burden of showing that their requested hourly rates were reasonable. They provided the court with no affidavits identifying their usual billing rates and levels of experience, and had only one of the five billing attorneys testify at the fee petition hearing about her background and experience.

            Bottom line, the District Court found the request so “outrageously excessive,” it exercised its discretion to award no fees at all.

BLOG OBSERVATION: We agree with the Third Circuit’s conclusion. It is the duty of the requesting party in a fee petition to make a good faith effort to exclude hours that are excessive, redundant, or otherwise unnecessary.

Insurance: Insurer Providing Defense Counsel With Minor Reservations Of Rights And Offering To Make Policy Limits Settlement Did Not Have To Pay Cumis Counsel Expenses

Insurer Did The Right Things, With No Conflict Of Interest Appearing And With The Insurer Obtaining Summary Judgment On The Cumis Issue.

            Pacific Intercultural Exchange v. Scottsdale Ins. Co., Case No. D071478 (4^th Dist., Div. 1 June 26, 2018) (unpublished) is a textbook example of how an insurer treats an insured correctly such that no obligation arises to pay a Cumis counsel desired by the insured.

            What insurer did well here was to appoint a defense counsel and make no major reservation of rights except for punitive damages or damages beyond policy limits. In fact, insurer wanted to tender a policy limits settlement, but insured wanted to get a better deal. Insurer moved for, and obtained, summary judgment on the Cumis counsel request of insured to pay for an independent counsel in addition to insurance defense counsel.

            Here is what the appellate court determined in line with the lower court’s analysis:

• Reserving rights with respect to punitive damage claims and claims for damages in excess of the policy limits does not present a conflict of interest under Civil Code section 2860(b);
• Insurer did not specifically reserve on any exclusion in the operative liability coverage form (such that any coverage disputes unrelated to issues being litigated in the underlying litigation are inconsequential);
• Insurer did exactly what it should do to avoid a conflict of interest in settlement negotiations by offering a policy limits settlement early in the litigation, with the insurer given exclusive right to control settlement negotiations in such a context; and
• Dissatisfaction with assigned defense counsel does not alone create a conflict with the insurer, because assigned defense counsel acts as an independent contractor such that the insurer does not become liable for trial counsel’s legal malpractice.

Summary judgment affirmed.

In The News, Insurance: First Circuit Court Of Appeals Decides AIG Insurance Must Reimburse Bill Cosby For Defense Attorney’s Fees And Costs In Defamation Suits Involving Sexual Molestation Cases

Result Was The Same Under Massachusetts Or California Law.

            In AIG Property Casualty Co. v. William H. Cosby, Jr., No. 17-1505 (1^st Cir. June 7, 2018), the First Circuit Court of Appeals affirmed a district judge’s decision holding that, under Massachusetts law, AIG Insurance had to a duty to reimburse Bill Cosby for attorney’s fees and costs incurred in defamation suits by several plaintiffs asserting Mr. Cosby had defamed them by publicly denying their sexual molestation accusations. Mr. Cosby tendered the defense under both a homeowners policy and personal excess liability policy. The appeals court found that the sexual misconduct exclusions section was at least ambiguous under Massachusetts law such that there was a duty to defend. The same result likely would occur under California law, based upon a federal district court’s ruling to the same effect. (AIG Prop. Cas. Co. v. Cosby, 2015 WL 9700994, at *3-5 (C.D. Cal. Nov. 13, 2015).)

            The First Circuit’s decision was authored by Associate Justice (Ret.) David H. Souter, who used to sit on the U.S. Supreme Court and who was sitting on the First Circuit by designation.

Insurance: 4/1 DCA Holds That Fee Agreement During Trial Determines What Brandt Fees Can Be Awarded To Prevailing Insured Party

Posttrial Manipulation Of Fee Agreement Not Allowed, As We Understand The Opinion.

            For insurance practitioners, Pulte Home Corp. v. American Safety Indemnity Co., Case No. D070478 (4^th Dist., Div. 1 Aug. 30, 2017) (published) is a significant decision addressing what fee arrangement governs an award of attorney’s fees as damages under Brandt v. Superior Court, 37 Cal.3d 813 (1985), when the fee arrangement changes mid-course. 

            In this case, Pulte—a general contractor and developer of residential projects—was an additional insured under CGL insurance policies issued to subcontractors, potentially covering construction defect claims.  American Safety, the insurer, suffered an adverse judgment in favor of Pulte, based primarily on duty to defend and bad faith claims in relation to a CD action.  Later, in a very contested battle where there was proof that Pulte changed its original contingency fee arrangement to an hourly fee arrangement, the trial judge awarded Brandt fees to the tune of $471,313.52 in Pulte’s favor.  (As far as we can determine, American Safety had argued for no more than $371,000, but Pulte had sought $645,000, subject to allocation between compensable and non-compensable Brandt fees—always an issue under Brandt/Cassim.)

            Insurer did win a restudy of the fee award under Brandt.  The appellate court, although acknowledging that clients and attorneys usually have free reign to modify a contingency arrangement, was concerned that Pulte did transform its contingency fee arrangement to an hourly arrangement during trial so as to exacerbate potential Brandt fee recovery, a result which would be potentially unfair to the insurer which was “on the hook” for this exposure.  The appellate court sent this one back to calculate fees, under an appropriate ratio, to the rate allowed under the original pre-trial contingency arrangement.  The modification in fee arrangement did not hold up in this situation.

Insurance: Over $1 Million in Brandt Fees Affirmed On Appeal

 

 

Trial Judge Got Allocation Of Policy Benefit-Oriented Fees Right.

 

 

    Saddleback Inn, LLC v. Certain Underwriters of Lloyd's London, Case No. G051121 (4th Dist., Div. 3 Mar. 30, 2017) (unpublished) involved an insured which was awarded $2.8 million against an insurer based on a policy reformation as well as $50,000 in punitive damages. The trial judge (Frederick P. Aguirre) then awarded $1,062,116.78 in fees and costs under Brandt (one of our Leading Cases). The appellate court, in a 3-0 opinion authored by Presiding Justice O'Leary, found the fee/costs award to be just right: 30% of plaintiff's efforts at pursuing the policy benefits were awarded, which matched up with the 30% contingency arrangement.

 

    BONUS: From the website of the Orange County Historical Society: "In 1984, Gelker sold the Saddleback Inn to a group of investors that included former President Nixon's Chief of Staff (and key Watergate figure) H.R. Haldeman. From then on, the Inn went into a steady decline, and a series of owners, culminating in a string of fires and the demolition of the majority of the buildings in 2013. 

    But between its rise and its fall, the story of this landmark Orange County business was full of twists, turns, fascinating personalities, and historic moments." 

Insurance: Insured’s Win On Appeal Entitles Insured To Seek Brandt Fees From Trial Court Following Appellate Win

 

Split On Issue, But Sixth District Says Brandt Appellate Fees Are Recoverable.

 

    After an insured won an insurance dispute on appeal, the insured requested attorney's fees under Brandt v. Superior Court, 37 Cal.3d 18 (1985) in the recent unpublished decision of Olsen v. The Standard Fire Ins. Co., Case Nos. H042154/H042260 (6^th Dist. Feb. 9, 2017) (unpublished). The Sixth District agreed to do so, acknowledging it had allowed such recovery of fees on appeal in Baron v. Fire Ins. Exch., 154 Cal.App.4^th 1184, 1198 (2007), albeit parting company with a sister court not allowing for recovery Brandt fees on appeal (see Burnaby v. Standard Fire Ins. Co., 40 Cal.App.4^th 787, 797 (1995)). Because Brandt fees are in the nature of damages, the matter was remanded for the trial court to consider the request upon appropriate motion—apparently based on the premise that the jury returning the special verdicts was discharged and could not be recalled to perform this task.

Insurance: “Supplementary Payments” Provision Encompassed Contractually-Based Attorney’s Fees To Settling Party In Construction Defect Litigation

 

Pre-2007 CGL Policies Were At Issue.

 

    We have a year-end case for you insurance practitioners, especially coverage attorneys.

 

    In Navigators Specialty Ins. Co. v. Moorefield Construction, Inc., Case No. G050759 (4^th Dist., Div. 3 Dec. 27, 2016) (published), our local Santa Ana court of appeal decided that a pre-2007 CGL "supplementary payments" provisions in an insurance contract encompassed contractually-based attorney's fees which were allowable as "costs of suit" under the applicable insurance provision in the context of a settlement agreement. This decision, based on a footnote in it, only applies to pre-2007 CGL policies, given that post-2007 policies exclude these fees from the ambit of "supplementary payments" provisions. Justice Fybel authored the 3-0 published opinion.

Insurance: On Remand, Intermediate Appellate Court Includes Brandt Fees And Then Finds $475,000 In Punitive Damages Rather Than $19 Million Justified Based On Prior Trial Court Remittitur

 

Case Was On Remand From California Supreme Court.

    On June 9, 2016, we posted on Nickerson v. Stonebridge Life Ins. Co., 63 Cal.4th 363, 368, 371, 377 (2016), which decided that Brandt fees should be added to compensatory damages for purposes of determining the compensatory damages ratio for purposes of adjudging the reasonableness of a punitive damages award. 

    The Second District, on remand in Nickerson v. Stonebridge Life Ins. Co., Case No. B234271 (2d Dist., Div. 3 Nov. 3, 2016) (published), considered the impact of the California Supreme Court’s decision on the punitive damages award.  What happened below is that plaintiff was awarded $35,000 in compensatory damages, $12,500 in Brandt fees, and $19 million in punitive damages.  The trial court found the punitive damages excessive, fashioning a remittitur based on a 10:1 punitive/compensatory damages ratio such that the punitive damages award should be $350,000 instead.  However, the Brandt fees were not included in the calculus, even though the state supreme court subsequently decided they should have been.  On remand, the 2/3 DCA panel decided the 10:1 ratio comported with due process such that the judgment was modified to allow for $475,000 in punitive damages ($35,000 compensatory award plus $12,500 Brandt fees equals $47,500, multiplied by 10 to reach $475,000).

Insurance: California Supreme Court Rules—Do Brandt Attorney Fees Get To Be Considered In Punitive-To-Compensatory Damages Ratio On The Compensatory Side?

 

You Betcha, State Supreme Court Decided.

    In Nickerson v. Stonebridge Life Ins. Co., Case No. S213873 (Cal. Supreme Court June 9, 2016), the California Supreme Court confronted the issue of whether attorney’s fees awarded to a prevailing plaintiff in a “bad faith” insurance lawsuit should be considered where attorney’s fees under Brandt v. Superior Court, 27 Cal.3d 813, 817 (1985) were awarded post-trial by the lower court via the parties’ stipulation rather than by the jury as damages in the primary case.  Our state supreme court said “yes,” they should be considered no matter the procedural context in which Brandt fees were awarded.  Because these attorney’s fees are essentially compensatory in nature, they can be considered by trial and appellate courts as far as adjudging whether the punitive/compensatory ratio was reasonable under state guidepost standards (absent circumstances, 9-10 to 1).  Justice Kruger penned the unanimous decision by the court.

Insurance: Insurer May Be Able To Recoup Defense Costs From Cumis Counsel

 

. . .Under Limited “Padded Bill” Circumstances.

    We do commend that any insurance or tort practitioners read Hartford Cas. Ins. Co. v. J.R. Marketing, LLC, Case No. S211645 (Cal. Supreme Court Aug. 10, 2015) (published) given that it does allow insurers to directly pursue Cumis counsel for restitution based discovery for padded bills (likely counsel fees).   This is a fairly narrow ruling, but if readers think it extends beyond the narrow facts and circumstances of this particular case, we invite any and all commentary on this interesting decision.

Insurance: Cumis Counsel Hourly Rate Restrictions Do Not Apply Retroactively

 

Rate Restrictions Apply No Earlier Than When Insurer Agrees to Pay for Prospective Dates Onward.

     Although unpublished, insurance practitioners will want to read City Art, Inc. v. Superior Court (Travelers Property Cas. Co. of America), Case No. B256132 (2d Dist., Div. 3 Dec. 9, 2014) (unpublished).

     In granting an insured's writ petition, the appellate court determined that the Cumis counsel rate restrictions under Civil Code section 2860 only apply after the insurer actually commences paying for independent counsel, meaning the date upon which it agrees to pay but not for retroactive dates even if it purports to apply the rate restrictions retroactively. The retroactivity rule espoused by the insurer was soundly rebuffed, because "[i]f an insurer could retroactively rely on section 2860, an insurer that breached the duty of defend could reduce the damages it owed simply by establishing that it also breached the duty to provide independent counsel. This is nonsensical [given the general rule that an insurer who breaches the duty to defend is liable for the reasonable attorney fees incurred by the insured in obtaining a defense]." (Slip Opn., p. 17.)

Insurance: Carrier Obtaining Reimbursement Of All Defense Costs Against Insured Had Some Of It Taken Away On Appeal Because Only Subsequent Facts Showed No Potential For Coverage

 

Defense Costs Were Properly Paid by Carrier Until Subsequent Investigation Showed No Coverage Potential.

     Insured must be breathing somewhat easier after the appellate result in Certain Underwriters at Lloyd’s London v. Mestmaker, Case No. F066016 (5^th Dist. Apr. 29, 2014) (unpublished), which reviewed a lower judge order directing the insured to pay back $235,958.98 in fees/costs expended by carrier in defending insured in a Colorado federal court action. The trial judge determined that there was no potential for coverage such that carrier had no obligation to defend, meaning insured had to reimburse off of the principal of advanced fees/expenses (plus interest thereon).

     On appeal, this one got reversed. The reason was that the facts demonstrated that the “no coverage” scenario was only evident based on subsequently developed facts, which translated to defense costs only ceasing on a prospective basis from the point these facts became known. (Tamrac, Inc. v. CIGA, 63 Cal.App.4^th 751, 758 (1998).) So, the matter was remanded for the trial judge to determine what defense costs needed to be reimbursed from the point in time where the potential for coverage was discovered to be non-existent.

Insurance/Tort Of Another: Misrepresenting Insurance Broker Properly Hit With Attorney’s Fees Under Tort Of Another Doctrine With Respect To Insurer’s Winning Cross-Complaint

 

Broker Also Liable To Insured for Fees Under Tort of Another, But Matter Had To Be Reconsidered Given Reversal Of Judgment In Favor Of Insured And Against Insurer.

     De La Torre v. Century Surety Co., Case No. D061028 (4^th Dist., Div. 1 Feb. 24, 2014) (unpublished) was tripartite litigation involving insured versus insurer, and insurer cross-complaining against insurance broker who was claimed to have made false statements leading to issuance of the policy. The case involved a restaurant insured’s bad faith denial claim against an insurer after insured sustained property loss from a fire breaking out in a back kitchen when a pot of oil was left unattended over an open flame burner. Insurer denied the claim based on the argument that restaurant did not have an automatic fire extinguishing system over the back cooking area as required by the policy terms and conditions. Although a trial court made some interim rulings and a jury returned a verdict in favor of insured, the appellate court reversed the judgment against insurer on various grounds. Broker was found liable for misrepresentation under insurer’s cross-complaint. Both plaintiffs and insurer were awarded attorney’s fees as against broker.

     Broker’s separate appeal did not change the result, because the tort of another doctrine was found applicable as a basis for the fee recovery, as damages, by both insurer and plaintiff. (Gray v. Don Miller & Associates, Inc., 35 Cal.3d 498, 504 (1984); Third Eye Blind, Inc. v. Near North Entertainment Ins. Services, LLC, 127 Cal.App.4^th 1311, 1325 (2005).) In trying to defeat insurer’s fees recovery, broker argued that CCP § 1021.6 (fee recovery in implied indemnity actions) applied to the tort of another doctrine—a contention rejected because insurer had no implied indemnity claims. (Burger v. Kuimelis, 325 F. Supp.2d 1026, 1041-1043 (N.D. Cal. 2004).) However, because the insurer was ultimately found not liable, the fee award to insured had to be reversed to determine if the broker was still on the hook for them on remand.

     BLOG OBSERVATION—This one brings back interesting teenage memories for co-contributor Mike, whose sister caused substantial property damage to the kitchen stove when she failed to monitor a pot of popcorn oil being heated up while she was applying her makeup in a bathroom down the hall. Mike’s mom was not happy when she came home from work, dryly observing “I can’t believe it, she burned up my stove.”

Insurance: San Miguel Community Decision Now Published

 

Insurance Policy Providing Coverage for Damages Does Not Entitle Insurer to Defense for Injunctive-Only Suit.

     In our October 5, 2013 post, we discussed San Miguel Community Assn. v. State Farm Gen. Ins. Co., Case No. G047738 (4th Dist., Div. 3 Oct. 1, 2013), an unpublished decision holding that an insured under a policy covering only damages was not entitled to a defense in third party litigation requesting only injunctive relief. On October 17, 2013, this decision was certified for publication.

Insurance/Section 998: Nothing Improper In Trial Court Considering Whether An Insurer Could Be Liable For An Excess Judgment In Evaluating Reasonableness Of 998 Offer to Insured

 

Second District, Division 8 Is Not Going To Be First Court To So Hold to the Contrary.

     In Aguilar v. Gostischef, Case No. B238853 (2d Dist., Div. 8 Oct. 13, 2013) (published), a plaintiff losing a leg in an automobile accident made pre-trial offers to attempt to accept defendant’s insured’s $100,000 policy limits coverage even though plaintiff’s injuries were “monetized” at well over $500,000. Insured stonewalled on three occasions, providing no response at all to plaintiff’s plea for a policy term settlement. Finally, plaintiff sued insured, with insured (obviously, via insurer-retained counsel) transmitting a $100,000 998 offer and plaintiff countering with his own $700,000 998 offer after earlier notifying the insurer that it could well be liable for an excess judgment in ignoring attempts to the settle the matter within policy limits. The case proceeded to trial, with plaintiff winning court-reduced compensatory damages of $2,339,657 (which was thrown out on a JNOV, but later reinstated in an earlier appeal win by plaintiff). Plaintiff then sought $1,639,451.14 in costs, including prejudgment interest from the date of the “liquidated” 998 offer, with insurer not even moving to tax costs.

     The lower court decided plaintiff’s $700,000 offer was made in good faith, reducing the requested costs by only $5,903.85 meaning that the ultimate costs award was $1,633,547.29. Farmers challenged the costs award on appeal.

     The 2/8 DCA, in a 3-0 opinion authored by Justice Flier, found the 998 offer was made in good faith. Given that an insurer who fails to pay policy limits in a serious case is “playing with fire” and may be liable for an excess judgment, in tandem with plaintiff’s counsel’s warning that an excess judgment was a very good possibility, insurer had plenty of information to assess the total picture and its delay in responding certainly raised the specter that an excess judgment could result. Affirmed.

Insurance: Insurer Agreeing To Indemnify/Defend For Damages Does Not Have To Defend Insured Against Third Party Seeking Only Injunctive Relief

 

Local Santa Ana Appellate Court So Holds.

     Acting Presiding Justice Rylaarsdam, in San Miguel Community Assn. v. State Farm General Ins. Co., Case No. G047738 (4th Dist., Div. 3 Oct. 1, 2013) (unpublished) on behalf of a 3-0 panel, framed the issue in this case and answered it as follows:

     “Question: When an insurance company issues a liability policy, agreeing to indemnify its insured against a third party claim for damages covered under the policy, and to defend the insured against any such claim, does the insurer have a duty to defend the insured against a third party lawsuit seeking injunctive relief but no compensatory damages? Answer: No. The third party‟s failure to seek compensatory damages against the insured means the dispute is not a claim for damages under the policy. The insurer‟s defense obligation requires it to provide the insured with a defense against a claim seeking damages potentially payable under the policy, not to defend the insured‟s honor or otherwise assist it in resolving a nonmonetary dispute.”

Insurance: Insurance Carrier Withdrawing Reservation Of Rights And Coverage Defenses Does Not Need To Continue Paying Cumis Counsel

 

2/7 DCA So Rules In Published Decision.

     Swanson v. State Farm Gen. Ins. Co., Case No. B240016 (2d Dist., Div. 7 Sept. 23, 2013) (published) addressed this narrow but important issue for California insurance coverage practitioners: Does an insurer withdrawing all reservations of right and coverage defenses have to continue paying insured’s Cumis counsel after the withdrawal decisions? Answer: No.

Insurance: Cumis Counsel Reimbursement Case Now Certified For Publication

 

J.R. Marketing Now Published.

     In our May 20, 2013 post, we discussed J.R.Marketing, LLC v. Hartford Cas. Ins., a May 17, 2013 unpublished decision finding that a Cumis-breaching carrier could not sue to recoup fees paid already to independent counsel. We can now report that this decision was certified for publication on June 11, 2013.

Insurance: Carrier Found To Breach Duty To Provide Cumis Counsel Cannot Later Bring Unjust Enrichment Suit For Fee Reimbursement Against Cumis Counsel

 

Holding is Narrow, Not Barring Fraudulent Billing Suit of the Right Nature.

     J.R. Marketing, L.L.C. v. Hartford Cas. Ins. Co., Case No. A133750 (1st Dist., Div. 3 May 17, 2013) (unpublished) is an interesting case for insurance practitioners following our blog.

     There, an insurance carrier was found to have breached a duty to insured to provide separate Cumis counsel and barred from obtaining the rate limitations stated in Civil Code section 2860. Then, after paying over $15 million in submitted bills for defense fees and costs, Hartford sought to sue Cumis counsel for reimbursement for excessive or otherwise improperly-invoiced defense fees and costs based on quasi-contractual/unjust enrichment principles. The trial court sustained a demurrer without leave, a determination affirmed on appeal.

     Given that the insurance carrier had lost control of the defense already by the Cumis breach, it would be inequitable for carrier to then seek compensation from the independent counsel hired to represent the interests of the insureds, not the carrier itself. The insurer would suffer no penalty from the Cumis breach if it could do this “end around.”

     However, the appellate court did note that its holding was “quite limited,” not ruling whether a direct suit for fraudulent billing practices in connection with the underlying defense of its insured might be proper in the right circumstances.

Insurance/Section 998: Trial Court Did Not Err In Only Awarding $195 In Brandt Fees To Insured Or Denying Expert Witness Fees To Winning 998 Offeror As Not Necessary To the Litigation

 

     Often times, the abuse of discretion standard of review dictates results in cases involving fee or fee-shifting cases. That was the situation in Employers Ins. Co. of Wausau v. Rick Concrete Constr. Co., Case No. D058134 (4th Dist., Div. 1 Mar. 8, 2013) (unpublished).

     There, the insured requested $185,915 in Brandt fees, but only was awarded $195 (yep, $195). Actually, that was sustained because the trial court according to the appellate court correctly found that the requested substantial fees had little justification after the lower court found insurer’s declaratory relief action was brought in good faith. “The only situation in which the law allows recovery of Brandt fees is when hiring counsel to prove coverage and obtain benefits is the proximate result of the insurer’s bad faith--a critical fact [insured] was unable to prove as to attorney’s fees incurred in connection with the declaratory relief action.” (Slip Opn., p. 34.)

     Well, insurer was not happy that it did not get reimbursement for expert witness fees after it beat a 998 rejected offer to insured. Although technically finding that insurer was entitled to postoffer costs, the appellate court looked at the record and agreed that insurer did not demonstrate that the expert witness fees were “necessary” for the litigation. Once insured challenged the fees as necessary, the burden shifted to insurer to show they were, and insurer did not satisfy its burden.

     There you go, something for everyone--split decision on the fee/costs-oriented issues.

Insurance: Although Brandt Fee Recovery Conceptually Available For Posttrial/Appellate Work, Plaintiff Waived Right When Filing Acknowledgment Of Satisfaction Of Judgment

 

     The pragmatic end result of this next appellate decision is hard to argue with; after all, I think most of us (attorneys, judges, and the public) would think that a filing of an acknowledgment of satisfaction means just that--finito, case ended, no more exposure.

     In Essex Ins. Co. v. Professional Building Contractors, Inc., Case No. B237236 (2d Dist., Div. 2 Dec. 4, 2012) (unpublished), the appellate court did not fuss with defendant insured’s propositions that attorney’s fees are recoverable under Brandt v. Superior Court, 37 Cal.3d 813 (1985) for posttrial proceedings to obtain policy benefits or for appellate proceedings to prosecute an appeal against an insurer to obtain policy benefits--although no published California decision so squarely decided. However, the rub here was more fundamental: the motion seeking further fees was filed after plaintiff signed an acknowledgment of full satisfaction of judgment which, in the end, was finito and deemed a waiver of any right to seek additional attorney’s fees and costs. (Carnes v. Zamani, 488 F.3d 1057, 1060-1061 (9th Cir. 2007).)

     Goodbye, yellow brick Brandt road.

Insurance: Insured Had Incentive To Keep Costs Reasonable When Duty To Defend Dispute Occurred And Insurer Internal Billing Guidelines Not Contained In Policy Cannot Steer Fee Reasonableness Determination

 

U.S. District Judge So Rules in N.D. Illinois Decision.

     We thank our friends at NALFA for calling the next decision to our attention (as posted on in their Attorney Fee Blog).

     In Philadelphia Indemnity Ins. Co. v. Chicago Title Ins. Co., USDC, N.D. Ill. Case No. 09 C 7063 (June 10, 2012), an insurer challenged an insured’s billings because they were not reasonable and did not comply with the insured’s internal billing guidelines. Both challenges were rebuffed.

     The district judge determined that neither argument prevailed under the circumstances before him.

     First, the insured was paying for defense efforts at a time when the insurer had contested the duty to defend, meaning that the insured had every incentive to keep defense costs reasonable. In this regard, the court followed parallel reasoning expressed in Taco Bell Corp. v. Continental Cas. Co., 388 F.3d 1069 (7th Cir. 2004)

     Second, the insured’s internal billings guidelines were not incorporated into the insurance policy such that they could not on hindsight basis be considered to drive a fee reasonableness determination by the court.

Private Attorney General/Insurance/Requests For Admissions: Insured Prevailing In Auto Insurer Action Properly Denied Fees Where No Large Class Of People Benefited And Plaintiff Failed To Allocate Fees Between Policy Benefit Work/Work Incurred In Proving

 

Lack of Allocation Was Fatal for Brandt and RFA Issues.

     Insured prevailed in a suit against auto insurer for making repairs rather than declaring the car a total loss. However, insured was denied requested fees of $500,000 ($250,000 plus a 2 multiplier) even though claiming them under one of three theories: (1) California’s private attorney general statute (CCP § 1021.5); (2) recouping policy benefits under Brandt v. Superior Court, 37 Cal.3d 813, 817 (1985); and (3) fees incurred to prove up facts that were denied by insurer in requests for admissions (CCP § 2033.420).

     The fee denial was affirmed in Benning v. Wawanesa Gen. Ins. Co., Case No. D058442 (4th Dist., Div. 1 Apr. 26, 2012) (unpublished).

     The first ground--CCP § 1021.5--was not satisfied because the insured’s win did not benefit a large class of people or the general public.

     The second ground--Brandt policy benefit fees--failed because insured sought compensation for all work, not making an allocation which was insured’s burden under Cassim, a post-Brandt case clarifying contingency fee recovery in these situations. (The Rutter Group treatise recommends to practitioners that an accounting allocation is necessary to separate true Brandt fees from nonrecoverable bad faith/tort fee work.)

     The third ground--CCP § 2033.420--did not justify fees, again, because of insured’s failure to allocate fees only to the work needed to prove up facts at trial from denied RFAs. Again, the lack of allocation was fatal because the fee request did ask for reimbursement for time occurring well before the RFAs were denied.

     If there is a practice tip emanating from this decision, it is that winning plaintiffs need to allocate time to recoverable tasks when claiming fees under Brandt or the RFA costs-shifting provision.

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.