Reasonable Attorney’s Fees – Redux
An insurer’s obligation to pay “reasonable” attorney’s fees incurred by the insured continues to be a matter of contention. The issue most commonly arises in two contexts: when the insurer reserves rights, permitting the insured to select defense counsel, and when the insured is entitled to select counsel, such as under an EPLI policy, but the firm the insured wants to retain is not on the insurer’s “panel” counsel list. In the latter situation, in particular, the insured has usually paid a hefty premium and the policy typically comes with a high deductible, leading the insured to conclude, “it’s my money at stake and my institution’s reputation (or perhaps the reputation of key decision-makers), so I should be able to hire who I want.” Insurers do not view it the same way.
Obviously the best way for insureds to deal with this problem is to address the issue well before the claim comes in, by ensuring that the firm or lawyer the insured most wants to handle their most sensitive claims are on the list of panel counsel. Even if the firm is not part of the usual panel counsel, firms can be added to the policy by endorsement, frequently with rates agreed to in advance. The insured is in a better position to negotiate inclusion of a law firm at acceptable rates before buying the policy when its bargaining position is strong, rather than after the claim comes in. But, the world isn’t perfect and in the rush to bind coverage, this frequently doesn’t happen. So, the insurer and insured are left to do what they frequently do, litigate the issue. As we noted previously, the most recent pronouncement from the federal court favors insurers. However, on balance, our state courts arguably favor insureds. See Northern Security Ins. Co. v. R.H. Realty Trust, 78 Mass. App. 691 (2011), where the Appeals Court rejected the insurer’s attempt to impose panel counsel rates on counsel selected by the insured once the insurer reserved rights. Whatever the forum, litigation is going to involve a fact specific inquiry, and sometimes a line by line review of legal bills, which means, at the end of the day, neither the insured or the insurer comes up a winner.
Steven L. Schreckinger
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