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Category: Fees & Insurance Policy

TX Justices Toss Class Action Fee Award in Insurance Cases

April 18, 2021

A recent Texas Lawyer story by Greg Land, “Texas Justices Toss Class Action Ruling Against Insurer and $3.5M Fee Award,” reports that the Texas Supreme Court has ruled an insurer that stopped issuing “all risk” homeowners policies because it was paying out too much in mold claims did not violate the contracts of some 400,000 policyholders, and does not have to pay more than $3 million in attorney fees and nearly $487,000 in costs a jury awarded to the plaintiffs lawyers. 

Ruling in a class action that’s been percolating through the courts for nearly 20 years, the justices sent the fee award back to a Jefferson County judge with instructions to consider what is “equitable and just” to Farmers Insurance, given that the named plaintiff and class “have not prevailed in any regard and have obtained no favorable results.”  The April 9 ruling written by Justice Jimmy Blacklock overturns a 2019 ruling by the Thirteenth Court of Appeals that upheld the fee award and also said the plaintiffs in separate, though related litigation should have been allowed to intervene in order to seek their own fees. 

Farmers is represented by a team of Norton Rose Fulbright lawyers including Houston-based partners Layne Kruse, Carlos Rainer, Katherine Mackillop and Scott Incerto.  Lawyers for plaintiff Sandra Geter and the class are John Werner of Reud Morgan & Quinn and DeWayne Layfield of the Law Office of L. DeWayne Layfield, both in Beaumont.

As detailed in the order and other filings, the case began in 2000 when Farmers and other insurers sought permission from the Texas Department of Insurance to stop writing the all-risk policies and instead offer a less comprehensive “named peril” policy.  A Farmers executive told the TDI the move was necessary because of “dramatic increases that we have experienced for water, mold and foundation claims, and the resultant underwriting losses.”    

The decision was approved, and in 2002 Farmers sent all holders of the policies a notice that they would not be renewed but that the named peril policy would still be offered.  In 2002, policyholder Geter filed a class action seeking declaratory judgment that Farmers’ non-renewal violated the clause of her policy stating: “We may not refuse to renew this policy because of claims for losses resulting from natural causes.”

She also argued that the non-renewal notice was void because it “was based on a prohibited reason for non-renewal.”  The trial court granted Geter summary judgment, ruling that Farmers breached the contract by not renewing the policies.  Also in 2002, another class action was filed in Travis County claiming that Farmers “wrongfully raised premiums despite offering less coverage when it replaced the HO-B policy” with the slimmed-down coverage.  Claims mirroring Geter’s were later added to that suit as well.  In 2016 the Travis County suit settled with Farmers agreeing to compensate policyholders in “a package valued at over $100 million.”  But the non-renewal claims were carved out of that litigation, and the Geter case continued with both sides filing for summary judgment.  

The trial court granted summary judgment to the plaintiffs, ruling that Farmers breached its agreement by not renewing the policies and that each member should be allowed to renew their HO-B policy at a premium set by the trial court.  While that decision was on appeal, in 2016 the trial judge held a jury trial on attorney fees that ended with a jury awarding the plaintiffs lawyers $3,046,247 in fees and $486,790 in expenses.  The plaintiffs in the Travis County action filed to intervene for their attorney fees, arguing that their case benefitted the Geter class members.

The trial judge denied the motion, and both they and Farmers appealed.  The court of appeals affirmed the trial court’s holding that Farmers had breached its policyholders’ contracts and the fee award, but reversed the rulings denying the Travis County plaintiff’s motions to intervene and ordering Farmers to issue HO-B policies at a determined premium. 

Blacklock’s opinion said the key to the case was the interpretation of the policies’ bar to renewal “for losses resulting from natural causes.”  “The dispute comes down to what paragraph 6(a) of the policy means by ‘claims for losses,’” Blacklock wrote.  “If the language refers to ‘claims’ and ‘losses’ of the individual policyholder, then Farmers is correct that the policy does not preclude an insurer from terminating the policy’s use statewide because of systemic losses that make continued use of the policy financially untenable,” he said.  “If ‘claims’ and ‘losses’ also refers to statewide or systemic ‘claims’ and ‘losses,’ then Geter is correct that the policy prohibited Farmers from deciding to non-renew.”

The justices find it “highly implausible” that Farmers or the TDI would agree to language that would “undermine TDI’s regulatory authority to react to changing circumstances in the insurance industry and would bind Farmers to suffer statewide underwriting losses in perpetuity.”

“Because the individual plaintiff and class members were not entitled to a renewal of their HO-B policies, all the plaintiffs’ claims fail, and summary judgment for Farmers was proper,” the opinion said.  It follows, Blacklock wrote, that neither Geter nor the would-be intervenors are entitled to any award of fees. 

Utah Sues Insurer Over Coverage of Defense Fees

February 4, 2021

A recent Law 360 story by Daphne Zhang “Utah Asks Insurer To Pay $1.8M Atty Fee in Trade Secrets Suit”, reports that Utah's Department of Administrative Services sued an AIG subsidiary, seeking to compel the carrier to cover the $1.8 million it spent defending Utah State University in an underlying trade secrets suit.  The department told a Utah federal judge that Lexington Insurance Co. breached the insurance contract by refusing to reimburse its legal bills incurred in defending Utah State University Research Foundation against global weather analytics company GeoMetWatch in the underlying suit.

According to the suit, AIG has asserted that the fee incurred by the Utah Attorney General's Office from defending the university in the underlying litigation is defined as "employees salary" under its policy and contended that it will not pay for the state's defense costs.  Utah and its state administrative department said AIG has denied coverage for the underlying defense costs without any written explanation.  The Beehive State is alleging breach of contract and breach of good faith and fair dealing, and asking the court to hold that AIG should cover it in the underlying litigation and pay damages.

The department said its risk management division insures the state of Utah and its agencies for property and personal injury up to $1 million.  The state also held an excess liability policy from Lexington that covers loss once the $1 million primary policy is exhausted.

In March 2018, the division notified AIG that it had incurred over $1.195 million of legal bills in the underlying action and requested reimbursement under the policy.  The federal claims in the underlying case are currently pending in the Tenth Circuit and state claims are pending in Utah state court.  As of the filing of the suit, Utah has incurred over $1.8 million in attorney fees, according to the complaint.

AIG then requested documentation of attorney fees.  The underlying case was under a protective order, requiring the AIG staff to sign a non-disclosure agreement before reviewing the documents.  In November 2018, one of the attorneys representing Utah State University sent AIG the requested documents and reminded AIG to sign the agreement to comply with the protective order.  In May 2019, the division asked AIG to respond to its defense cost claim and made the request again a month later.  In April, the director of the division wrote to AIG regarding its alleged failure to pay the defense costs in the underlying litigation.

AIG Unit Tells Ninth Circuit Yahoo’s Fee Award is Excessive

February 3, 2021

A recent Law 360 story by Daphne Zhang, “AIG Unit Tells 9th Circ. Yahoo’s Atty Fee Award is Excessive,” reports that an AIG subsidiary has asked the Ninth Circuit to reverse Yahoo Inc.'s award of over $600,000 in attorney fees or grant a new trial altogether, arguing that the tech giant did not present the correct recoverable amount and that the district court failed to guide a jury on how to allocate and award attorney fees.

In a brief filed, National Union Fire Insurance Co. of Pittsburgh, Pa., said the tech giant was not able to show which portions of its legal fees were spent on bad faith claims.  The insurer asked the court to vacate a jury verdict that found it had acted in bad faith by failing to cover Yahoo's costs to defend a consolidated class action.  National Union said that California law has clearly stated that a policyholder seeking to recover attorney fees as bad faith damages may recover only fees spent on insurance coverage issues, not those incurred to litigate the bad faith claim itself.

The carrier said that Yahoo, however, lumped all legal fees together, including those relating to bad faith claims, which are not recoverable.  The company could not present the exact amount of its legal bills spent on coverage issues, which is the only portion of recoverable attorney fees that should have been awarded, it added.  Yahoo showed "large swaths of invoices with minimal, unexplained redactions,"  National Union said. The court should reverse the attorney fee award because the unrecoverable fees must be excluded from the damages calculation, it added.

The coverage dispute goes back to January 2017, when Yahoo filed suit alleging National Union had breached its policy by refusing to cover the company in several class actions accusing it of scanning customers' emails.  In October 2018, U.S. District Judge Edward J. Davila found that National Union largely failed to defend and indemnify Yahoo for $4 million in attorney fees that resulted from the class actions.  The judge said it was up to a jury, though, to decide whether the insurer acted in bad faith in denying coverage.

Following a five-day trial in May 2019, a jury returned a verdict finding that National Union had acted in bad faith and should foot the bill for Yahoo's attorney fees.  "The jury clearly did not perform the allocation that Yahoo neglected to perform," National Union said on Monday, adding that Yahoo's own counsel could not point out how much of the legal fees were incurred on coverage issues and what portion was spent on bad faith claims.

"The district court failed to properly instruct the jury on how to allocate, leading the jury to award 100% of the claimed fees — a plainly excessive amount," the insurer claimed.  Yahoo previously argued that it had correctly allocated the legal fees by only submitting the invoices incurred before the district court's summary judgment order that granted its coverage benefits.  National Union said that since the bad faith claims were also litigated on summary judgment, Yahoo did not conduct a proper fee allocation.  "Yahoo is not entitled to a second bite at the apple to present allocation evidence it opted not to present at trial," the carrier said.

The case is Yahoo! Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa., case number 19-16475, in the U.S. Court of Appeals for the Ninth Circuit.

Insurer Seeks to Dodge Attorneys Fees in Overbilling Matter

January 14, 2021

A recent Law 360 story by Kevin Penton, “Insurer Seeks to Dodge Mass. Firm’s Overbilling Probe Fees” reports that an insurance company asked a Massachusetts federal court to declare that it is not responsible for paying attorney fees incurred by Thornton Law Firm LLP when the firm faced an investigation over alleged overbilling in a $300 million State Street Corp. settlement.  Continental Casualty Co. should not be obligated to pay Thornton Law the unspecified amount of fees the firm paid to its legal counsel for representation throughout the investigation, along with the unspecified amount the court ordered to be deducted from the firm's fee award to help cover the investigation's costs, according to the complaint in the District of Massachusetts.

Continental argues that Thornton Law did not take out insurance that would require the insurer to defend or indemnify the firm in the investigation.  The company noted that the investigation was not a claim triggered by an "act or omission in the performance of legal services" by Thornton Law, nor does it leave open the possibility of covered damages, according to the complaint.  The investigation's findings — that Thornton Law and Labaton Sucharow LLP repeatedly violated the rules of professional conduct in part by overbilling — meant that the insurance policy's "intentional acts exclusion" is also triggered, according to the complaint.

"The acts or omissions at issue in the special master fee investigation are not services performed by Thornton as a lawyer," the complaint reads.  "To the contrary, the special master fee investigation arose from the insured's false and misleading submission regarding its billing rates and business practices in a declaration to the court."

The underlying suit, filed in 2011, alleged that State Street swindled millions of dollars a year from its clients on their indirect foreign exchange trades over the course of a decade.  The class action resulted in a $300 million settlement between State Street and investors, and U.S. District Judge Mark L. Wolf approved $75 million in attorney fees for Thornton Law, Labaton Sucharow and Lieff Cabraser Heimann & Bernstein LLP in 2016.

The billing issues first came to light later that year in a Boston Globe report. The firms later acknowledged they overstated their billing, but claimed the $75 million fee was still proper.  Following the investigation by a special master, Judge Wolf in February reduced the firms' fees to $60 million.  Judge Wolf noted at the time that Thornton Law managing partner Garrett Bradley also signed a false fee declaration, which Bradley lamented as a "stupid mistake" when testifying in one of the case's hearings.

"The United States has a proud history of honorable, trustworthy lawyers," Judge Wolf wrote.  "However, this case demonstrates that not all lawyers can be trusted when they are seeking millions of dollars in attorneys' fees and face no real risk that the usual adversary process will expose misrepresentations that they make."

Chancery Court: Railroad Operator’s Attorney Fees Must Be Covered

November 27, 2020

A recent Law 360 story by Rose Krebs, “Railroad Operator’s Fees Must Be Covered Chancery Says,” reports that a Delaware vice chancellor ruled that American Rail Partners LLC must cover legal expenses incurred by a railroad ownership company that it sued over unjust enrichment claims, saying an agreement in place "unambiguously" provides that expenses be covered.  In a 24-page memorandum opinion, Vice Chancellor Paul A. Fioravanti Jr. said fee advancement provisions of American Rail Partners' limited liability agreement are "quite broad" and unambiguous.

"For purposes of this action, there is no dispute that the plaintiffs are covered persons under the broad advancement and indemnification provisions of the company's limited liability company agreement," the opinion said.  International Rail Partners LLC, its manager Gary O. Marino and Boca Equity Partners LP sued American Rail for the advancement of fees earlier this year, asserting that their LLC agreement entitles them to "mandatory advancement and indemnification" related to a suit filed in the First State's Superior Court in February.

Boca Equity is the sole owner and only member of International Rail, according to court filings. International Rail is one of two members of American Rail, the opinion said.  Despite the "broad scope" of the advancement provisions, American Rail had argued it should not be required to advance legal fees because the LLC agreement "does not provide indemnification for claims between the company and any covered person — what it calls 'first-party claims,'" the suit said.

American Rail argued that "an indemnification or advancement provision may only cover first-party claims if it expressly says so," the opinion said.  The vice chancellor, however, said that argument was "not based upon a plain reading" of the agreement, and there is a "strong public policy in favor of indemnification and advancement" in Delaware.  That policy aims to assure key corporate officers that they will not have to shoulder the risk of paying legal expenses for claims related to the performance of their duties, the opinion said.

In April, Vice Chancellor Fioravanti refused to toss the suit, saying questions remained about fee advancement provisions agreed to by the parties. The vice chancellor said he couldn't conclude as a "matter of law" that American Rail offered the only "reasonable" interpretation of the applicable limited liability agreement.  Although Vice Chancellor Fioravanti identified certain shortcomings with how the complaint was pled, including a failure to invoke certain advancement provisions that were later referenced in briefings, he said there was not enough cause to toss the Chancery Court suit.