Reasonableness of Insurer Covered Legal Fees Is In the Eye of the Beholder
As noted previously, when the insurer reserves its rights, the insured usually gets to pick counsel. If that counsel is not one regularly employed by the insurer, fights over rates and staffing to defend high exposure cases are all but inevitable.
A body of law on what constitutes a reasonable fee for “independent” counsel is rapidly developing, and Judge Stearns from the federal district court has just added to it. In an opinion that favored the insurer, Judge Stearns in Vicor v. Vigilant Ins. Co. rules, in a case where the claimant sought $1.1 billion from the insured, that the insurers acted reasonably by paying approximately $5.2 million out of legal fees totaling $7.4 million, by applying a blended rate of $250 per hour for attorneys and $75 for paralegals. The court rejected the insured’s argument that it should recover the actual rate charged by a second law firm also employed by the insured whose rates ranged as high as $690 per hour. While the opinion provides support for the use of a blended rate by insurers and places the burden of proof squarely on the insured to show that using fifteen lawyers, split among two law firms, was reasonable, experience teaches that each case is likely to be highly fact specific, and that over-reaching on either side may well backfire.
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