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Insurer Must Pay Defense Fees in Mercury Contamination Case

July 20, 2010 | Posted in : Billing Practices, Contingency Fees / POF, Coverage of Fees, Defense Fees / Costs, Fee Award, Fee Award Factors, Fee Entitlement / Recoverability, Fee Reduction, Fee Request, Lodestar

A recent law.com story, “Insurer Hit With Fees for Balking at Defense of Mercury-Contaminated Day Care Center” reports that U.S. Liability Insurance Company must pay its insured $208,748 in legal fees.  The attorney fee award, ordered by U.S. District Judge Jerome Simandle, includes a 35 percent lodestar fee enhancement of $153,750 based largely on the risk that the insureds’ lawyer, who took the coverage case on a contingency basis, would not get paid.  The case, Baughman v. U.S. Liability Insurance Co., was risky because the carrier had a reasonable basis to refuse coverage in light of the novel issues raised – such as whether exposure to indoor mercury contamination was “traditional environmental pollution,” whether medical monitoring constituted “damages” and whether exposure to harmful substances comprises “bodily injury”-- Simandle said.

U.S. Liability did not fight the fee amount requested, but asked Simandle to exercise his discretion and refuse to award fees because it denied coverage in good faith.  Simandle refused saying the purpose of awarding fees in coverage cases is not just to deter insurers from denying coverage without a reason but also to make sure insureds get the full benefit of the coverage they bought.  The original defense fee request totaled $318,140, based on a $158,477 lodestar with a 100 percent enhancement.  In awarding them less --$208,748 – Simandle knocked more than $4,700 off the lodestar and allowed only a 35 percent enhancement.  He took 20 hours spent on legal research as excessive and another 7 hours that were duplicative.