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Category: Coverage of Fees / Duty to Defend

Minnesota Supreme Court Rules Attorney Fees are Capped by Policy Limit

November 14, 2017

A recent Claims Journal article by Steven Plitt, “Minnesota Supreme Court Rules that Statutory Attorney’s Fees are Capped by the Policy Limit,” writes about the recent Minnesota Supreme Court decision in Wilbur v. State Farm Mutual Automobile Insurance Co.  This article was posted with permission.  The article reads:

The question of whether attorney’s fees awarded under Minnesota’s insurance unreasonable denial statute could exceed the policy limits of the policy was recently addressed by the Minnesota Supreme Court in Wilbur v. State Farm Mutual Automobile Insurance Co., 892 NW2d 521 (2017).  Under Minnesota statute, Minn. Stat. §604.18 (2016) courts were authorized to award “taxable costs” when an insurance company denies insurance benefits without a reasonable basis.  The issue of whether the taxable cost award was kept by the insurance policy limit recently came before the Minnesota Supreme Court.  The court in Wilbur concluded that §604.18 unambiguously capped “proceeds awarded” at the amount recoverable under the insurance policy and were therefore capped by the policy limit.

The issue turned on whether the phrase “proceeds awarded” referenced in §604.18 referred to an amount capped by the insurance policy limit or not.  The insured claimant argued that no policy limit cap was contemplated by the statute.  The court began its analysis of §604.18 by noting that the statute provided a remedy for an insured when an insurer denied a first party claim without a reasonable basis.  Under the statute, courts in Minnesota were authorized to award taxable costs to an insured who could demonstrate that there was an absence of a reasonable basis for denying the benefits together with proof that the insured knew of the lack of a reasonable basis or active and reckless disregard.  If the insured was able to establish that proof, the court was authorized to award under the statute as taxable costs an amount equal to one-half of the proceeds awarded on coverage that were in excess of the amount offered by the insurer at least ten days before the trial began or $250,000, whichever was less.  For three reasons, the Minnesota Supreme Court held that §604.18 referred to an amount that was capped by the insurance policy limit.

First, the court noted that the statute’s use of the word “proceeds” to refer to insurance policies in two other subdivisions of the statute demonstrated that the phrase “proceeds awarded” was constrained by the defined limits of the insurance policy.  Second, the court noted that subdivision 3(a)(1) of the statute contemplated a capped settlement offer, which indicated to the court that the phrase “proceeds awarded” was capped by the insurance policy limit.  The connection between the phrase “proceeds awarded” and the “amount offered by an insurer” before trial was telling to the court.  Insurance companies’ settlement offers before trial were almost always capped by the insurance policy’s limit according to the observation of the Minnesota Supreme Court.

Third, the court found that the timing of the §604.18 proceeding suggested to the court that the phrase “proceeds awarded” were capped by the insurance policy limit.  Under the statute, subdivision 4(b) states “an award of taxable costs under this section shall be determined by the court in a proceeding subsequent to any determination by a factfinder of the amount an insured is entitled to under the insurance policy . . .” Minn. Stat. §604.18, subdivision 4(b).  Thus, proceeds could be awarded under §604.18 only “subsequent to” a jury’s determination of the benefits to be paid “under the insurance policy.”  The benefits paid under the insurance policy were capped by the insurance policy’s limits.  This provided a link in establishing that “taxable costs” awarded under §604.18 could not exceed the policy’s limit.

Mr Plitt is the current author of Couch On Insurance 3d and is a nationally recognized insurance expert.  See www.insuranceexpertplitt.com for more information.

Florida Supreme Court Rules on Fee Issue in Insurance Coverage Litigation

October 24, 2017

A recent FC&S Legal article by Steven Meyerowitz, “The Florida Supreme Court Just Made It Easier for Insureds’ Attorneys to get Big Fee Awards,” reports on a recent decision by the Florida Supreme Court in Joyce v. Federated National Ins. Co.  The article reads:

The Florida Supreme Court, in an insurance coverage dispute, has rejected appellate court rulings that trial courts may apply a contingency fee multiplier to an award of legal fees to a prevailing party only in “rare” and “exceptional” circumstances.

The Case

William and Judith Joyce, an elderly retired couple, filed a claim for insurance benefits with their homeowners’ insurance carrier, Federated National Insurance Company, following water damage to their home. Federated National denied coverage on the basis of alleged material misrepresentations made by the Joyces in the application process – namely, that the Joyces had failed to disclose certain losses they had with their previous carrier.

The Joyces hired an attorney on a contingency fee basis and sued Federated National, alleging that the insurer had wrongfully denied their claim. After months of litigation, Federated National finally agreed to settle.  The parties stipulated that the Joyces were entitled to recover reasonable legal fees under Florida Statutes Section 627.428.

At the fee hearing, the trial court heard testimony from the Joyces’ attorney and fee expert and Federated National’s fee expert.  The trial court also examined certain evidence exhibits, including time records for the Joyces’ attorney and a copy of the contingency fee agreement.

After the hearing, the trial court awarded the Joyces $76,300 in attorneys’ fees, using a two-step process.  First, the court calculated the “lodestar” amount – the number of hours reasonably incurred by the Joyces’ attorney, multiplied by a reasonable hourly rate – as being $38,150, or 109 hours reasonably expended at a reasonable hourly rate of $350.  Second, the trial court applied a contingency fee multiplier of 2.0 to the lodestar amount.

Federated National appealed both the trial court’s calculation of the lodestar amount and its use of the contingency fee multiplier.  The appellate court affirmed the lodestar amount but reversed the trial court’s use of a contingency fee multiplier, concluding that the lodestar approach included a “strong presumption” that the lodestar represented the “reasonable fee.”

Florida Law

Section 627.428, Florida Statutes provides:

(1) Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.

The Florida Supreme Court’s Decision

The court quashed the appellate court’s decision.  First, the court reviewed its precedent regarding contingency fee multipliers and declared that it was “clear” that it had “never limited the use of contingency fee multipliers to only ‘rare’ and ‘exceptional’ circumstances.”

In fact, the court said, it had recognized “the importance of contingency fee multipliers to those in need of legal counsel” and it had made clear that trial courts “could consider contingency fee multipliers any time the requirements for a multiplier were met.”

In the court’s opinion, the contingency fee multiplier provided trial courts with the “flexibility” to ensure that lawyers who took a difficult case on a contingency fee basis were “adequately compensated.”The court rejected the argument that a contingency fee multiplier encouraged “nonmeritorious claims” and said, instead, that solely because a case was “difficult” or “complicated” did not mean that the case was nonmeritorious.  “Indeed, without the option of a contingency fee multiplier, those with difficult and complicated cases will likely be unable or find it difficult to obtain counsel willing to represent them,” the court said.

The court then disagreed that the possibility of receiving a contingency fee multiplier amounted to a “windfall.”  The court concluded that there was not a “rare” and “exceptional” circumstances requirement before a contingency fee multiplier could be applied.  It decided that the trial court’s findings, “which properly considered the complexity of these types of cases and this case in particular,” were not in error, and it ordered the appellate court to reinstate the reinstate the attorneys’ fees award.

Insurer’s Fee Request Challenged by Film Producer

September 8, 2017

A recent Law 360 story by Rick Archer, “Producer Fights Insurer’s $1.9M Fee Bid in Film Accident Row,” reports that the producer of an Allman Brothers biopic objected to a demand it pay $1.9 million in attorneys’ fees for its unsuccessful attempt to win more insurance coverage for a fatal filming accident, saying it had done nothing worthy of sanction.

Film Allman LLC denied accusations by New York Marine and General Insurance Co. Inc. that the producer’s suit seeking additional coverage for the 2014 accident had been filed in bad faith, saying it had good-faith arguments for all its claims it was owed more coverage than New York Marine provided and should not be expected to pay the insurer’s claimed legal fees.

“Film Allman has a good faith belief in each of its claims, and there is evidence to support them.  Moreover, even if New York Marine is unhappy about some of the results, there is absolutely no evidence that Film Allman did anything for an improper purpose such as harass New York Marine or to cause undue delay or cost,” it said.

An Occupational Safety and Health Administration investigation showed Film Allman didn’t warn crew members working on the film “Midnight Rider” in February 2014 that they were filming on live train tracks or that CSX had denied a filming permit for the tracks prior to an accident on the first day of shooting that killed 27-year-old Sarah Jones and seriously injured several other workers.

In March 2015, the film’s director, assistant director and executive producer, respectively, pled guilty to, was found guilty of and entered an Alford plea to charges of involuntary manslaughter and criminal trespass.  A defendant entering an Alford plea acknowledges that the prosecution has the evidence necessary to prove guilt beyond a reasonable doubt, but nevertheless maintains that he is innocent.  New York Marine provided a defense to Film Allman, paid $5 million of a $6.5 million settlement to Jones' family, and then bowed out because policy limits were exhausted.

Film Allman filed suit against New York Marine in September 2014.  In May U.S. District Judge Otis Wright II ruled New York Marine was entitled to bow out under the terms of the commercial general policy, despite the fact that there are other suits remaining.  In December he had found coverage under a separate motion picture producers policy was barred by a criminal acts exclusion.  In August, New York Marine moved for more than $1.9 million in attorneys’ fees, claiming that as there was no dispute of either the criminal convictions or the policy limits, Film Allman had brought the suit in bad faith.

“As reflected by the record in this case, including in the court’s summary judgment rulings, Film Allman’s claims were fundamentally lacking any legal or evidentiary support and were, instead, based on assertions that it knew were false,” New York Marine said.

Film Allman, however, argued it did have good-faith arguments that Jones’ death did not trigger the exclusion because it had evidence there was genuine confusion over whether permission had been granted to film on the tracks and the death was not directly caused by an intentional criminal act.  It said it also had good-faith arguments that California insurance law required New York Marine to defend it from all of the suits arising from the accident, regardless of the policy limit.

“New York Marine asserts that if Film Allman had only accepted the fact that there was no coverage, it could have saved New York Marine all of its exorbitant litigation expenses.  But the same could be true of any policyholder seeking defense or coverage that an insurer denies,” it said.

The case is Film Allman LLC v. New York Marine and General Insurance Co. Inc., case number 2:14-cv-07069, in the U.S. District Court for the Central District of California.

Fifth Circuit: Defense Fees/Costs Can Count Against Insurance Policy Limits

April 7, 2017

A recent Law 360 story by Rick Archer, “Policy Limits Apply to Hospital System’s Defense Claims,” reports that the Fifth Circuit has ruled defense costs can count against insurance policy limits, leaving Mississippi-based hospital system Singing River Health Services is on the hook for some of the legal fees it paid defending itself from pension fraud claims.  The panel reversed a district court decision that SRHS’ defense costs did not erode its policy limit with Federal Insurance Co., finding it ignored the wording of the policy.

“Reading several clauses out of the policy, including ones that make clear that a non-eroding policy will cost extra, is inconsistent with the requirement to consider the language of the policy as a whole,” Judge Catharina Haynes, writing the opinion for the panel, said.

The suit stems from costs the hospital system incurred defending against federal class actions and two state suits accusing it of failing to make annual required contributions into a retirement fund.  The hospital settled the suits in January 2016 for $156 million.

Federal Insurance had argued a $1 million policy limit applied to the defense costs, while SRHS claimed Federal was obligated to pay the entire cost.  A district court agreed the limit did not apply to defense costs, but also found a number of SRHS’ claims were barred by a policy exclusion for losses resulting from employee benefits program laws.

The panel reversed the district court on the policy limits decision, saying the policy explicitly states defense costs erode the policy limit, and that SRHS specifically declined to purchase extra coverage for defense costs.  The panel also rejected claims state law requires the defense costs be covered and that the eroding coverage clause was invalid because it was not placed in SRHS’ board’s minutes.

“Mississippi law does not allow the courts to use rules of construction to defeat the parties’ own agreement as expressed in the policy, Judge Haynes said.  The panel upheld the district court hearing on the exclusion, rejecting SRHS’ claim that it did not apply because the plaintiffs made constitutional and common law claims with an argument that those laws also govern pension plans.

“Accordingly, they ‘govern’ employee benefit plans because the obligations they create control the pension plans.  Indeed, the plaintiffs in the SRHS lawsuits only bring claims under the identified common law and statutes because they create obligations with which pension plans must comply,” Judge Haynes said.

The case is Federal Insurance Company v. Singing River Health System, case number 15-60876 in the Federal Court of Appeals for the Fifth Circuit.

Attorney Fees Against Lloyd’s Underwriters Affirmed

March 31, 2017

A recent Business Insurance story by Judy Greenwald, “Bad Faith, Attorneys Fee Awards Against Lloyd’s Underwriters Affirmed,” reports that a California appeals court has upheld a $50,000 punitive damages award plus more than $1 million in attorneys fees (known as Brandt fees in California) against Lloyd’s of London underwriters in connection with its denial of coverage under a fire insurance policy because of a mistake in listing the insured.

In January 2011, the Saddleback property suffered a fire resulting in a $2,150,000 million loss, and Saddleback submitted a claim to Lloyd’s, which hired an attorney to investigate the loss.  In May 2011, the attorney sent a letter to Saddleback on behalf of Lloyd’s denying coverage “because Saddleback owned the property and J.K. Properties did not have an insurable interest in the damaged property,” according to the ruling.

J.K. Property and Saddleback filed suit against defendants including Lloyd’s in January 2012, charging breach of contract, professional negligence and bad faith.  An amended complaint added a reformation cause of action to add Saddleback as an additional insured on the policy at issue.  A reformation is a remedy available when an otherwise valid insurance policy does not reflect the parties’ true intentions.

At a bifurcated hearing in July 2014 in Santa Ana, the court determined Saddleback and Lloyd’s had intended Saddleback be named as the insured under the policy, and the court reformed the contract to list the named insured as “Saddleback Inn, LLC and JK Properties, Inc., dba Saddleback Inn.” Lloyd’s paid Saddleback $2,884,583, reflecting the $2,150,00 for the fire damage and $734,583 in interest.

During the second phase of the trial, a jury determined Lloyd’s had unreasonably denied payments and awarded Saddleback $50,000 in punitive damages, plus $1,062,117 in attorneys fees and expenses.  Lloyd’s appealed the punitive damages and attorneys fees awards, which a three-judge California Court of Appeals panel unanimously affirmed. 

“Underwriters argue there is no bad faith liability as matter of law when an insurer properly denied coverage under a policy as issued, even if a court later reforms the policy to provide coverage,” said the ruling.  However, said the court, “Ultimately, a claim for bad faith liability hinges on whether the insurer’s refusal to pay policy benefits was reasonable at the time.”

When Someone Else Pays the Legal Bills

March 7, 2017

A recent CEBblog article by Julie Brook, “When Someone Else Is Paying Your Fees,” writes about when a third party pays some of all of your legal fees in California.  This article was posted with...

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Insurer Fights Fee Discovery in Texas

February 22, 2017

A recent Law 360 story by Michelle Casady, “Texas High Court Told to Nix Attys’ Fee Discovery Ruling,” reports that National Lloyd's Insurance Co. urged the Texas Supreme Court to upend a lower...

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