Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Insurer Fights $19M Fee Request in Coverage Action

June 14, 2019 | Posted in : Billing / Fee Guidelines, Coverage of Fees, Defense Fees / Costs, Fee Agreement, Fee Allocation / Fee Apportionment, Fee Dispute, Fee Entitlement / Recoverability, Fee Expert / Member, Fee Request, Hourly Rates

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.