Monday, September 20, 2021

How do you rack up $25 million in attorney's fees on a single case?

Practice, I guess.  

Universal Hub posted this article about Harvard University's lawsuit against its excess carrier,* Zurich American Insurance Company, seeking reimbursement of costs in excess of the $25 million limit of its primary policy.  The costs were incurred in defending against the high-profile lawsuit alleging that Harvard's admissions policies discriminate against Asian-American students.  In other words, Harvard has spent more than $25 million in attorney's fees and associated costs on that case alone. 

According to the complaint, Zurich denied coverage because Harvard provided it with late notice of the admissions lawsuit.  The lawsuit was filed in November 2014.  "Upon information and belief, Zurich had knowledge of the [admissions] Action by late 2014 or early 2015, and no later than January 30, 2016."   Harvard provided Zurich with formal notice of the lawsuit in May 2017. 

Let's let that breathe for a second.

While incurring tens of millions of dollars in legal fees it took Harvard's attorneys two and a half years to give Zurich formal notice.

Let's be clear:  Formal notice is a letter:  Hi Zurich, please be informed that we are being sued.  Here's a copy of the complaint. This is a big one, so our primary policy may be exhausted and you might have to provide coverage."

Harvard alleges that it gave formal notice to Zurich as "as soon as practicable, given the attachment point of the Zurich policy and the state of the [admissions] Action and its defense at or about the time that formal notice was provided."  In plain language, Harvard is saying that it wasn't until around the time that it provided formal notice to Zurich that it realized its fees would exceed $25 million.  And  who can blame it?  Who would imagine that Harvard could possibly spend that much in attorney's fees? 

If you were wondering, there is no rule that says you can't put your excess carrier on notice just in case your primary limits will be exhausted.  

Some thoughts:

1)    In Massachusetts, with an occurrence-based policy (which I assume the Zurich policy is) an insurer has the burden of proving that it was prejudiced by the late notice.  That's a difficult standard to meet, at least with respect to indemnity payments where a primary insurer is paying a competent attorney to defend a case.  Where this claim is not for indemnity but defense, Zurich would need to show that it was prejudiced because if notice had been given earlier it could have prevented the attorney's fees from becoming so outrageous.  But it really did not have the power to do that.

2)   If an insurer loses a declaratory judgment action over a duty to defend, it not only has to pay the reasonable attorney's fees incurred by the policyholder in the underlying case but also the fees incurred in the declaratory judgment action.  Reasonable is the operative word here.  Will Harvard's attorney's charge it another $25 million for the insurance lawsuit?  Maybe, but they'll be hard-pressed to find a judge who rules that such fees are reasonable.  

3)    $25 million in attorney's fees? Seriously?

The complaint alleges that in the admissions lawsuit Harvard:

 -- Engaged in extensive pre-trial discovery and motion practice;

-- Defended a trial over a three week period (carefully phrased to make me question how many of those days were actually in trial);

 -- Defended an appeal in the US Court of Appeals for the First Circuit;

--Collected and produced thousands of business records to the Department of Justice for a parallel investigation it was conducting.  

Let's do some easy math.  Say there were two partners and two associates at the trial fulltime, and they charge an average of $800 per hour.  Let's say the trial actually took fifteen days, and they were full trial days.  (Often trials go from 9 AM to 1 PM.)  And each attorney had two hours of transportation time a day.  That's 600 person hours, or  $480,000 just on courtroom time.  Generously assume 1,800 hours, or $1,440,000, for trial prep before and during trial.  Let's say 3,600 hours, or $2,880,000, for discovery and motion practice.  Let's throw in another 1800 hours, or $1,440,000 for the appeal,  No details are provided for collecting and producing records for the Department of Justice, so I'll assume this is not basic first year associate busy work, and I'll throw in another $1,440,000 for that.  And let's say $2 million for outside consultants.  And $1 million for miscellaneous such as super expensive courier fees.

So, at the far end of my imagination, charging a crazy hourly rate, having too many people assigned to the case, and overlitigating everything, I come up with attorney's fees of $10,680,000.  

Harvard, call me.  I'll give you a great deal on fees. 

(Although I make light of the fee issue, I don't make light of the lawsuit itself or Harvard's defense of it. I am the parent of a college student who has just been through the admissions process wringer and a high school student who is about to go through it.  I am also the grandchild of two Jewish men who were admitted to Harvard during the time of quotas, I understand that these are very serious issues at play.) 

*    I would call Zurich an umbrella carrier, but if Harvard wants to pay me the rates it pays its attorneys I'll be happy to call it an excess carrier.