The California Court of Appeal’s (First Appellate District, Division Three) decision in J.R. Marketing, L.L.C. et al. v. Hartford Casualty Insurance Co. involves a situation where an insurer (Hartford in this case) failed to meet its duty to defend its insureds. The insureds sued the insurer. The trial court ruled the insurer had a duty to defend and had a duty to fund the independent counsel retained by the insureds. The independent counsel submitted bills for fees and costs totaling more than $15 million, which the insurer subsequently paid.
After paying the independent counsel’s bills, the insurer sought a court order requiring the independent counsel to reimburse all unreasonable or unnecessary fees and costs billed to the insurer. The trial court refused to issue the order. The Court of Appeal affirmed the trial court’s judgment. The court held that the insurer was barred from seeking reimbursement from the independent counsel but could seek reimbursement from the insured.
The Court of Appeal’s opinion explains, “[I]t is clear California law bars an insurer, like Hartford, in breach of its duty to defend from thereafter imposing on its insured its own choice of defense counsel, fee arrangement or strategy. This court now takes the law one slight step further by holding Hartford likewise barred from later maintaining a direct suit against independent counsel for reimbursement of fees and costs charged by such counsel for crafting and mounting insureds’ defense where Hartford considers those fees unreasonable or unnecessary. … Here it is the insured cross-defendants – rather than independent counsel – that the insurer should look to for reimbursement if it believes the fees incurred to defend the claims were not covered by the insurer’s policies or that the insured agreed to pay [independent counsel] more than was reasonable for the services that [independent counsel] performed.”
The Court of Appeal’s opinion was certified for publication on June 11, 2013. The opinion is available at www.courts.ca.gov