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The rates to be paid to the insured’s personal counsel is often-times an issue where there is not a lot of common ground between insurers and insureds. The issue arises in a few of different contexts: an insurer is obligated to defend an insured using independent counsel; an insurer is found to have breached the duty to defend and must now reimburse its insured’s defense costs; and an insured is a prevailing party in coverage litigation and is entitled to recover its attorneys fees.
You know the arguments. The insurer asserts that the rates to be paid to the insured’s counsel should approximate those paid by the insurer to its panel counsel. The insured replies that the panel counsel rates are low, and not the market rate, because they are set with an understanding that, by accepting the rates, the panel lawyers will be in line for repeat assignments.
Of all the scenarios where this issue arises, the insurer surely has the hardest road when it has been found to have breached the duty to defend and must now reimburse its insured’s defense costs. This was the very clear message recently sent by a Wisconsin federal court in Fleet and Farm of Green Bay, Inc. v. United Fire and Casualty Co., 13-1013 (E.D. Wis. Oct. 7, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance].
The court found that United Fire, having breached its duty to defend, was responsible for paying the attorney’s fees that its insured had incurred in providing its own defense.
United Fire sought to obtain unredacted copies of the insured’s counsel’s bills. Its argument was that it needed unredacted copies to determine whether the fees sought were reasonably and necessarily incurred.
The court denied the insurer’s request – and it wasn’t quiet about it.
First, the court observed that, according to the Wisconsin Supreme Court, damages for breach of the duty to defend include “costs and attorneys fees incurred by the insured in defending the suit.” The Fleet and Farm court observed: “Notably, the [Supreme] court did not modify attorney’s fees with the adjective ‘reasonable,’ which suggests that a reasonableness inquiry is inappropriate.”
The court then added some further clarification of this point. While it offers insurers some protection, concerning the reasonableness of fees, it’s not much:
“Having refused to provide a duty to defend, the insurer also gave up its right to control the defense, as well as the ‘reasonableness’ of its attendant costs. The Plaintiff [insured] is therefore correct that United Fire is not entitled to take a fine-toothed comb over its legal bills, which, after all, it paid in the normal course of business. That said, it is not as though courts must rubber-stamp all such fee requests. Inherent in the nature of damages—any damages—is a limited reasonableness component that derives in part from the injured party’s duty to mitigate. For example, an insured cannot expend millions of dollars in fees in a hundred-thousand-dollar case and expect its bills to be paid without a peep from the insurer. The governing principle mandates that the damages awarded must ‘naturally flow from the breach.’
What this means is that an insurer in a situation like this has a very limited ability to challenge attorney’s fees that were actually incurred. This, no doubt, is not only a nod to the fact that the insurer forfeited its right to control the defense, but also a recognition that fees incurred at arm’s length in a free market are entitled to a certain level of deference that does not tolerate second-guessing. Here, at the time the fees were incurred—i.e., the underlying litigation and in this coverage action—the question of coverage was hardly so clear that the Plaintiff had any incentive to run up the bill or to proceed on the assumption that United Fire would later be on the hook for those fees. The fees were coming out of the Plaintiff's pocket, and like any similarly-situated party, it made judgments about value and quality. Allowing a secondary ‘reasonableness’ inquiry (often years later) would add expense and squander judicial resources.”
I’ll refrain from offering any commentary here. None is needed.
Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.
The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.
Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.
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