Flash Update: California Supreme Court Hears Oral Argument On Independent Counsel’s Obligation Regarding Billing

Flash Update: California Supreme Court Hears Oral Argument On Independent Counsel’s Obligation Regarding Billing

06.01.2015

The California Supreme Court heard argument on May 28, 2015 in a case that could clarify the obligations of an insured’s independent counsel not to overbill the insurer funding the insured’s defense.  In J.R. Marketing, L.L.C. v. Hartford Casualty Insurance et. al., Case No. S211645, the Court will address this question:  “After an insured has secured a judgment requiring an insurer to provide independent counsel to the insured (see San Diego Fed. Credit Union v. Cumis Ins. Society Inc. (1984) 162 Cal.App.3d 358), can the insurer seek reimbursement of defense fees and costs it considers unreasonable and unnecessary by pursuing a reimbursement action against independent counsel or can the insurer seek reimbursement only from its insured?”

During a lively hearing that included questions from all seven justices, the Court raised such issues as whether it was fair to place an insured in the middle of a dispute over allegedly excessive fees when its independent counsel ultimately retained the fees; whether allowing an insurer a direct right of action for reimbursement of excessive fees would interfere with the attorney-client relationship between the insured and its independent counsel or with counsel’s independence; and whether there was a material difference between an arbitration under California Civil Code § 2860 regarding excessive fees and a civil reimbursement action.

Counsel for independent counsel asserted, among other things, the Hartford’s breach of the duty to defend and case law holding that an insurer, after breaching its duty to defend, is not entitled to certain protections under Section 2860, and California’s prohibition against the assignment of legal malpractice claims.  Hartford pointed out the difference between the instant fee dispute, which is consistent in scope with the fee arbitration procedure authorized by Section 2860, and broader malpractice disputes. 

From our observation, the justices' questions and statements did not reveal how they would decide the case.  We will continue to follow this case. 

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