Fee Dispute Hotline
(312) 907-7275

Assisting with High-Stakes Attorney Fee Disputes

The NALFA

News Blog

Insurer Wins Recovery of $5.5M in Defense Fees

September 7, 2020 | Posted in : Coverage of Fees, Defense Fees / Costs, Fees as Sanctions, Fees in Arbitration, Fees Paid by Insurers, Legal Bills / Legal Costs, Legal Malpractice

A recent Law 360 story by Daphne Zhang, “Insurer Win ‘Incompetent’ Atty Fight to Recoup $5.5M,” reports that a California federal judge axed a claims handler's suit seeking additional coverage of its legal bills from an insurer that it says hired a bad lawyer to fend off underlying litigation involving a car crash, ruling instead in favor of the insurer's counterclaim to recoup over $5.5 million in defense and arbitration costs it paid.  U.S. District Judge Janis L. Sammartino said that American Claims Management Inc.'s coverage claims are barred by Allied World Surplus Lines Insurance Co.'s policy exclusions, and since some of the claim handler's legal bills should not have been covered, the insurer is entitled to recoup its over $5.5 million payment from ACM.

Allied World has sufficiently shown that its policy's claims services and dishonest acts exclusion precludes coverage since ACM acted in bad faith and concealed information in its handling of insurance claims in the underlying case, Judge Sammartino said.  The judge dismissed ACM's allegation that Allied World breached its duty of defense because the claims handler failed to show that attorney Alan Jampol of Jampol Zimet, appointed by Allied World to defend ACM in the underlying suit, was incompetent or inexperienced, according to the order.

ACM processed claims for QBE Insurance Corp. As of October 2010, it retained Allied World to insure its work for up to $5 million and contracted with other insurance companies for an additional $10 million in coverage.  In the underlying case, a driver insured by QBE crashed into a vehicle and injured a family.  When processing the injured family's claim, ACM missed a March 2011 deadline that would have capped QBE's exposure at $30,000.  The family subsequently won a $21 million jury verdict in the underlying case, which QBE later settled for $15 million, according to filings.

QBE then offered to settle with ACM for $15 million, but Allied World allowed the matter to go to arbitration.  In July 2017, an arbitration panel awarded QBE more than $18.5 million, according to court papers.  With the portion of the over $5 million policy that Allied World paid and the $10 million paid by its other insurance carriers, ACM wanted Allied World to pay the remaining $4.9 million of the arbitration award and sued them.

In the order, Judge Sammartino said that Allied World's policy exclusions bars coverage for acts of bad faith and dishonest conduct in handling an insurance contract, and QBE specifically alleged that ACM handled the car accident claim in bad faith.  The judge said the arbitration panel in the underlying case found that ACM "chose to withhold from QBE evidence of its own negligent performance," provided QBE with "inadequate and misleading" information, and that ACM "has repeatedly tried to conceal and misrepresent the fact of timely receipt of the letter demand" from the injured family.

Additionally, the court has found that Jampol was competent at the time of his appointment by Allied World to defend ACM, Judge Sammartino said. ACM has alleged that Jampol was inexperienced with car accident cases and had never handled a "bad-faith" case as complicated as the underlying suit, according to filings.

"Plaintiff gives no reason why an auto accident case such as this would be more complex than other bad-faith insurance claims that Jampol had experience handling.  Nor does plaintiff identify any skills or knowledge necessary to litigate an auto accident case that Jampol lacked," the judge said.