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Category: Defense Fees / Costs

Insurer Fights $19M Fee Request in Coverage Action

June 14, 2019

A recent Law 360 story by Ryan Boysen, “Insurer Fights $19M Atty Fee Bid in Heparin Coverage Suit,” reports that Travelers Property Casualty Co. is pushing back against American Capital Ltd.’s request for nearly $19 million in attorney fees following a 2017 ruling that found the insurer liable for some defense costs in underlying tainted blood thinner litigation, calling the request untimely and its hourly rates “extraordinarily high.”

In an opposition brief, Travelers said the fee request submitted by the private equity firm’s attorneys at Reed Smith LLP ran afoul of several basic tenets of controlling Maryland law, starting with a local rule that requires a motion seeking attorney fees to be filed “during a 14 day window” that starts when judgment is entered, which happened two years ago in this case.

Travelers said American Capital also never properly preserved its right to seek attorney fees, which means the claim was “extinguished” when U.S. District Judge Deborah K. Chasanow ruled mostly in favor of American Capital following a four-week bench trial.  “Accordingly, the final judgment bars defendants’ untimely motion, which the court should deny,” Travelers said.  Even if those procedural problems were fixed, the hourly rates that led to the $19 million figure were “wildly in excess” of local Maryland guideline rates and further inflated by glaringly inefficient work practices, the insurer said.

At one point in time, for example, 36 lawyers and 21 attorneys at Squire Patton Boggs were working on the matter, the insurer said, before American Capital’s lead attorney John Schryber departed and ultimately ended up at Reed Smith.  “The defendants have submitted no factual basis regarding reasonable Maryland hourly rates sufficient to justify the request for a massive departure from the guideline rates,” the insurer said.  Expert testimony picking apart those rates and other aspects of the fee request was filed under seal along with the brief.  Travelers said that if the motion weren’t denied outright, it would seek a trial on the matter.

The coverage dispute stemmed from the tidal wave of litigation American Capital had been facing over a bad batch of the blood thinner heparin manufactured by its portfolio company Scientific Protein Laboratories LLC.

Travelers argued it wasn’t obligated to defend American Capital in those suits because SPL wasn’t technically an insured under its policy, but Judge Chasanow ultimately found that other language in the policy extends coverage to all companies the insured holds a “majority interest” in.  That order appears to have been the first federal ruling to clarify that the “majority interest” language — "widely-used" by various insurers, according to the opinion — extends coverage held by a private equity firm to its portfolio companies.  The Fourth Circuit upheld that reasoning earlier this year.

Besides being untimely, Travelers said the $19 million request was massively bloated because, while Maryland law allows victorious insureds to seek attorney fees as damages in coverage disputes, those fees can only cover the insured’s efforts to prove the insurer’s duty to defend.  Instead of narrowly tailoring its request to isolate the time spent on that specific issue, Travelers said American Capital simply dumped the whole kitchen sink into its request and sought reimbursement for work that was likely done on separate claims that were ultimately defeated, like a claim for bad faith damages.

Those other claims, Travelers said, had nothing to do with establishing its duty to defend.  Therefore the fee request overall is tainted by including hours that were likely billed for work on those claims and other legal arguments that were equally unrelated, Travelers said.  “Simply put, defendants have failed to identify what part of its claimed $16.5 million in alleged fees and nearly $2.0 million in expenses actually were for establishment of a duty to defend,” Travelers said.

Travelers also said that American Capital hadn’t proved it ever actually paid any of the $19 million in fees, or that it ever had an obligation to do so.  That’s an open question because American Capital and SPL entered into a fee-sharing agreement with Baxter Healthcare Corp. to fight and then settle the heparin suits.

Attorney Fees Take a Hit Under New Florida Law

June 11, 2019

A recent Daily Business Review story by Rachel Lean, “Attorney Fees Take Hit Under New Florida Law,” reports that a new Florida law to curb alleged fraud by contractors could create collateral damage for lawyers by slashing attorney fees in insurance litigation — and all just in time for hurricane season.  Before May 23, contractors could enjoy a one-way attorney fee privilege.  It meant win or lose, they wouldn’t be liable for attorney fees if they sued an insurer to collect insurance benefits that homeowners had assigned to them in exchange for doing repairs.

Insurers, meanwhile, weren’t entitled to fees — until Florida Gov. Ron DeSantis signed House Bill 7065 into law.  The former David-and-Goliath-esque statute was designed to look out for the policyholder, considered to be at a disadvantage compared with high-powered insurance professionals with corporate counsel and significant funds in their arsenal.

But critics—led by pro-insurance groups—cried foul. They claimed the statute had exacerbated abuse through inflated repair costs and excessive lawsuits over assignment of benefits, or AOB, which were created to speed up repairs, shield consumers from exploitation and save them from having to chase claims.  Now, under the new law, homeowners can still use the one-way statute to file lawsuits against insurers, but they can’t transfer that right to contractors through AOB agreements—a provision that critics says disincentivizes contractor attorneys.  And there’s another change: The law includes a new formula for third-party cases to decide which side, if any, is entitled to attorney fees after a judgment.

‘No guard rails’

Tallahassee attorney Anna Cam Fentriss represents licensed contractors through the Florida Roofing and Sheet Metal Contractors Association and Florida’s Association of Roofing Professionals and was glad of the change.  Fentriss feels that while a homeowner, or “the little guy,” typically needs less risk in litigation against giant companies, there’s no reason contractors couldn’t duke it out.  “You’re transferring that benefit from an unsophisticated party to a sophisticated party, and that creates a type of imbalance that you absolutely should not have and shouldn’t encourage,” Fentriss said.

AOB is one avenue for third parties to collect payment from insurers, allowing them to legally stand in a policyholder’s shoes.  But Fentriss claims many of her members have never heard of AOB as it wasn’t widely used until a cottage industry emerged among water-damage restoration and roofing contractors.  “Some of these contractors out there, and sometimes with the help of attorneys, they really push it,” Fentriss said.  “And there’s nothing, no guard rails to stop them, as long as they have that one-way attorney fee, because they can put forth anything.”

Now, contractors might have to charge lower rates to homeowners or accept less money from insurers to avoid going to court and risking attorney fees.  Critics say by curbing attorney fee awards, the new law forces contractors to choose between doing quality work and chasing payments to stay afloat.  Tampa restoration contractor David Sweet, who regularly testifies as an expert witness in insurance suits, said many of the lawsuits end in judgments and settlements—a sign of their merit, Sweet suggests.

“When an insurance company tells you that they’re losing lots and lots of money in litigation expenses, what did they really just say?” he said.  “They’re actually losing almost all of their cases.”  But Liz Reynolds, regional vice president of state affairs for the National Association of Mutual Insurance Companies in the Southeast, says AOB litigation is so prevalent that some insurers first learn of claims only after they’re hit with contractor lawsuits.  That’s why Reynolds hopes the new legislation will reduce lawsuits in Florida, a nationwide outlier in attorney fee privileges, thanks to the former win-or-lose award provision for contractors.

“No other state has a one-way attorney fee statute, and assignment of benefits are being used in other states,” Reynolds said.  “Now you would have to have a more egregious situation to have the insurer pay the attorney fees for the assignee.”  But California attorney Edward Cross disagrees.  Cross has represented disaster-recovery and restoration contractors since 1997, and says he’s noticed an “unfriendly” environment for contractors “as the insurance industry and its partners grow increasingly aggressive in driving down prices.”

But even so, Cross, who doesn’t handle AOB cases in Florida, believes California has done well without a one-way attorney fee statute.  “I have always subscribed to the school of thought promoted by President George H.W. Bush— that the loser in litigation should pay the other side’s attorney fees,” he said.

Even more litigation?

But some observers aren’t sure the new law will have the desired effect.  In fact, some expect the opposite.  Policyholders attorney David Graham of David Graham Insurance Lawyers in Jacksonville, for instance, suspects the new attorney-fee provision could lead to even more litigation.  “I think, ultimately, any smart attorney is going to work around that by representing the policyholder directly,” Graham said.

But William Stander, who heads multiple insurance trade groups, including the Florida Property and Casualty Association, applauded the change.  Stander advocated for the rollback of one-way fees for vendors, particularly those doing water-damage mitigation, which created a cottage industry and what he said spawned “no-risk litigation” for contractors.  “They should have some skin in the game, and not be able to sue in the sense of throwing darts at a wall and hope something hits,” Stander said.

Whatever happens, contractor Ken Larsen said he’s tired of what he considers an unnecessarily adversarial industry when compared to the rest of the U.S. and the world.  “It is astounding to most others contractors in our industry in Australia, Europe and elsewhere,” Larsen said.  “Why on earth do we do battle like this on every insurance claim, to the point where it’s hard feelings and companies going broke?”

Insurer on Hook for Attorney Fees After Improperly Denying Coverage

June 6, 2019

A recent Daily Report story by Greg Land, “Failure to Defend Entire Lawsuit Leaves Insurer on Hook for $1.2M in Legal Fees,” reports that the Georgia Court of Appeals agreed with a Macon judge that an insurer is on the hook for some $1.2 million in legal fees after it improperly denied coverage for a commercial policyholder facing a lawsuit.  Southern Trust Insurance agreed to cover some of the claims in a 2014 lawsuit but said others were not its responsibility.  Instead of agreeing to defend the suit and reserving its right to later deny coverage, the insurer instead “sat on its hands” and failed to seek declaratory judgment as to what its policy covered while its insured ran up legal fees.

“This case presents interesting questions regarding the duty to defend and the propriety of a declaratory action to settle disputes over the extent of the insurance company’s obligations,” wrote Judge Todd Markle for a panel including Judges Sara Doyle and Christian Coomer.  As detailed in the opinion and underlying documents, the case began when a petroleum distribution company, Mountain Express Oil, was sued by a supplier in August 2014 for claims including breach of contract, unjust enrichment, injunctive relief and slander/libel, among others.

Mountain Express had a policy with Southern Trust under which the insurer agreed to pay damages resulting from claims for “personal and advertising injury,” the definition of which included claims for libel/slander.  “However,” the contract said, “we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘personal and advertising injury’ to which this insurance does not apply.”  Mountain Express “immediately” retained legal counsel with Bondurant, Mixson & Elmore and Atlanta solo James Johnston Jr.

Mountain Express’ lawyers filed an answer to the complaint in October 2014, and the next day the company notified Southern Trust in writing about the lawsuit.  On Dec. 29, 2014, Southern Trust told Mountain Express that it was denying coverage for the claims except those for libel/slander and had retained lawyers with Swift, Currie, McGhee & Hiers to defend those claims.  It also said it was reserving its rights to deny coverage on those claims.

Mountain Express sent the insurer a letter in January 2015 asserting that the policy covered all of the claims.  “Although the letter gave written notice of [Mountain Express’] objections,” it “acknowledged a possible compromise, to be drafted by Southern Trust, allowing the Bondurant firm to continue handling the defense with reimbursement from Southern Trust at Swift Currie’s rates,” the opinion said.

That agreement was never in writing, but Southern Trust nonetheless reimbursed its client more than $40,000 in the following months for work Bondurant did on the libel and slander claim.  That claim was dropped in an amended complaint filed in late 2015.  Mountain Express paid for its lawyers’ work on the other claims separately.

The lawsuit settled in 2016, and Mountain Express demanded that Southern Trust pay all of its litigation expenses minus what the insurer had already paid, which ultimately totaled almost $1.2 million.  When Southern Trust refused, Mountain Express filed a complaint for breach of contract and bad faith in Bibb County Superior Court, arguing that the insurer had a duty to defend the entire lawsuit.  Both sides moved for summary judgment, with Mountain Express “arguing that Southern Trust’s failure to file a declaratory action to determine its duty to defend all claims barred it from contesting the full amount of attorney fees.”

Southern Trust countered that it had fulfilled its contractual duties, but in 2018 Macon Judicial Circuit Chief Judge Edgar Ennis Jr. ruled for Mountain Express.  While Mountain Express could have informed its insurer earlier of the suit, wrote Ennis, “Southern Trust has made no explanation for why it sat on its hands from notification in late September until the issuance of its reservation of rights letter on December 29,” Ennis wrote.

“Furthermore, when it was clear that accepting a defense under a reservation of rights was not agreeable to Mountain Express, particularly a partial defense … Southern Trust should have taken the path that Georgia case law has previously laid out: an action for declaratory judgment” and an effort to stay the proceedings “while the coverage question is resolved.”

“Instead, it entertained negotiations with Mountain Express with a view toward letting the Bondurant firm handle representation of all claims while agreeing to pay only for its work on some of the claims at the lower rate it had negotiated with Swift Currie firm,” Ennis said.  “However, Georgia law is clear that, if an insurer is in for a penny it is in for a pound, when it comes to what claims it must defend.”

In upholding Ennis’ ruling, Markle said the language of the policy specified that Southern Trust had the “right and duty to defend the insured against any ‘suit’ seeking those damages.”  “By using the term ‘suit,’ instead of ‘claim,’” Markle said, “Southern Trust obligated itself to defend the entire suit if any of the individual claims could be covered under the policy.”

“But Southern Trust failed to perform its obligation,” he wrote, when it reserved its rights “only with respect to the libel/slander claim and retained counsel to defend that portion of the suit.  By refusing to defend the entire suit under the terms of the policy, Southern Trust was in breach.”

When Mountain Express “objected to its refusal to provide coverage, indemnification, and a defense to the entire suit, as well as to the reservation of rights with regard to the libel/slander claim … Southern Trust was obligated to file a declaratory action to determine the scope of its responsibilities,” Markle wrote.  “As the trial court found, the failure to do so is fatal to its claims,” he said.

Texas Legislation Changes Fee-Shifting Provision in Dismissals

May 17, 2019

A recent Texas Lawyer story by Angela Morris, “Why Are Civil Defense Lawyers Thrilled the Texas House Passed This Bill?,” reports that, just as lawmakers are pushing to narrow Texas’ anti-SLAPP motion to dismiss, the Texas House also passed a bill that would sweeten the deal for civil defense attorneys to make more use of a different type of motion to dismiss.

Under current law, this motion, known as the “91a motion to dismiss” because it’s located in Texas Rules of Civil Procedure Rule 91a, allows attorneys to argue for the dismissal of a case that has no basis in law or fact.  There’s a mandatory loser-pays provision that says the prevailing party collects attorney fees from the losing party.  Defendants have not used the motion too frequently because they don’t want to risk paying attorney fees to plaintiffs if they lose a dismissal fight.

House Bill 3300, which the Texas House passed 136-5, proposes a small but significant tweak to the law.  In the loser-pays provision, it changes the word “shall” to “may,” which gives a judge discretion to decide to award fees.  The bill heads to the Senate where, in the final weeks of the session, it must get a public hearing in committee, pass committee and pass the full Senate.

Texas Lawyer asked attorneys on Twitter whether this legislation, if passed, might lead defendants to file 91a motions to dismiss more often.  Here are a handful of the tweets we got in reply, edited for style and grammar.

“Yes — no question. Loser-pays is the only disincentive to filing a 91a motion in every case.  And defendants often waive their fee recovery from plaintiffs because courts are more likely to grant 91a dismissal if it doesn’t require saddling plaintiffs with fees,” tweeted Anne Johnson, a partner in Haynes and Boone in Dallas.

“As things stand, TRCP 91a creates a sort of game of chicken: A lot of defendants will file the motion but then pull it down before it is heard, unless they are almost 100% confident they will prevail.  With mandatory fees, the risk of paying the other side money is just too high,” tweeted Christopher Kratovil, managing member of Dykema’s Dallas office.

“As someone who works more in federal court — where 12(b)(6) reigns — I’ve always thought 91[a]‘s mandatory fee-shifting was a big problem.  This would be helpful.  I suspect more plaintiff oriented folks strongly disagree,” tweeted Raffi Melkonian, a partner in Wright, Close & Barger in Houston.

“I’m against the mandatory fees provision.  The fees usually aren’t too high, but it still discourages the use of an otherwise valuable tool,” tweeted Jadd Masso, a member of Clark Hill Strasburger in Dallas.

“This is a welcome change, though the Rule 91a standard itself should be clarified and improved,” tweeted Lee Whitesell, an associate with Hogan Lovells in Houston.

Insurers Fight Over Paying Attorney Fees in Litigation

April 4, 2019

A recent Law 360 story by Frank Runyeon, “Equinox Gym Insurers Battle Over Sex Assault Suit Fees,” reports that one of Equinox Fitness’ insurers is not paying its fair share of the luxury gym’s legal fees in an ongoing sexual assault lawsuit involving two former employees, Beazley Insurance Co. alleged in a complaint filed in California federal court.  In its 21-page filing, Beazley said that National Casualty Co. stiffed the fitness company when a worker claimed in a Jane Doe suit in Los Angeles Superior Court that another employee assaulted her and that she was retaliated against when she complained.  When NCC failed to pay, Beazley was stuck with the bill, according to the suit.

“Without satisfactory explanation, consideration of the facts, or reliance on any legal authority, NCC wrongfully denied coverage for the Doe Lawsuit on a number of unsupportable bases,” Beazley said.  “A significant portion of the Doe Lawsuit falls squarely within the coverage provided by the NCC Policies.”

In the meantime, Beazley says it’s stuck paying advance legal fees for Equinox’s defense in a case where the central allegation — that an Equinox massage therapist sexually assaulted a Pilates instructor and others on the premises — fell under NCC’s coverage, but not Beazley’s.  Beazley argued that both NCC’s general liability and employment liability policies required it to provide coverage to Equinox for any damages or lawsuit seeking damages for bodily injury, which, it said, would include the alleged sexual assault.  Beazley said its policies did not provide coverage for sexual assault claims, but did provide coverage for other allegations in the suit.

“Beazley noted that the claims in the Doe Lawsuit for harassment, discrimination, retaliation, and wrongful termination appeared to involve covered Wrongful Acts, but the claims for assault, battery, and ratification did not,” the company said.  The sexual assault lawsuit was filed in Los Angeles Superior Court in 2017, seeking damages for 11 causes of action, including sexual assault and battery, sexual harassment, discrimination, retaliation, failure to investigate and wrongful termination.

In her complaint, the Pilates instructor said that she and the massage instructor were Equinox employees who traded services at the encouragement of the company.  After the massage instructor assaulted her after-hours on the premises, she said she reported the incident to a manager who told her that at least four employees and three clients had previously said they “felt uncomfortable during a massage” with the man.  Several women later told her “they, too, were victims,” she said.  The instructor accused the company of failing to warn its clients about the man and then firing her after she took a leave of absence.

The case is Beazley Insurance Company Inc. v. National Casualty Company, case number 2:19-cv-02175, in the U.S. District Court for the Central District of California.

Article: Defense Costs Coverage 101

January 16, 2019

A recent New York Law Journal article by Howard B. Epstein and Theodore A. Keyes, “Defense Costs Coverage 101,” reports on defense fees and costs in the insurance coverage practice area.  This...

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