Transcript of HB Allocation oct2013 Recoupment of Defense and Indemnity
- 1. final October 28-29, 2013 LA Downtown Hotel, Los
Angeles
- 2. The Mechanics of Buss and Blue Ridge Actions
- 3. Larry Beemer, CLMP QBE North America larry.beemer@us.qbe.com
Mary Craig Calkins Kilpatrick Townsend & Stockton LLP
mcalkins@kilpatricktownsend.com Mari Henry Leigh, CLMP Meckler
Bulger Tilson Marick & Pearson LLP
mari.henry.leigh@mbtlaw.com
- 4. Buss v. Superior Court, 6 Cal. 4th 35 (Cal. 1997) An insurer
must defend its policyholder against claims that are merely
potentially covered, in light of facts alleged or otherwise
disclosed. Buss, at 46 (emphasis added). An insurer may only obtain
reimbursement for those [d]efense costs that can be allocated
solely to the claims that are not even potentially covered. Buss,
at 57. An insurer must carry the burden of proof as to these costs
by a preponderance of the evidence. And to do that . . . it must
accomplish a task that, if ever feasible, may be extremely
difficult. Hence, the insurer will probably pursue the matter only
in apparently exceptional casesfor example, where the defense costs
the insurer may obtain in reimbursement are clear and substantial
and where the assets the insured has available for reimbursement
are themselves of the same sort. Buss, at 57 (citations
omitted).
- 5. Blue Ridge Ins. Co. v. Jacobsen, 25 Cal. 4th 489, 505 (Cal.
2001) An insurance company may seek reimbursement for a settlement
paid on behalf of an insured even in the absence of the insureds
express agreement. Blue Ridge, at 502.
- 6. Other case law supporting allocation: Johansen v. California
State Auto. Assoc., 15 Cal. 3d 9 (Cal. 1975) Insurer can obtain
reimbursement of amounts paid to settle on behalf of policyholder,
because duty to indemnity is narrower than duty to defend and only
exists where there is actual coverage). State Farm Gen. Ins. v.
Mintarsih, 175 Cal. App. 4th 274 (Cal. Ct. App. 2009) The
contractual duty to defend extends only to those claims for which
there is at least potential coverage under the policy, as we have
stated. An insurer has no contractual duty to defend the insured as
to claims that are not even potentially covered. Mintarsih, at 286
(citing Buss). Scottsdale Ins. Co. v. MV Transportation, 26 Cal.
4th 643 (Cal. 2005) [A]n insurer, having properly reserved its
rights, may advance sums to defend its insured against a
third-party lawsuit, and may thereafter recoup such costs from the
insured if it is determined, as a matter of law, that no duty to
defend... Scottsdale, at 662 (discussing Buss).
- 7. Case law rejecting recoupment absent an express agreement:
General Agents Ins. Co. v. Midwest Sporting Goods Co., 828 N.E.2d
1092 (Ill. 2005). As a matter of public policy, we cannot condone
an arrangement where an insurer can unilaterally modify its
contract, through a reservation of rights, to allow for
reimbursement of defense costs in the event a court later finds
that the insurer owes no duty to defend. General Agents, at 1102.
Shoshone First Bank v. Pacific Employers Ins. Co, 2 P.3d 510 (Wyo.
2000). Recognizing that in other jurisdictions allocation is
allowed between the insurer and the insured, we eschew this theory,
and hold that unless an agreement to the contrary is found in the
policy, the insurer is liable for all of the costs of defending the
action. Shoshone, at 514.
- 8. Buss =Defense---------BlueRidge = Indemnity The How To
Issues: Preservation of rights Initial Reservation of Rights
Letters should be completed as soon as possible (generally within
60 days of receiving the claim or suit). Certain cases due to their
nature may take more time. The Reservation or Rights or Partial
disclaimer of coverage should detail as many facts as possible. A
thorough investigation to obtain the relevant facts is essential.
FACTS ARE STUBBORN THINGS John Adams The Reservation letter must be
specific to the causes of action in the lawsuit and relating the
facts and coverage to them. Simply reserving to the entire policy
will not work. Identification of covered vs. uncovered claims
Initially the identification of covered vs. uncovered claims may be
difficult. As more facts are developed, the Reservation or Partial
Disclaimer should be updated.
- 9. Buss =Defense---------BlueRidge = Indemnity The How To
(continued): Create a paper trail advising the insured constantly
of the coverage issues and the right to reimbursement. Early in the
case try to work out an allocation with the insured. The insured
and carrier need to consider the overall economic outcome by
working out an early allocation. In a Buss situation if the matter
cannot be resolved early, the carrier should consider the retention
of counsel who is an expert in legal bill review.
- 10. How a Legal Fee Expert Can Assist the Parties by Providing
Helpful Data on Defense Costs Defense Costs Allocation
Methodologies Excess of Costs Carrier is required to show but for
the uncovered claims the defense costs would not have been as
large; carrier allowed to recoup the excess over costs to defend
covered claims. Buss, 16 Cal 4th 35 (1997). Fair Share or Equitable
Allocation The lack of scientific certainty [in allocation] does
not justify imposing all of the costs on the insurer by default.
The legal system frequently resolves issues involving considerable
uncertainty. We presume that the insurer and insured can negotiate
a satisfactory settlement that fairly apportions the defense costs.
When they are unable to agree, we likewise presume that our courts
will be able to analyze the allegations in the complaint in light
of the coverage of the policy to arrive at a fair division of
costs. SL Industries, Inc. v. American Motorists Ins. Co. , 128
N.J. 188 (1992).
- 11. How a Legal Fee Expert Can Assist the Parties By Providing
Helpful Data on Defense Costs Fees Research, $12,296 Settlement,
$2,604 Strategy/Status, $29,514 Trial, $2,291 Appeal, $3,091
Pre-Litigation, $1,015 Discovery, $184,226 Pleadings, $18,958
General Counsel, $88,775 Motions, $331,693 Vague *, $8,180
Management, $28,226 Non-Defense/Ins., $27,380 Investigation,
$21,136
- 12. How a Legal Fee Expert Can Assist the Parties by Providing
Helpful Data on Defense Costs All Motions Activity Motion for
Summary Judgment on Intentional Conduct 475 120 Motion to Bifurcate
Fraud Claims 72 Motion to Dismiss Fraud Claims 0 100 200 300 400
500
- 13. How a Legal Fee Expert Can Assist the Parties by Providing
Helpful Data on Defense Costs: Clearly Covered Clearly Uncovered
Mixed Vague
- 14. How a Legal Fee Expert Can Assist the Parties with Cumis
Rates Average Actual Rates Charged vs. Average Rates Typically Paid
by Carriers $458 $351 Senior Partner $210 Average Rates Paid by
Carrier $405 Junior Partner $315 $190 $345 Average IP Rates
Published by Survey $272 Senior Associate $158 $235 Associate
Average Rates Charged by Counsel $197 $143 $155 Paraprofessional $0
$129 $70 $100 $200 $300 $400 $500
- 15. In Blue Ridge the carrier should consider a consistent
approach to handle the matter properly Evaluate the suit for
settlement. When defending the insured, can the company achieve a
reasonable settlement? Analyze the reasonable value of the case for
settlement while not considering coverage. To be reasonable, the
tenents of the proposed settlement should be more favorable to the
insured than the likely judgment if the case goes to trial.
Remember Johansen Make a reasonable settlement offer. If the
carrier wants to seek reimbursement of uncovered damages the
company can settle but must give the insured timely notice of its
intent to resolve the claim and seek reimbursement.
- 16. Advise the insured in writing of your intent to accept the
settlement offer. Again, in writing, reserve your right to seek
reimbursement for non-covered claims pursuant to Blue Ridge. If the
insured does not agree to the settlement notify the insured of the
option for it to assume its own defense. Once the case is resolved,
again, write the insured seeking reimbursement. Consider mediation,
or some form of ADR or limited litigation proceeding.
- 17. Burden of proof: The burden is the preponderance of the
evidence standard and the insurer bears the burden Insureds may
argue the carrier must show that costs were not reasonably related
and/no greater than otherwise would have been incurred in the
defense via the Larger Settlement Rule: Safeway Stores v. National
Union Fire Ins. Co., 64 F.3d 1282, 1289 (9th Cir. 1995) (Safeways
defense costs are reasonably related to the defense of its officers
and directors in the class-action suits and are therefore fully
covered by the D&O policy.); Raychem Corp. v. Federal Ins. Co.,
853 F. Supp. 1170, 1182 (N.D. Cal. 1994) (allocation refused where
all defense costs were reasonably related to the defense of a
covered claim).
- 18. Insureds will raise same arguments on burden of proof for
recovery of settlements: Caterpillar, Inc. v. Great Am. Ins. Co.,
62 F.3d 955, 964 (7th Cir.1995) (insurer may attempt to allocate
settlement, but only to "the extent which the settlement was larger
because of claims against uninsured persons . . . . " ). See, also,
Nordstrom, Inc. v. Chubb & Son, 54 F.3d 1424, 1432 (9th Cir.
1995). Insurers will argue that insureds should bear the burden of
proof to allocate between covered and nonconvered claims where
insured controlled the defense because the insured typically would
have better access to information. Federal Ins. Co. v. Hawaiian
Electric Indus. , No. 94-00125, 1996 U.S. Clackamas County v.
Midwest Employers Cas. Co. , No. CV 07-782-PK, 2009 Dist., LEXIS
22804 (D. Haw. Oct. 27, 1996). U.S. Dist., LEXIS 118195 (D. Or.
Oct. 8, 2009).
- 19. A Frequently Asked Question: Cumis counsel issues and
controlling the defense [W]here there are divergent interests of
the insured and the insurer brought about by the insurer's
reservation of rights based on possible noncoverage under the
insurance policy, the insurer must pay the reasonable cost for
hiring independent counsel by the insured. San Diego Navy Federal
Credit Union v. Cumis Ins. Soc., 162 Cal. App. 3d 358, 375
(1984).
- 20. Other Frequently Asked Questions: Does a reservation of
recoupment rights implicate bad faith issues? When can you bring a
recoupment action? See Montrose Chemical Corp. v Superior Court, 6
Cal. 4th 287, 24 Cal. Rptr. 2d 467, 861 P.2d 1153 (1993). (A stay
of the declaratory relief action pending resolution of the third
party suit is appropriate when the coverage question turns on facts
to be litigated in the underlying action.) Who and what cases are
most susceptible to recoupment?
- 21. Is the juice worth the squeeze, i.e., does the amount in
controversy exceed transactional costs of litigation and
reallocation of non-economic resources? Is the insured solvent and
capable of repayment? Is there an alternate means of resolving the
recoupment issues?
- 22. Larry Beemer VP, Claims Management Litigation
&Specialty Claims QBE North America/Irvine, CA (949) 222-7482
larry.beemer@us.qbe.com Mary Craig Calkins Partner, Kilpatrick
Townsend & Stockton LLP/Los Angeles (310) 777-3720
mcalkins@kilpatricktownsend.com Mari Henry Leigh Partner, Meckler
Bulger Tilson Marick & Pearson LLP/Chicago (312) 474-7133
mari.henry.leigh@mbtlaw.com