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Category: Coverage of Fees / Duty to Defend

Federal Judges Question Attorney Fee Formula in Florida Coverage Cases

December 12, 2019

A recent Daily Business Review story by Steven Meyerowitz, “Florida Split: Should Attorney Fees Count Toward Federal Amount in Controversy?,” reports that a decision by a Miami federal judge highlights a split among Florida district courts on whether to include statutory attorney fees when calculating whether an insurance coverage case removed from state court meets the federal minimum for the amount in controversy.

On Sept. 10, 2017, Hurricane Irma struck South Florida and damaged the home owned by Jaclyn and Xavier Caceres. The Cacereses submitted a claim to their insurer, Scottsdale Insurance Co.  Scottsdale assigned a claim number and issued the Cacereses a check for $10,975, reflecting a wind deductible in the amount of $5,854.

In May 2019, after renewing their policy, the Cacereses submitted a separate claim for property damage due to heavy rain and roof collapse. Scottsdale assigned a claim number and issued the Cacereses a check for $7,975.  On June 22, 2019, the Cacereses presented Scottsdale with a repair estimate for $91,863 that covered the estimated damages for both claims.

On Sept. 5, 2019, the Cacereses sued Scottsdale in state court. Their complaint alleged they were seeking damages in excess of $15,000, and they sought to recover attorney fees and costs under Florida Statutes Section 627.428.  Scottsdale removed the state court action to federal court, indicating among other things that the amount in controversy was $75,034 based on the $91,863 repair estimate minus the $10,975 check paid and the wind deductible.

The Cacereses moved to remand, arguing the amount in controversy did not exceed $75,000.  Specifically, they contended Scottsdale could not use a pre-suit damage estimate as a basis for establishing the amount in controversy and, even using the pre-suit damage estimate, Scottsdale failed to account for the second check to the Cacereses, which decreased the amount in controversy from $75,034 to $67,059.

For its part, Scottsdale countered the amount in controversy requirement was satisfied because the Cacereses sought to recover attorney fees and costs, which through trial could easily exceed the remaining $7,941 needed to establish the amount in controversy under the Cacereses’ interpretation.  U.S. District Judge Beth Bloom granted the Cacereses’ motion to remand.  In her decision, she ruled  district courts may consider pre-suit demands in evaluating whether a case has been properly removed.

The district court then observed the Cacereses’ total estimate of damages for the claims from both the Sept. 10, 2017 loss and the May 13, 2019 loss amounted to $91,863, Scottsdale issued two checks to the Cacereses for the losses, and the wind deductible of $5,853.68 was applied to the 2017 claim.  The district court said it was “clear” the amount in controversy was $67,059.

Bloom next considered whether the Cacereses’ bid for attorney fees counted toward the amount in controversy.  She noted the issue has caused a split in district courts within the U.S. Court of Appeals for the Eleventh Circuit, citing a 2017 Middle District of Florida decision discussing the divide and a 2010 Southern District of Florida case discussing the “conflicting case law” on whether the amount of  should be calculated on the date of removal or through the end of the case.

The district court then ruled the amount in controversy did “not include highly speculative, prospective amounts” of attorney fees but rather only those fees accrued at the time of removal.  According to the district court, this ruling was in line with a 1994 Eleventh Circuit precedent establishing “jurisdictional facts are assessed on the basis of plaintiff’s complaint as of the time of removal.”

The district court noted Scottsdale provided no evidence to establish the Cacereses accrued $7,941 in attorney fees by the removal.  Accordingly, the district court concluded Scottsdale had not satisfied its burden of establishing the amount in controversy exceeded $75,000.

AIG Unit Can’t Repeal Attorney Fees in Yahoo Jury Win

November 25, 2019

A recent Law 360 story by Dave Simpson, “AIG Unit Can’t Overturn Atty Fees in Yahoo Jury Win,” reports that Yahoo Inc. presented enough evidence to back a jury finding that it can recover the $618,000 in attorney fees it spent trying to establish that an AIG subsidiary breached its policy by failing to cover its losses in underlying privacy class actions, a California federal judge said.

U.S. District Judge Edward J. Davila nixed AIG unit National Union Fire Insurance Co. of Pittsburgh, Pa.’s bid to deny Yahoo's attorney fees award or grant a new trial, finding that the federal jury had been presented with “substantial evidence” when it decided in May that the unit acted in bad faith by failing to cover Yahoo’s costs to defend the consolidated class action, which accused it of unlawfully scanning customers' emails.  Judge Davila also said that the AIG unit waited too long to claim that the attorney fees stemming from the breach of contract suit were too high or unnecessary.

“At trial, National Union chose not to cross-examine [Yahoo’s counsel] about the reasonableness or accuracy of the figures…” he said.  “National Union did not challenge any invoice entries as unwarranted or excessive.  National Union cannot now contend for the first time that Yahoo is entitled to only $9,500.”

In October 2018, Judge Davila found that the insurer largely failed to defend and indemnify Yahoo for $4 million in attorneys' fees from multiple class actions accusing it of scanning customers' emails, but said it was up to a jury to decide whether the insurer's failures to come to Yahoo's aid were coverage errors or evidence of bad faith.  In May, following a five-day trial, the jury said the tech giant  was entitled to attorney fees stemming from the breach suit but rejected Yahoo’s request for a bad faith award equal to the full $7 million it spent defending and settling the underlying action.  It also spurned the company’s bid for punitive damages after concluding that National Union didn’t act with “malice, oppression, or fraud.”

In July, National Union argued that Yahoo presented no evidence to support a finding that it had acted in bad faith.  And because Yahoo failed to prove National Union withheld policy benefits in bad faith, it cannot recover any fees, it said.  “Finally, even if the court believes the record supports an award of … fees in some amount, the jury’s $618,000 award is plainly excessive,” National Union said in July.

That award includes fees for services unrelated to the case, such as “communications with excess carriers,” “fees incurred to establish bad faith” — which are not recoverable — and “fees for ‘mixed’ services that require allocation,” National Union said.  The insurer asked the court to deny the fees as a matter of law or grant a new trial limited to the issue of fees.  Judge Davila declined, noted that the jury saw enough evidence to determine bad faith and also that Yahoo presented enough evidence to support the fee award.

Insurer: Attorney Fees Aren’t Covered in School’s Trademark Case

November 11, 2019

A recent Law 360 story by Jack Queen, “Insurer Says NJ School’s $147K McCarter Fee Isn’t Covered,” reports that an insurer told a New Jersey state court it shouldn’t be on the hook for most of a $147,000 McCarter & English bill because the special-needs school it covers left the insurer in the dark when it hired the powerhouse firm to defend it in a routine trademark dispute.

Philadelphia Indemnity Insurance Co., or PIIC, told the court that The Lewis School of Princeton waited months to tell the insurer it was being sued by a competitor over a trademarked slogan and neglected to tell PIIC when it retained one of the state’s priciest law firms to fend off the routine dispute, which was settled in a few months without damages.

The fight over who will pay the bill has been more protracted, stretching back to The Lewis School’s April lawsuit drawing a clutch of law firms and PIIC into the scrum over who should pay.  PIIC said it had already met its obligations under the policy by paying $13,500 for fees The Lewis School racked up in the weeks after the insurer had been noticed, arguing that this was all the school was entitled to under the terms of the policy and New Jersey law.  The insurer said it would have defended the trademark suit at lower cost if it had been informed of it before the school retained McCarter.

The fees are at the heart of the school’s legal malpractice claim against McCarter, which it said charged an unreasonably high $147,189 fee for defending it in a lawsuit brought by the Cambridge School and negligently failed to give timely notice of the suit to PIIC.

McCarter countered that the engagement letter it signed with the school explicitly stated the firm would not advise on insurance-related matters.  The firm claimed another Lewis School attorney, Patricia Lawrence-Kolaras, had been responsible for noticing PIIC but dropped the ball, bringing her into the suit as a third-party defendant.  Lawrence-Kolaras denied that claim, submitting a certification from The Lewis School’s founder and director indicating the school never expected her to advise on insurance matters.

The Lewis School told the court earlier this month that PIIC couldn’t avoid paying the full tab by citing the timely notice provision in the school’s policy, arguing that the late notice was immaterial to the insurer’s ability to defend the case, which was resolved without litigation anyway.

PIIC said this argument was irrelevant because the insurer wasn’t entitled to pay pre-notice costs under the terms of the policy, regardless of the impact of the late notice.  The insurer said the arguments advanced by the school would only apply if PIIC had denied coverage outright, which the insurer said is not the case.

“PIIC has never asserted that The Lewis [School] forfeited coverage under the PIIC policy,” the insurer said.  “This is a red herring designed to create confusion.  The fact that PIIC never denied coverage or asserted forfeiture of the policy is underscored by the fact that PIIC has already paid the Lewis [School] for its reasonable, pre-tender defense costs.”

Insurers Want REIT Attorney Fees Resolved in Arbitration

October 30, 2019

A recent Law 360 story by Joyce Hanson, “Insurers Say REIT’s Atty Fees Must Be Resolved in Arbitration,” reports that Lloyd's of London underwriters and other insurers have asked a Florida federal court to deny a real estate investment trust's bid for attorney fees after closing out the REIT's lawsuit over a $20.6 million insurance claim, saying an arbitration panel should decide fees.

The underwriters and insurers said that The Cornfeld Group LLC wrongly asserts that the question of attorney fees must be decided by the court and not by the arbitration tribunal that has reviewed all coverage and loss issues between the parties in the REIT's suit seeking coverage for five properties damaged during Hurricane Irma.  They pointed to The Cornfeld Group's insurance policy in making their argument, saying the parties signed off on an agreement that all matters related to the policy would be referred to an arbitration tribunal.

"This court previously found that this agreement constituted a valid delegation clause, representing the parties' clear and unmistakable intent to allow issue of arbitrability to be decided by the arbitration tribunal," the underwriters and insurers said.  "Indeed, the court specifically ruled that the arbitration tribunal shall review all issues between the parties and held that the arbitration tribunal will have the power to issue any orders on any matter."

The Cornfeld Group on Oct. 15 asked for $39,108.50 in total fees, calculating that Stephen A. Marino Jr. of Ver Ploeg & Marino PA was due $23,820 for 39.7 hours of work at an hourly rate of $600, while his colleague, S. Alice Weeks, was due $13,200 for 44 hours at an hourly rate of $300.  In addition, The Cornfeld Group sought $2,088.50 for about eight hours of paralegal work.

According to the January complaint, The Cornfeld Group submitted proof of loss to support its estimate of approximately $20.6 million in damages caused by the 2017 hurricane at five properties.  However, the insurers only paid out $1.25 million in coverage under the commercial property insurance policy — which ran from March 22, 2017, through March 22, 2018 — and indicated there were coverage issues, although they had yet to specify what they are, according to case records.

The five South Florida properties covered collectively by the insurer defendants were: Margate Commerce Center-Lakeview Warehouse and Banks Road Commerce Center, both in Margate, Newport Beachside Resort in Sunny Isles Beach, Peary Court Units 101-149 in Key West and Stock Island Business Center on Stock Island near Key West.  On March 15, the insurers said they agreed with the REIT that the suit should be arbitrated, but they claimed they do not owe coverage under the policy.

U.S. District Judge William P. Dimitrouleas appointed Cornfeld's nominee to serve as the third member of an arbitration panel and break an impasse over the REIT's $20.6 million claim for insurance coverage for hurricane property damage.  In selecting Florida-based independent umpire, appraiser and adjuster Paul E. Middleton to join the arbitration panel, Judge Dimitrouleas said he chose the Cornfeld candidate over the professionals suggested by the insurers, because Middleton's "experience and qualifications appear to meet the requirements of the policy's language and spirit, as well as the interests set forth by the parties."

The Cornfeld Group moved on July 22 for entry of final judgment, and Judge Dimitrouleas on Aug. 16 signed an order partly granting the REIT's motion.  The motion asked for an award of attorney fees and costs, but Judge Dimitrouleas said any request for attorney fees and costs would have to be filed in compliance with local rules and referred to a magistrate judge.  The insurers reiterated in opposing Cornfeld's fees motion that they don't believe they owe coverage under the policy, and they also asserted that "there is simply no basis" for the fee claim.

Cornfeld can't sue in Florida, because the policy calls for New York law to apply, and the REIT is falsely attempting to establish itself as the "prevailing party" in the Florida suit, the insurers said.  They also questioned Marino's proposed $600 hourly rate, calling it "excessive."

Article: Paying for Claimants’ Attorney Fess is the Exception to the Rule in DC

October 11, 2019

A recent Lexology article by Meredith L. Pendergrass of Goldberg Segalla LLP, “Paying for Claimants’ Attorney Fees is the Exception to the Rule in D.C.,” reports on a recent appellate decision on attorney fee entitlement and recovery in workers’ compensation claims before the federal circuit.  The article was posted with permission.  The article reads:

The D.C. Court of Appeals was recently presented with the opportunity to weigh in on the prerequisites for ordering employers and insurers to pay for claimants’ litigation fees and costs in workers’ compensation claims.  In the case of Kelly v. D.C. Dep’t of Employment Servs., No. 18-AA-13, 2019 WL 4073672 (D.C. Aug. 29, 2019), the court refused to require the employer and insurer to bear the cost of the claimant’s attorney fees.

In Washington, D.C., there are only two limited circumstances where the employer and insurer will pay attorney fees for the claimant. D.C. Code Section 32-1530 (a) provides the ability for the claimant to seek payment of his attorney fees if employer and insurer do not pay any compensation within 30 days for the claim being filed and the claimant uses the services of an attorney to subsequently obtain benefits.

D.C. Code Section 32-1530 (b) further provides that attorney fees may be awarded against the employer and insurer in a specific set of circumstances.  This subsection requires the employer and insurer to have initially paid compensation in the claim and then a controversy arises as to the amount of further benefits due.  In order to be held to pay the claimant’s attorney’s fee in this situation, the employer and insurer have to reject a recommendation by the Mayor regarding resolution of the amount in controversy, and the claimant needs to then utilize the services of the attorney to obtain a greater amount than the employer and insurer offered to pay.  The attorney fee awarded would only apply to the difference in the amount the employer and insurer offered to pay and the amount ultimately obtained through litigation.

The only way to obtain a recommendation from the Mayor is to attend an Informal Conference and have a claims examiner issue a Memorandum of Informal Conference.  In the Kelly case, the claimant’s attorney applied for an Informal Conference to resolve a dispute regarding permanency benefits, but the employer and insurer applied for a Formal Hearing before the Informal Conference occurred.  The D.C. Court of Appeals found that since the employer and insurer did not reject a recommendation from the Mayor as subsection (b) requires, then attorney fees could not be awarded against them.  The D.C. Court of Appeals held that it was irrelevant that the employer and insurer made it impossible for the claimant to participate in the Informal Conference by applying for the Formal Hearing.  The court cited to the American Rule for litigation, which generally requires each party to bear the burden of their own litigation costs, as well as the specificity in which the act outlines the exceptions to this rule in coming to their decision.  With the Kelly case clarifying this issue, we will likely see fewer Informal Conferences going forward when it comes to litigating additional benefits owed in a claim as a way to limit overall exposure.

Meredith L. Pendergrass is an Associate at Goldberg Segalla LLP in Baltimore.  She focuses her practice on defending employers, insurance carriers, and third-party administrators in workers’ compensation matters throughout Maryland and the District of Columbia.  She regularly appears in both Maryland and the District of Columbia at agency-level proceedings all the way through each jurisdiction’s highest court system on appeals.