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Category: Coverage of Fees

Insurer Must Pay Attorney Fees in Nassar Coverage Action

August 31, 2022

A recent Law 360 story by Celeste Bott, “USAG Keeps Fee Award in Nassar Coverage Suit reports that Liberty Underwriters Insurance Inc. must pony up the remainder of a roughly $2.1 million judgment for USA Gymnastics, a Seventh Circuit panel ruled, saying the insurer failed to show that any portion of the fees incurred during investigations into sexual abuse by former team doctor Larry Nassar were not reasonable and necessary.

At issue are legal costs incurred when USA Gymnastics responded to investigations by both houses of Congress, the Indiana Attorney General's Office, and the U.S. Olympic and Paralympic Committee into Nassar's conduct.  During oral arguments in the case, a three-judge Seventh Circuit panel pushed the Liberty Mutual unit to address why it paid more than $1.4 million toward those defense costs if it believed it owed no reimbursement.  In the court's opinion, written by Chief Circuit Judge Diane Sykes, the court noted that in light of that payment, all that remains up for discussion is the remaining $458,472.26 of the lower court's judgment.

Liberty argued that a district court and a bankruptcy court wrongly applied a presumption established in Thomson Inc. v. Insurance Company of North America, an Indiana case, that an insured's defense costs are reasonable and necessary if the insured has secured, supervised and paid for a defense.

Liberty said the Thomson presumption does not apply because USAG failed to adequately supervise the outside counsel it engaged and did not pay the full amount of legal fees it incurred.  Liberty cited a Seventh Circuit ruling in Metavante Corp. v. Emigrant Savings Bank, in which the appellate court observed that a "prevailing party's general counsel, or similar corporate officer, has a duty, imposed by various provisions of federal and state law, to scrutinize the bills before paying them,"

The panel was unpersuaded by those arguments. It clarified Tuesday that that duty does not require a party to request write-offs from outside attorneys or ask them questions about invoices.  "We hold that a litigant may supervise its outside counsel without refusing to pay portions of legal bills or engaging in hairsplitting about those bills.  Nothing in the case law provides otherwise," the Seventh Circuit said.  Also, no Seventh Circuit case law mentions a requirement that the party seeking fees must have paid its fees in full for the presumption of reasonableness to apply, the panel said.

The insurer also argued on appeal that USA Gymnastics's damages expert had a flawed methodology and that its chief legal officer, C.J. Schneider, was effectively a "rubber stamp" for defense counsel.  It also said his review of the work of his own law firm, Miller Johnson, constituted a conflict of interest.  But an apparent conflict of interest does not negate the presumption under governing case law and "an insurer's objections to a policyholder's selection of defense counsel lose force when the insurer disclaims its duty to defend and turns out to be wrong on the law," the panel said.

Liberty could have reserved its defense that it had no duty to defend and assumed USAG's defense, choosing and supervising the lawyers defending USAG and seeking reimbursement later, the court said.  "Liberty chose not to do so, instead electing to gamble by not defending USAG. With the benefit of hindsight, Liberty now identifies a purported conflict of interest," the panel said.  "The case law does not reward such a choice, and Liberty cannot use the purported conflict to render the presumption inapplicable."

Further, Schneider was not the only one engaging in an internal review of USAG's legal bills, as its CEO and chief financial officer also checked the bills and approved them for payment, the court said.  And, while Liberty asserts that the nearly $8 million in grant funds USAG received from the National Gymnastics Foundation removed the incentive for USAG to drive down costs, the very basis for the Thomson presumption, it does not cite evidence to back that up, the panel held.

Sixth Circuit Won’t Rehear Attorney Fee Coverage Decision

July 29, 2022

A recent Law 360 story by Ben Zigterman, “6th Circ. Won’t Rehear Attorney Fee Coverage Decision” reports that the Sixth Circuit declined to rehear an appeal decided earlier this month against two attorneys seeking coverage of attorney fee awards that Wesco Insurance Co. said were excluded "sanctions."  After the July 1 decision, Ohio attorneys Jason Wallace and Daniel Bache asked to have the full circuit rehear the appeal, arguing that a three-judge panel improperly interpreted the policy from an average attorney's perspective, rather than whether it was subject to multiple interpretations.

"The original panel has reviewed the petition for rehearing and concludes that the issues raised in the petition were fully considered upon the original submission and decision of the case," the order said.  "The petition then was circulated to the full court.  No judge has requested a vote on the suggestion for rehearing en banc."  In its decision, the panel found that the attorney fee award qualified as sanctions because the Individuals with Disabilities Education Act the claims were brought under make attorney misconduct a prerequisite for an attorney fee award.

Because Wesco's policy included an exclusion for sanctions under federal law, the panel said the insurer didn't owe coverage.  The case stems from suits filed by four northern Ohio school districts seeking to recover what they spent on attorney fees fighting litigation filed on behalf of parents and children under IDEA, according to court documents.

"This misconduct element makes clear that any awarded fees would constitute a 'sanction' under the ordinary meaning of that term (and so under Wesco's policy)," the panel wrote.  In their petition for a rehearing, Wallace and Bache argued that the panel should have interpreted the policy's terms liberally in its favor, not under their ordinary meaning or as an average attorney would define them.

Eleventh Circuit Tosses Insurer’s Request for Attorney Fees

June 2, 2022

A recent Law 360 story by Josh Liberatore, “11th Circ. Tosses Insurer’s Bid For Atty Fees After Reversal” reports that an insurer can't seek attorney fees on a $1.6 million judgment it previously won against a Liberty Mutual unit, the Eleventh Circuit confirmed, which comes after the court recently vacated the insurer's win on claims that the Liberty unit breached its contract while defending a fatal accident suit.  In an unpublished opinion, the appellate panel denied Endurance American Specialty Insurance Co.'s bid for attorney fees as moot. 

In May, the Eleventh Circuit reversed Endurance's $1.6 million win, finding that it couldn't show how Safeco Insurance Co. breached an indemnity agreement it had with Comegys Insurance Agency Inc., which was insured by Endurance.  "Safeco did win its appeal," the panel noted, "so, Endurance may not seek attorneys' fees."  Endurance had asked the Eleventh Circuit to overturn a lower court judge's ruling that its claims for attorney fees stemming from the judgment against Safeco were time-barred because Endurance failed to seek the fees within 14 days of the judgment.

The coverage dispute stems from an accident between driver Robert Smith and a motorcyclist, who died.  Safeco insured Smith, who bought his policies through Comegys.  Smith faced a wrongful death suit for which Safeco assigned an attorney who defended the case, and eventually a $7.3 million consent judgment was entered against Smith, according to court documents.  The consent judgment included Safeco paying the motorcyclist's estate the limits of Smith's auto policy, $1.25 million, and assigning the estate Safeco's claim against Comegys for negligent procurement, based on the theory that Comegys failed to find Smith a more robust policy after he had inquired about raising his policy limits.

Endurance insures Comegys under an errors and omissions policy, according to its suit.  The motorcyclist's estate pursued Endurance and Comegys "for the limit of Comegys's policy with Endurance," according to court documents.  The companies eventually paid just over $1.5 million to end the claims, court records show.

Endurance then sought to recoup the money from Safeco, arguing Safeco had breached its contract with Comegys by refusing to indemnify it for the alleged negligence.  Endurance's argument hinged on Safeco assigning an attorney to defend Smith, who allegedly mentioned to the motorcyclist's estate the possibility of a negligent procurement claim against Comegys and recommended an insurance lawyer to the estate.  In July 2019, a jury found in Endurance's favor, and the lower court entered a $1.6 million judgment against Safeco.

While Safeco appealed that decision to the Eleventh Circuit, Endurance launched an appeal of its own, arguing it should be awarded attorney fees for the judgment.  However, the Eleventh Circuit reversed the judgment last month, finding that Endurance couldn't show how Safeco had breached its contract with Comegys.  Safeco had acted entirely within the terms of that agreement by providing an insurance policy to Comegys's customers, tendering the policy on time after the accident and providing an attorney to Smith to defend the suit, the Eleventh Circuit panel presiding over that case found.  Safeco can't be held liable for what Smith's attorney decided to do after that, the panel said.

Insurer Asks Judge to Reduce Attorney Fees in Coverage Win

May 17, 2022

A recent Law 360 story by Ben Zigterman, “Insurer Asks Judge To Nix Cleveland Bar’s Atty Fee Request” reports that Auto-Owners Insurance Co. told an Ohio federal judge that the attorney for a Cleveland bar should not be awarded $293,000 in fees and expenses it requested after winning a $1.2 million jury verdict over coverage for fire damage.  At most, the insurer argued in the filing, Daniel Shimko should get $91,000 for representing Blues to You Inc., which does business as Wilbert's Food & Music.

In April, a jury ruled in favor of Blues to You on its claims that Auto-Owners breached its contract and acted in bad faith, awarding the bar $1.2 million, including $375,000 in punitive damages.  The bar had accused Auto-Owners of failing to properly investigate and not fully covering its claims for fire, smoke and water damage from a 2019 fire, as well as water damage from a 2020 fire in a unit above the bar.

While the bar said the insurer made a "pitifully low offer" and "dragged its feet," the insurer argued that Blues to You misrepresented the value of its claims by duplicating losses from the first fire in its losses from the second.  After the jury ruled in its favor, the bar asked for more than $271,000 in attorney fees based on 706.2 hours of work at $385 an hour, plus about $21,000 in legal expenses.

"More than a little skill and experience in this field is paramount to successfully represent an insured in such a legal proceeding," the bar wrote earlier this month. "Plaintiff's counsel went beyond proving bad faith.  Plaintiff successfully proved that Auto-Owners acted with ill will in the manner in which it adjusted plaintiff's two claims."  In response, Auto-Owners questioned whether Shimko really spent 700 hours on the suit, noting that its attorneys only spent about 504 hours on it.  "For plaintiff's counsel to allege that he spent 200 more hours is inconceivable and suggests that plaintiff's counsel's stated time is overstated," the insurer wrote.

It also argued that Shimko's proposed hourly rate is excessive for solo practitioners in Ohio and that the jury didn't provide for litigation expenses to be recovered.  The insurer also disputed that any attorney fees should be granted, arguing that the evidence did not back up an award for punitive damages.  "There is absolutely no evidence in the record of conduct on behalf of defendant that can be remotely categorized as being malicious," Auto-Owners wrote.  It also has filed a motion for a new trial, arguing that the jury's verdict "should have shocked the conscience of the court."

NFL Player Must Cover Attorney Fees in Poaching Suit

May 13, 2022

A recent Law 360 story by Max Jaeger, “Sanctioned NFL Player Must Cover Atty Fees in Poaching Suit” reports that New York Giants wide receiver Kenny Golladay must cover more than $15,000 in attorney fees for his former agency after flouting a subpoena in litigation over whether he was poached by a rival, a Michigan judge said.  In an order, U.S. Magistrate Judge Anthony P. Patti overruled Golladay and approved $14,929 in attorney fees to cover Honigman LLP's representation of the wideout's former agents at Clarity Sports International LLC.  The judge refused to award fees for work by Dowd Bennett LLP, finding them "excessive and redundant" of work by Honigman's lawyers.

Clarity said it cost them a little over $20,000 to get Golladay to comply with a third-party subpoena for his deposition and document production.  The agency says in a separate suit that sports memorabilia sellers helped non-party Creative Arts Agency steal Golladay from them.  The wide receiver is not a party to that suit, but he ignored a 2020 subpoena, so Clarity sued to compel.  The court hit him with sanctions for his "cavalier and reckless attitude" and ordered him to pay Clarity's legal bills for giving them the "run-around."

Golladay opposed most of the Honigman fees, arguing that partner Jeff Lamb's four hours at $580 per hour merely duplicated 19.75 hours of work that partner Andrew Clark did at $455 per hour.  But the court disagreed.  "Although much of attorney Lamb's relevant work appears to have involved review and conference with other attorneys, the court considers such collaboration between partners and associates typical and substantive, as opposed to duplicative and redundant," Judge Patti wrote.

That was "especially true" given Clark was out on leave for two months, the judge said.  He also approved 11 hours that associate Nicholas Burandt contributed at $350 an hour.  Some work was duplicative, however, and the judge denied $5,400 to Dowd Bennett for the roughly 7.5 hours each contributed by Dowd Bennett partner John D. Comerford and associate James B. Martin, who charged $420 an hour and $300 an hour respectively.

Golladay argued he shouldn't have to pay their fees because Clarity retained them on a contingency basis in the underlying tortious interference case against CAA that's separately playing out in Pennsylvania federal court.  Because it is ongoing, Clarity had not "incurred" any fees yet, he argued.  "The court, however, struggles to find the logic in this latter argument, as it would imply that parties (or non-parties) would be shielded from sanctions for poor behavior whenever the opposing side has a contingency-fee relationship," Judge Patti said in his order.

Instead, the judge said Dowd Bennett LLP's contribution amounted to sending emails to Honigman counsel and editing filings, and awarding fees would be excessive.  "Although Respondent's behavior throughout this matter has undoubtedly been unacceptable and necessitated additional work by Petitioners, that work was frustrating more so than complicated," Judge Patti said.