District Court Scrutinizes Recoverable Costs and Fees in Liability Coverage Dispute
In Alexander Mfg.v. Ill. Union Ins. Co., 2010 U.S. Dist. LEXIS 15514 (February 22, 2010), the plaintiff had brought a professional liability suit against Illinois Union’s insured. Illinois Union agreed to defend its insured pursuant to its applicable policy. When the underlying mediation failed, plaintiff settled around Illinois Union and directly with its insured for $1,300,000, in the form of a stipulated judgment and covenant not to execute, and obtained an assignment of the insured’s policy rights.
Plaintiff then brought a breach of contract and bad faith lawsuit against Illinois Union for its alleged failure to properly settle the underlying suit. After two rounds of summary judgment motions and trip up to the Ninth Circuit, the issues were narrowed for trial and plaintiff grudgingly accepted Illinois Union’s $425,000 Offer of Judgment, exclusive of costs and fees. Plaintiff then filed its motion for $473,930.68 in claimed attorney fees and costs.
Magistrate Judge Papak found that the plaintiff wholly failed to “verify” the $40,137.93 in claimed costs. Id. at *11-12. Although Judge Papak allowed plaintiff leave to file an amended cost bill, he advised plaintiff that it could not “recoup costs for courier, mail, telephone, [] computerized research [,]travel expenses [,] costs of a mediator [,] outside counsel [,]” and many other claimed costs because they were “‘plainly not recoverable.’” Id. at *12-15. Plaintiff did not file an amended cost bill and, therefore, recovered no costs.
On the issue of recoverable attorney fees, Illinois Union’s threshold argument that ORS 742.061 should not apply because it never “denied” coverage, but simply contested the extent of available coverage was rejected. Id. at *19-22. Illinois Union’s argument that the plaintiff’s underlying complaint did not constitute a requisite “proof of loss” under ORS 742.061 sufficient to trigger its indemnity (as opposed to its defense) obligations was also rejected. Relying on the Oregon Supreme Court’s recent decision in Parks v. Farmers Ins. Co., 347 Or. 374 (2009), Papak found that plaintiff’s underlying complaint, even though for unspecified damages, provided “sufficient information for Illinois Union to estimate its indemnity obligations.” Id. at *17-19. Judge Papak did, however, agree with Illinois Union on the apportionment of fees between the contract and the bad faith claims finding that they did not share “common issues”, reducing recoverable fees by over $104,000. Id. at *22-25. And Papak reduced plaintiff’s recovery by roughly another $60,000 pursuant to several ORS 20.075 “reasonableness” factors, including plaintiff’s unreasonable pursuit of settlement. Id. at *20-37.
The sufficiency of what constitutes a “proof of loss” under ORS 742.061 continues to be diluted. However, arguing for the apportionment of recoverable fees between the contract claim and (the inevitable) bad faith claim remains a viable weapon in contesting policyholder attorney fee claims. The District Court is also proving to be a better venue for mitigating fees claims based on their overall “reasonableness” relative to the substantive claims at issue, the parties litigation conduct and the sufficiency of the petition.
-Submitted by Lloyd Bernstein, Gordon & Polscer, LLC
