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Category: Coverage of Fees / Duty to Defend

Attorney Fees Sought for Insured Deemed Unreasonable

November 20, 2018

A recent Legal Intelligencer story by Steven Meyerowitz, “$55K in Fees for Insured’s Breach-of-Contract Case Against Insurer Was Not ‘Reasonable Fee’,” reports that an insured seeking no more than $20,000 in medical benefits from her auto insurer could not reasonably pay $55,000 in attorney fees, a magistrate judge in Pennsylvania has opined.

Sandra Benko sued Allstate Insurance Co. for breach of contract by filing a complaint in a Pennsylvania state court.  Allstate removed the case to the U.S. District Court for the Western District of Pennsylvania, predicating subject matter jurisdiction on diversity of citizenship.  In its notice of removal, Allstate pleaded a “good faith belief” that the amount in controversy exceeded the $75,000 limit of 28 U.S.C. 1332(a).

The court ordered Allstate to show cause as to why the case should not be remanded due to lack of federal jurisdiction.  Allstate responded that Benko’s claims for “medical bills, interest at 12 percent, costs of suit and attorney’s fees,” were sufficient to support its contention that the case had been properly removed.

The court, in an opinion by a magistrate judge, recommended that the matter be remanded to state court.  The court explained that the amount in controversy generally is decided from the face of the complaint itself.  The amount in controversy is “not measured by the low end of an open-ended claim, but rather by a reasonable reading of the value of the rights being litigated,” the court added.  It then stated that it was “clear” that the amount in controversy had to be calculated “exclusive of interests and costs” under 28 U.S.C. 1332(a).  The court added that, with respect to Benko’s medical bills, Allstate’s insurance policy limited recovery for medical expenses to $10,000.  The court observed that even if the applicable coverage were “stacked,” $20,000 fell “woefully short of the jurisdictional limit.”

Finally, the court considered whether the $55,000 deficiency could be made up in attorney fees.  It pointed out that, in Suber v. Chrysler, the U.S. Court of Appeals for the Third Circuit instructed that “attorney’s fees are necessarily part of the amount in controversy if such fees are available to successful plaintiffs under the statutory cause of action.”

Under Pennsylvania law, 75 Pa.C.S. 1798(b), the court continued, in the event an insurer was found to have acted with no reasonable foundation in refusing to pay motor vehicle liability insurance first-party benefits when due, “the insurer shall pay, in addition to the benefits owed and the interest thereon, a reasonable attorney fee based upon actual time expended.”

“Put simply,” the court then stated, $55,000 did “not appear to be a reasonable fee in a simple breach of contract case such as this, particularly where [Benko had] not asserted a bad faith claim.”  Concluding that Allstate had not met its burden of establishing that the applicable policy coverage plus reasonable attorney fees met or exceeded the jurisdictional requirement of $75,000, the court recommended that the case be remanded to state court.

The case is Benko v. Allstate Insurance.

Article: Challenge Calif. Insurer Limits on Independent Counsel Rates

November 12, 2018

A recent Law 360 article by Susan P. White, “Challenge Calif. Insurer Limits on Independent Counsel Rates,” reports on hourly rates and independent counsel in insurance coverage litigation in California.  Susan P. White is a partner at Manatt Phelps & Phillips LLP in Los Angeles.  This article was posted with permission.  The article reads:

When a liability insurer agrees to defend its insured after the insured has been sued, this is often cause for celebration, as the insured believes its defense will be paid.  The insurer may reserve its rights to deny coverage, and advise that such reservation creates a “conflict of interest” entitling the insured to “independent” counsel.  Thus, instead of the insurer selecting the insured’s defense counsel, which is common under a duty to defend policy, the insured gets to choose its own counsel.  Still reason to celebrate, right?  But, as you may suspect, this selection right comes with a catch.  The insurer advises that while the insured can choose its own counsel, the insurer only agrees to pay a very low hourly rate, maybe $225 or $250 per hour (it varies, sometimes dramatically so), which is much less than what is being charged by the insured’s independent counsel.  If the litigation against the insured is significant, the delta between the rate the insurer agrees to pay and counsel’s actual rate can add up to millions of dollars.

An insurer claims it need only pay these low hourly rates pursuant to the requirements set forth in California Civil Code section 2860(c), which governs the financial relationship between an insurer and an insured’s independent counsel. Section 2860(c) states:

The insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.

While section 2860(c) allows an insurer to only pay independent counsel the same rates it pays to other lawyers to defend similar actions in the same locale, an insured should not simply accept the insurer’s say so on this.  There are several ways to both challenge an insurer’s unilaterally imposed rates.  This article addresses a few such ways.

First, an insured should demand that the insurer produce detailed information about the counsel to whom it is paying these low rates.  An insurer often imposes “panel counsel rates” in these situations, which are rates that an insurer pays to certain law firms that have special agreements with the insurer, often in writing.  In these agreements, the panel counsel often agree to charge the insurer reduced hourly rates, regardless of the type of case, or location of the litigation, typically in exchange for the anticipation of a large volume of work from the insurer.  Under such a situation, an insured can argue that there is no “similarity” of actions as mandated by the statute.  Instead, the panel counsel’s rates are unaffected by the complexity, sophistication, nature of the allegations, legal claims, factual circumstances, location or any other factors of the cases in which they are appointed.  Thus, such rates provide no support under the § 2860 requirements.

Second, an insured should demand that the insurer provide detailed information about the specific cases that the insurer is touting as “similar actions in the community where the claim arose or is being defended,” to support the low hourly rates imposed.  With this information, an insured can ascertain whether such cases are, in fact, “similar” or not.  For example, are these purported “similar” actions less complex than the lawsuit against the insured? Do they involve different legal and/or factual issues?  What about the amounts in controversy — are they dramatically less and thus, the exposure potentials are not even comparable?  Also, where are these other actions pending?  Are they in different communities?  The more an insured can demonstrate dissimilarities the better to demonstrate that the insurer cannot support the hourly rate it seeks to impose pursuant to § 2860.

Third, if the parties cannot informally agree on an acceptable hourly rate for independent counsel, either party can seek to resolve the dispute through final and binding arbitration pursuant to § 2860.  And, in any arbitration, if the arbitrator determines that insurer’s evidence does not satisfy the § 2860 requirements, the insured should argue that a “reasonableness” standard should be applied to determine the appropriate rate for the insured’s independent counsel (with evidence to support that independent counsel’s actual rates are “reasonable”).  Indeed, a “reasonableness” standard is a ubiquitous standard for attorneys’ fees in insurance litigation and other contexts.

An insured need not simply accept its insurer’s word when it imposes inappropriately low hourly rates on an insured’s independent counsel.  Instead, an insured should challenge such rates, when appropriate, either informally or in arbitration.

Susan P. White is a partner at Manatt Phelps & Phillips LLP in Los Angeles.  Susan resolves complex insurance coverage disputes through litigation, arbitration and mediation.  These include bad faith claims, as well as other commercial and contract matters.  She has also successfully recovered millions in attorneys’ fees and costs for her insured clients.

Insurer on Hook for Failing to Pay $4M in Legal Fees in Email Scanning Case

October 19, 2018

A recent Corporate Counsel story by Ian Lopez, “Insurer on Hook for Failing to Foot Yahoo’s $4M Outside Counsel Bill in Email Scanning Case,” reports that a federal judge in California has ruled that Yahoo’s insurer failed to defend and indemnify the company by refusing to foot $4 million in outside counsel fees from litigation over the tech company’s practice of scanning user emails for advertising purposes. 

In an order on motions for summary judgment, U.S. District Judge Edward Davila of the Northern District of California wrote Yahoo was “largely correct” in assuming legal fees incurred in a consolidated 2016 class action were covered under a “personal injury” policy purchased from National Union.  The insurer had argued Yahoo’s costs didn’t fit within the policy’s definition of a personal injury as damages accrued via the “oral or written publication … of material that violates a person’s right to privacy,” a view that Davila said is “incorrect.”

Settled in 2016, the consolidated case is one of three over which the liabilities under Yahoo’s National Union policies were in debate.  The other two, class actions undertaken in Marin County Superior Court and San Jose District Court in 2012, accused Yahoo of having “wiretapped … or eavesdropped upon and recorded” emails between class members, all Yahoo account holders, and other users of the company’s email services.  These actions, plaintiffs alleged, were invasions of the California Invasion of Privacy Act.

“The key finding was that [Yahoo was] not only scanning these emails, but they were sharing that private information with others for profit so that their privacy was not only violated, but it was considered personal injury because it was published to a third party,” said Joshua Bevitz, a Newmeyer & Dillion partner not affiliated with the case.

Yet Davila granted National Union’s motions that it didn’t breach the duty to indemnify in costs associated with the earlier two class actions, given the suits ended in voluntary dismissals and without any evidence of resulting payments from Yahoo.  Davila wrote that because Yahoo was never “legally obligated” to pay damages under the two earlier lawsuits, National Union couldn’t have breached its duty to indemnify under the personal injury policy.  So why bother pursuing the matter in later litigation?  Especially because, as Bevitz puts it, “someone spent a lot of money on attorney fees to get [litigation] to this point.”

Eleventh Circuit: Insurer Owes $1.2M in Attorney Fees in Coverage Matter

September 11, 2018

A recent Law 360 story by Anne Cullen, “Insurer Owes $1.2M Atty Fees in Construction Suit: 11th Circ,” reports that the Eleventh Circuit affirmed that Houston Specialty Insurance Co. will have to shell out $1.2 million in attorneys' fees to a construction firm and two of its employees after the insurer lost its coverage suit at trial over a contractor's injury.  The three-judge panel rejected the insurer’s argument that the district court shouldn't have awarded fees to All Florida Weatherproofing & Construction, the company's president and a sales representative while a separate suit Houston brought against the three was ongoing.

In its second suit, Houston claims the construction company and its employees forfeited their coverage when they rejected the insurer's defense in the underlying case, which was brought by a contractor who said he was paralyzed after falling through the roof of a mobile home that an All Florida sales representative had allegedly failed to inspect.  The ruling found that the outcome of the insurer's forfeiture suit doesn't matter.  The panel said that because the firm and its employees won the suit over coverage, which was affirmed on appeal, they are entitled to fees.

"Even if Houston Specialty ultimately wins in the forfeiture case, it would not negate the defendants' attorney's entitlement to fees for prosecuting and prevailing in the coverage case," the unpublished opinion said.  The panel also was not persuaded by the insurer's assertion that the lower court erred when it doubled the fees awarded to the attorneys representing All Florida — bringing the $565,000 award up to $1.13 million.  The appeals court found the construction company's poor financial condition and its low chance of winning the case meant it couldn't have secured competent defense in Houston's suit unless there was a possibility of a multiplier.

Houston appealed the fee award in June, a few months after the Eleventh Circuit upheld an earlier decision in the case backing a jury's finding that Houston had a duty to defend and indemnify All Florida and the two employees from the underlying action.  Houston's forfeiture suit is pending before a separate Eleventh Circuit panel, after the insurer appealed a district court ruling in late 2017 in favor of the All Florida defendants.

The case is Houston Specialty Insurance Co. v. Enoch Vaughn et al., case number 18-10635, in the U.S. Court of Appeals for the Eleventh Circuit.

Appeals Court Upholds Multiplier in Insurance Coverage Fee Award

August 24, 2018

A recent Law 360 story by Nathan Hale, “Fla. Insurer Loses Appeal of Multiplier of Atty Fees Award,” reports that a Florida appeals court rejected Citizens Property Insurance’s appeal of an order applying a multiplier to an attorneys' fees award for a homeowner who obtained a favorable settlement in a coverage dispute, finding the insurer's argument relied on a decision recently rejected by the Florida Supreme Court.  The Third District Court of Appeal concluded that the trial judge had not abused his discretion in applying a 2.0 contingency fee multiplier, which resulted in a fee award of $120,250 for homeowner Agosta Laguerre.

Citizens Property Insurance Co., which is Florida's insurer of last resort, did not dispute that state law entitled Laguerre to collect attorneys' fees after they settled the underlying suit, in which she contested an $8,400.77 coverage payment she argued significantly undervalued her December 2005 claim for wind damage caused by Hurricane Wilma.  Citizens argued against the multiplier based on the Third District's 2015 decision in State Farm Ins. Co. v. Alvarez, which held that courts can apply contingency fee multipliers “only in 'rare' and 'exceptional' circumstances,” according to the opinion.

The appeals panel pointed out, however, that it had held the Laguerre case in abeyance after hearing oral arguments to await the Florida Supreme Court's ruling in Joyce v. Federated National Insurance Co., an appeal of a decision by the Fifth District that had relied on the Alvarez decision.  In its ruling last year, the Florida Supreme Court rejected the idea that contingency fee multipliers are appropriate only in rare and exceptional circumstances, disapproving of that element of the Alvarez decision, the opinion said.

The Third District quoted the high court's statement that “the contingency fee multiplier provides trial courts with the flexibility to ensure that lawyers, who take a difficult case on a contingency fee basis, are adequately compensated.  Citizens had argued that Laguerre's request did not meet the “rare” and “exceptional” requirement because there was no evidence presented at the fee hearing that Laguerre had difficulty finding an attorney who would take her case, that the results she obtained were not enough to warrant a multiplier, and that a multiplier cannot be based on the complexity of the case, the Third District recounted.

The appeals panel found that while the testimony provided by Laguerre's expert fee witness was thin, Citizens' decision not to cross-examine him about the application of a multiplier and its failure to present evidence that there were competent attorneys who would have taken the case without a multiplier meant the trial judge had not abused his discretion in reaching the conclusion that the relevant market required a fee multiplier.  “Although we find that the testimony supporting the trial court’s conclusion was minimal, a trial court generally may rely on 'expert testimony that a party would have difficulty securing counsel without the opportunity for a multiplier' in support of the imposition of the multiplier,” the panel said.

The panel also rejected Citizens' argument that the “relatively small recovery” did not justify a multiplier, pointing to the difference between a $2,000 offer the insurer made and the appraisal umpire's ultimate award of $27,367.63 minus the money already paid to Laguerre.  Finally, the Third District said the Florida Supreme Court made clear in the Joyce decision that it was not wrong for the trial court to consider the complexity and difficulty of a case in weighing application of a multiplier.

“Turning to whether the complexity of the instant case warrants a contingency fee multiplier, we again note that a contingency fee multiplier analysis 'is properly analyzed through the same lens as the attorney when making the decision to take the case,'” the panel said.  “For this reason, the fact, in hindsight, that this case ultimately consisted of two summary judgment proceedings and minimal discovery and did not proceed to trial is not determinative on this issue.”

The case is Citizens Property Insurance Co. v. Laguerre, case number 3D15-2411, in the Third District Court of Appeal of Florida.