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Category: Practice Area: Insurance Coverage Litigation

Miami Law Firm Fights for Coverage of Fee Dispute

September 21, 2023

A recent Law 360 story by Ganesh Setty, “Miami Law Firm Fights For Coverage Of Overbilling Claims”, reports that a Miami law firm's insurer cannot rely on an "ambiguous" fee dispute exclusion to totally avoid defending overbilling claims, the law firm told a Florida federal court, arguing that even if the exclusion applies, the underlying lawsuit it faces involves broader legal malpractice claims.  In a brief opposing James River Insurance Co.'s motion for summary judgment, Sheehe & Associates PA and three of its attorneys said that, despite the insurer's effort to construe the underlying action as an "overbilling scheme," at least two counts — breach of fiduciary duty and breach of oral contract — are still covered.

And the potential for coverage triggers an insurer's duty to defend an entire lawsuit, the firm noted.  According to court filings, James River issued a professional liability policy to Sheehe running from March 2020 to March 2021 that broadly provided coverage for wrongful acts in the performance or failure to perform "professional services."  The policy defined that term in part as services performed by an insured as a lawyer, arbitrator or trustee, along with other fiduciary roles performed in one's capacity as a lawyer.

In the underlying action, Frontline Insurance Co. accused Sheehe and the attorneys in state court of overbilling hours worked while handling first-party property claims, alleging that in some cases multiple attorneys for the firm individually billed Frontline more than 24 hours for a single day.  Frontline specifically lodged breach of fiduciary duty, negligent supervision, unfair trade practices, unjust enrichment, breach of oral contract, fraud and legal malpractice claims.

In denying coverage, James River argued that overbilling does not constitute professional services, pointing in part to a fee dispute exclusion that barred coverage for claims arising from the "rights or duties under any agreement including disputes over fees for services."

Highlighting an underlying allegation that Sheehe and the other attorneys failed to ensure their legal services were "reasonable and necessary and advanced the best interest of Frontline," the law firm said such a claim shows that Frontline is not just suing Sheehe for a billing dispute but its "strategic decisions," too.  "A claim for breach of fiduciary duty grounded in an attorney-client relationship is considered a malpractice action and subject to the same standards as a legal malpractice claim," Sheehe continued, adding that the same goes for the breach of oral contract claim.

As for the fee dispute exclusion itself, its use of "any agreement" renders its scope overly broad since all professional services in the policy stem from an attorney-client relationship in which an attorney agrees to appropriately represent their client's interests, the firm further argued.  "This exclusion precludes coverage for all agreements, including ones between attorneys and clients, rendering the coverage illusory if read as expansively as James River urges," it said.

For its part, James River further cited in its August motion for summary judgment a prior knowledge exclusion, which barred coverage for a professional services claim if "any insured" could have reasonably foreseen their conduct would give rise to a claim.  It also invoked a "gain of profit or advantage" exclusion barring coverage for any gain or profit an insured is not legally entitled to.

But the policy still covers claims following its retroactive date of March 2004, which was prior to Sheehe's representation of Frontline, the firm responded, adding that the audit Frontline commissioned was still ongoing at the time Sheehe's policy started coverage.  "As the audit included dates cited in the complaint late as March of 2020, there is no allegation in the underlying complaint that supports that Sheehe would or should know that a claim would arise," the firm said.  The gain of profit or advantage exclusion, meanwhile, does not extend to the breach of fiduciary duty and oral contract claims either, Sheehe said, noting both counts seek damages rather than repayment of fees.

Judge Cuts Billing Rates to Reflect Denver’s Prevailing Market

September 1, 2023

A recent Law 360 story by Thy Vo, “Colo. Judge Cuts Condo Developer’s Atty Fee Award to $2.3M”, reports that a Colorado federal judge has pared down a condominium developer's attorney fee award to $2.3 million after it secured a verdict against its insurer in a construction coverage dispute, with the judge finding that the developer requested hourly rates higher than the prevailing rate in Denver's legal market.

U.S. District Judge Charlotte N. Sweeney on cut Curtis Park Group LLC's fee award from the $2.77 million requested by the developer down to $2.35 million, writing in her order that the requested rates, ranging from $350 to $1,175 an hour, were "excessive" compared with similar legal services in the region.  "At bottom, Curtis Park's repeated emphasis on its counsel's status as an AmLaw 100 firm does not make its requested hourly rates reasonable," Judge Sweeney wrote.

But the judge declined to cut into the developer's fee award as steeply as defendant Allied World Specialty Insurance Co. insisted, finding it would be "inappropriate" given the "excellent skills, experience and reputations" of Curtis Park's attorneys from Haynes and Boone LLP.  "Moreover, even though this insurance dispute case did not rise to the level of a 'niche practice,' it certainly was a complex insurance dispute with high stakes, as both parties have acknowledged," Judge Sweeney wrote in her order.

The fee award comes after a jury in April found that more than $2.5 million in covered benefits related to Curtis Park's condo project in Denver was improperly delayed or denied by Allied World's bad faith conduct.  Curtis Park sued the insurer in federal court in February 2020, alleging Allied World improperly denied coverage for losses resulting from an unexpected amount of "downward deflection" in a concrete podium deck beneath four of the development's five buildings.

Judge Sweeney's order also cut the amount of travel time Curtis Park's attorneys could recover in half, citing decisions by other courts.  But the judge rejected other claims by Allied World that the developer's fees should be reduced even further.  "Allied World fails to persuade, based on the case file and evidentiary record, that Curtis Park impermissibly 'hid' Pat Casey's involvement at various stages of litigation," Judge Sweeney said.  "And notably, as Allied World states, Curtis Park does not seek to recover fees for Mr. Casey's time."

Insurer Must Pay Full Defense Fees, Can Impose Future Rate Reductions

August 16, 2023

A recent Law 360 story by Hailey Konnath, “’SoCal Edison’s Insurer Ordered To Pay Wildfire Attorney Fees”, reports that the insurer for Southern California Edison Co. must pay in full the counsel fees stemming from a number of negligence suits over the September 2020 Bobcat Fire that the carrier initially refused to defend, a move that was a breach of its insurance contract, a California federal judge ruled.

U.S. District Judge John F. Walter granted in part and denied in part SoCal Edison's motion for summary judgment, agreeing with the utility that Greenwich Insurance Co. forfeited the right to limit counsel fees associated with those cases when Greenwich refused to defend them.  However, the insurer can indeed rely on California law to impose lower billable rates on future defense fees incurred in three cases that Greenwich agreed to defend earlier this year, the judge held.

"There is no evidence that Greenwich has breached its duty to defend as to the three lawsuits tendered on Jan. 13, 2023, and May 11, 2023," Judge Walter said.  "As such, it has not forfeited its rights and may take advantage of the rate limitations set forth in California Civil Code [Section] 2860."

The dispute centers on a slew of suits against SoCal Edison and its parent company, Edison International, following the devastating Bobcat Fire in the Angeles National Forest in September 2020.  The plaintiffs in those suits claimed that the fire was likely caused by tree branches and other vegetation that came into contact with SoCal Edison's conductors.

The utility sought coverage from Greenwich under a commercial general liability policy that the insurer issued to Utility Tree Service LLC, which SoCal Edison hired to provide vegetation services where the fire started.  But the insurer repeatedly denied its duty to defend.

Last year, SoCal Edison filed suit against Greenwich, asking the court to declare that the insurer owes coverage under the CGL policy and asserting breach of contract and bad faith claims.  Greenwich argued that it has no defense obligations to the utility company because the underlying suits don't accuse UTS of negligence.  However, in January, the court held that SoCal Edison clearly established that Greenwich has a duty to defend.

The utility lodged its motion for partial summary judgment in June, arguing that Greenwich has failed to reimburse its fees in full following that order.  Instead, it told the utility it planned to pay only a fraction of the fees by significantly reducing the hourly rate of SoCal Edison's defense counsel, it said at the time.

Attorney Fees on Insurance Claims Raises Question in Texas

July 12, 2023

A recent Law.com story by Adolfo Pesquera, “Attorney Fees Included? Doubts Swirl Over Fees for Insurance Claims”, reports that a certified question on an insurance law amendment—and the peril it portends for attorney fees—has been sent to the Texas Supreme Court from the U.S. Court of Appeals for the Fifth Circuit.  The Fifth Circuit informed the supreme court that a 2017 Texas Legislature amendment to the insurance code that addresses unfair or deceptive acts or practices raises “an important issue … as to which there is no controlling Texas Supreme Court authority, and the authority from the intermediate state appellate courts provides insufficient guidance.”

The central issue is how, if at all, the amendments change a policyholder’s ability to collect Texas Prompt Payment of Claims Act damages, such as attorney fees, when the insurer pays an appraisal award and estimated interest, the Fifth Circuit said.

No Fees?

In the underlying case, Mario Rodriguez v. Safeco Insurance Co. of Indiana, the policyholder filed a claim for tornado damage to his home.  Disagreements between the homeowner and insurer resulted in a lawsuit.  Safeco invoked the policy’s appraisal provision, and paid $32,447 of the estimated $36,514 replacement cost value to Rodriguez’s home.  Safeco also paid $9,458, claiming the amount represented “any conceivable interest plaintiff could allege to be owed under the [TPPCA] on the above-referenced appraisal award payment,” the Fifth Circuit noted.

Safeco filed a motion for summary judgment, arguing that, in light of the 2017 amendments to § 542 of the Texas Insurance Code, § 542A, its payment of the appraisal award plus interest foreclosed Rodriguez’s claim for attorney’s fees under the TPPCA and eliminated all remaining claims.  Rodriguez argued that the legislature did not intend the amendments to read attorney’s fees out of the TPPCA in the appraisal context.

The federal district court in the Northern District of Texas granted Safeco’s motion and dismissed all claims, holding that, “although the issue presents policy factors that weigh in favor of each possible outcome, the court finds that the legislature’s intent appears clear when enacting Chapter 542A of the Texas Insurance Code to limit attorney’s fees.”

Courts Divided

The Fifth Circuit said the federal courts are split on this issue.  In Morakabian v. Allstate Vehicle & Prop., the Eastern District held on March 30, 2023 that the plain language of the section makes clear that payment of the appraisal award extinguishes a plaintiff’s right to attorney fees.  However, Gonzalez v. Allstate Fire & Cas. Ins. Co., a Dec. 2, 2019 case in the Western District, held that while it is true the legislature intended to place a limit on attorney fees, there is no indication the legislature intended to read attorney fees out of statute for all practical purposes.

The Fifth Circuit noted that the court in Gonzalez found that the alternative interpretation would mean “insurers could systematically avoid liability for TPPCA attorney’s fees by, first, paying only a small fraction of the alleged claim amount; second, invoking appraisal; and third, only following appraisal, paying the difference and any interest owed to the claimant.”

The question presented to the state supreme court states: “In an action under Chapter 542A of the Texas Prompt Payment of Claims Act, does an insurer’s payment of the full appraisal award plus any possible statutory interest preclude recovery of attorney’s fees?”

Rodriguez is represented by James Winston Willis and Melissa Wray of the Daley & Black firm on Houston.  In a joint statement, Willis and Wray said that for decades the Prompt Payment of Claims Act subjected insurers who don’t pay claims in a timely way to strict liability for penalty interest and the insured’s reasonable attorney fees.

“Some courts have construed recent amendments to the Texas Insurance Code in a manner that allows insurers to completely escape liability under the Act,” Willis and Wray said.  “If these courts’ rulings are allowed to stand, the effect on Texas residential and commercial policyholders will be devastating.”  Allowing insurers to systematically avoid paying attorney fees when they wrongfully deny and underpay claims will force Texas insureds to pay their lawyers out of claim proceeds that should be going to rebuilding, the plaintiff attorneys said.

“Mr. Rodriquez is experiencing this very hardship right now because the district court denied his claim for attorneys’ fees after Safeco not only vastly underpaid his claim when it adjusted it but also vigorously litigated the case for more than a year before the amount of loss was ultimately set at more than 28 times what Safeco’s adjuster found,” Willis and Wray said.

Insurer Says It Controls Defense Fees/Costs in Asbestos Injury Case

June 6, 2023

A recent Law 360 story by Hope Patti, “Insurer Says It Controls Defense in Fox’s Asbestos Injury Row,” reports that Twentieth Century Fox must allow an AIG unit to select defense counsel in an underlying asbestos injury suit, the insurer told a California federal court, saying it has a right to control the defense of a suit that it has agreed to cover.  National Union Fire Insurance Co. of Pittsburgh, Pa., said in a complaint that Twentieth Century Fox Film Corp. has retained a law firm that lacks experience in handling asbestos litigation and "charges considerably more than what is reasonable for defense of these lawsuits in the jurisdiction in which they are filed."

The insurer is also seeking a declaration that Fox Television Studios Inc., which was named in one of three underlying asbestos suits at issue, is not an insured under National Union's policies.  According to the insurer, Twentieth Century Fox hired Newmeyer & Dillion LLP to review potential insurance coverage after the company was named in the underlying asbestos suits filed in Los Angeles County Superior Court.  The firm then tendered the suits to National Union in September.

National Union said it agreed to defend Twentieth Century Fox, subject to a reservation of rights, under three primary liability policies issued by the insurer in the 1980s but declined to defend Fox Television.  Twentieth Century Fox "has refused to permit National Union to assign defense counsel even though National Union has the right to control the defense, including selection of defense counsel," the insurer said.  The insurer also asserted that invoices from Newmeyer & Dillion reflect time performing tasks other than defending the asbestos suits, as well as work that is not necessary to the defense of Twentieth Century Fox.

"Newmeyer Dillion includes in its invoices amounts that are block billed, contain vague descriptions as to the work performed, reflect duplication of efforts, include administrative tasks and are not reasonable or necessary to the defense of the asbestos lawsuits," the insurer said.  As such, National Union is seeking a declaration that it is only required to pay reasonable and necessary defense costs along with reimbursement from Twentieth Century Fox for amounts that the insurer has overpaid or had no obligation to pay.  "In addition, National Union seeks an order confirming it has no duty to defend Fox Television and an order requiring [Twentieth Century Fox] to reimburse any amounts National Union paid on Fox Television's behalf," the insurer said.