Proving attorney fees in insurance coverage disputes [MCLE]

Insurance

April 2017

By Kirk A. Pasich

Insureds often ask their liability insurers to pay for attorney fees that they incur in the defense of potentially coverage claims. They also typically ask insurers to pay for their attorneys' fees incurred in coverage disputes. This latter request is made pursuant to the California Supreme Court's decision in Brandt v. Superior Court, 37 Cal. 3d 813 (1985). There, the court held: "When an insurer's tortious conduct reasonably compels the insured to retain an attorney to obtain the benefits due under a policy, it follows that the insurer should be liable in a tort action for that expense. The attorney's fees are an economic loss - damages - proximately caused by the tort."

One question that typically arises when an insured seeks to recover fees is: What "proof" must an insured offer regarding the attorney fees it has incurred?

Insurers typically request that an insured produce copies of the invoices it has received from its counsel. However, the California Supreme Court has recognized that such invoices may be subject to the protection of the attorney-client privilege. In Los Angeles County Board of Supervisors v. Superior Court, 2 Cal. 5th 282 (2016), a request for disclosure under the California Public Records Act was made to the county of Los Angeles. The county objected to production, citing the attorney-client privilege. The court engaged in a detailed discussion of the concerns and nature of the attorney-client privilege and its applicability to invoices for legal services. The court noted that "not every communication between attorney and client is privileged solely because it is confidentially transmitted." But, it also observed that "the information contained within certain invoices may be within the scope of privilege." It pointed out that to the extent that billing information is conveyed "'for the purpose of legal representation' - perhaps to inform the client of the nature or amount of work occurring in connection with a pending legal issue - such information lies in the heartland of the attorney-client privilege." It emphasized that, "even if the information is more general, such as aggregate figures describing the total amount spent on continuing litigation during a given quarter or year, it may come close enough to this heartland to threaten the confidentiality of information directly relevant to the attorney's distinctive profession role."

Therefore, the court held: "When a legal matter remains pending and active, the privilege encompasses everything in an invoice, including the amount of aggregate fees. This is because, even though the amount of money paid for legal services is generally not privileged, an invoice that shows a sudden uptick in spending 'might very well reveal much of [counsel's] investigative efforts and trial strategy.'"

However, the court noted that the same "may not be true for fee totals in legal matters that concluded long ago."

In conclusion, the court stated the general rule about attorney invoices as follows: "[T]he contents of an invoice are privileged only if they either communicate information for the purpose of legal consultation or risk exposing information that was communicated for such a purpose. This latter category includes any invoice that reflects work in active and ongoing litigation."

Thus pursuant to the teachings of this decision, insurers generally would not have a right to access legal invoices, at least with respect to ongoing matters, such as an ongoing underlying lawsuit against the insured or an active coverage lawsuit between insured and insurer.

When an insured resists producing attorney invoices, insurers often respond by claiming that, pursuant to California Civil Code Section 2860, an insured is obligated to produce such invoices.

However, Section 2860 does not necessarily mandate the production of attorney invoices. Section 2860(d) does specify that when there is a conflict of interest entitling the insured to be defended by independent counsel, the insured and that counsel must disclose to the insurer information concerning the action. However, it contains an express exception for "privileged materials relevant to coverage disputes." Given the breadth of many insurer reservations of rights, that exception creates substantial protection for defense invoices.

Under the "at issue doctrine, the party "seeking to discover privileged information can show waiver by demonstrating that the client has put the otherwise privileged information directly at issue and that disclosure is essential for a fair adjudication of the action." Southern Cal. Gas Co. v. Pub. Utils. Comm'n, 50 Cal. 3d 31, 40 (1990). However, there is no waiver of privilege "where the substance of the protected communication is not itself tendered in issue, but instead simply represents one of several forms of indirect evidence in the matter." Mitchell v. Superior Court, 37 Cal. 3d 591, 606 (1984). See also Rockwell Int'l Corp. v. Superior Court, 26 Cal. App. 4th 1255, 1268 (1994) (same). As the Rockwell court held, the waiver doctrine "has no application in a coverage action between an insured and its carrier where the issues turn on the underlying facts and the insured is not relying on the advice of counsel for any purpose." The question then becomes: Is there alternative proof as to the amount and reasonableness of fees? California courts have answered this question unequivocally with a "yes." "In California, an attorney need not submit contemporaneous time records in order to recover attorney fees .... Testimony of an attorney as to the number of hours worked on a particular case is sufficient evidence to support an award of attorney fees, even in the absence of detailed time records." Martino v. Denevi, 182 Cal. App. 3d 553, 559 (1986). As other California courts have held, sufficient proof may be established by attorney declarations "evidencing the reasonable hourly rate for their services and establishing the number of hours spent working on the case." Wershba v. Apple Computer, Inc., 91 Cal. App. 4th 224, 254 (2001).

Additionally, this kind of evidence should suffice to establish reasonableness of fees, particularly if supported by expert testimony regarding reasonableness. See, e.g., Children's Hospital v. Bonta, 97 Cal. App. 4th 740, 782-83 (2002) (reasonableness established by attorney declaration providing attorney's educational background, generally legal experience, extensive experience in field at issue, and litigation experience, coupled with expert declarations that fees sought were in line with market rates); Mardirossian & Associates, Inc. v. Ersoff, 153 Cal. App. 4th 257, 266-67 (2007) (attorneys and experts testified as to reasonableness of fees).

An insured also can offer evidence of fee awards in other cases to establish the reasonableness of the fees incurred in a given case. See, e.g., Margolin v. Reg'l Planning Comm'n, 134 Cal. App. 3d 999, 1005 (1982) (evidence of attorney fees, including hourly rates, awarded to members of the firm in other lawsuits were "obviously relevant"); Davis v. City of San Diego, 106 Cal. App. 4th 893, 904 (2003) (counsel's hourly rate had been determined to be reasonable in other matters). In any event, should an insured decide to produce invoices as evidence of attorney fees, it is entitled to redact privileged information from those invoices. As the California Supreme Court has held: "[A]n objective assessment of the litigation as a whole to determine whether counsel's bills appear fundamentally reasonable is unlikely to involve an examination of individual attorney-client communications or the minute details of every litigation decision. If privileged information on these subjects is included in counsel's billing records, it can be redacted for purposes of assessing whether counsel's bills are reasonable." Hartford Cas. Ins. Co. v. J.R. Mkting, L.L.C., 61 Cal. 4th 988, 1005 (2015).

General Credit Categories
Participatory Credit
Special Credit Categories