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Insurer Fights $1.6M Fee Coverage After Attorney Mishandled Suit

May 9, 2019 | Posted in : Coverage of Fees / Duty to Defend, Ethics & Professional Responsibility, Fee Award, Fee Expert / Member, Hourly Rates / Hourly Billing

A recent Law 360 story by Kevin Penton, “Insurer Fights $1.6M Fee Coverage After Atty Mishandled Suit,” reports that an insurance company for a lawyer who was bench-slapped for the “incessant filing of absurdly lengthy and legally incorrect briefs” is arguing that it’s not responsible for covering nearly $1.6 million in fees awarded to insurance carriers on the winning side of the underlying case. 

Because Dougherty & Holloway LLC and attorney Josue Hernandez did not warn ALPS Property & Casualty Co. of any actual or potential claims against them when they applied for professional liability insurance in February 2018, the company should not be liable for the fees awarded by a Colorado federal judge in January and February, the insurance company argued in a complaint on Friday.

In January, U.S. District Judge John Kane awarded a host of insurance companies nearly $1.6 million in fees after they defeated allegations that they had unfairly denied coverage to homeowners, according to court documents.  In February, the judge held that Hernandez should be held personally responsible for just over $1 million of the amount, according to the order.

ALPS noted the long procedural history of the underlying case in its complaint, including that the insurance companies filed for attorney fees as early as May 2016.  Yet when Hernandez and the two attorneys who comprise Dougherty & Holloway applied for the liability insurance, they answered “no” to whether they were aware of any “fact, circumstance, act, error, or omission” that could be used as the basis for a claim, according to the complaint.

“Any claims for attorney’s fees asserted by claimants arising out of the January 2019 order and/or February 2019 order are outside the coverage afforded by the policy because, prior to the policy’s April 21, 2018 effective date, the insureds knew or reasonably should have known that its actions on behalf of its clients in the lawsuit might be the basis of a claim against the insureds,” the complaint reads.  Judge Kane held in January that Hernandez must be held personally responsible for a portion of the fees given “his incessant filing of absurdly lengthy and legally incorrect briefs” and vexatious conduct throughout the litigation, according to the judge’s order.

The judge sided with the defendants’ expert witness’ testimony that the hours of legal work they expended defending the case were reasonable and necessary over the plaintiffs’ argument, which was based not an expert’s testimony but an “unreliable and bewildering” 24-factor test of Hernandez’s own concoction.  Judge Kane also noted that throughout the litigation, the plaintiffs had repeatedly made extra work for the defendants, such as filing a 40-page motion for more time to respond to the defendants’ motion to dismiss.  After the defendants filed a seven-page opposition to that motion, the plaintiffs followed with a 47-page reply brief that “illustrates a system gone mad,” the judge said.