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. 

Mass. Appeals Court holds that insurer must pay market rate to Cumis counsel

When an insurer defends a case under a reservation of rights, the insured has the option of choosing his or her own attorney (often called Cumis counsel after a California case) and having the insurer pay the reasonable charges of that attorney. What has been undetermined, until now, is whether the insurer is obligated to pay that attorney's usual hourly rate, or if it may pay the generally much lower rate it would pay to its usual insurance defense panel counsel.

In Northern Security Ins. Co., Inc. v. R.H. Realty Trust, 78 Mass. App. Ct. 691 (2011), the Appeals Court held that reasonable rates must be based on market rates rather than panel counsel rates.

The court also held that where an attorney agrees to accept a discounted rate from the insured, he or she cannot recover more than that rate from the insurer.

Thanks to Mike Tracy of Rudolph Friedmann LLP for bringing this case to my attention.

Superior Court limits amount recoverable under worker's compensation lien

In Curry v. Great Am. Ins. Co., 2010 WL 1795375, the Superior Court held that the recovery under a lien of a worker's compensation carrier in a wrongful death case was limited to the portion of damages allocated to loss of net expected income of the next of kin of the deceased. The worker's compensation carrier was not entitled to the portions of the damages allocated to conscious pain and suffering or loss of consortium. Its recovery was so limited because damages for loss of net expected income represented benefits "that are duplicated by the worker's compensation benefits."

The court also held that the insurer and the plaintiffs must each pay their proportionate share of the legal fees and costs in the wrongful death action.

Why PIP claims are rarely litigated

In my last post I discussed the Salem District Court case of Genest v. Commerce Ins. Co., in which an insurer was held not to have violated Mass. Gen. Laws ch. 93A when it based its denial of a PIP claim on an IME report.

In that case it is worth noting that although 93A damages were denied, the insured was probably awarded attorney's fees pursuant the PIP statute itself. The statute grants attorney's fees if judgment against the insurer enters on a PIP claim.

That is crucial. The maximum actual damages under a PIP claim are $8,000. Very few lawyers are willing to litigate a claim of that size. On a contingency fee claim they simply cannot make back their investment of time, and on an hourly basis the client would end up losing money. The only way such a claim is worthwhile is if an award of attorney's fees is available.

However, under the PIP statute, an insurer can pay a PIP claim at any time up until judgment enters, even after trial has begun, and not have to pay attorney's fees. As Genest illustrates, an insurer can incorrectly refuse to pay a PIP claim without being liable for attorney's fees under 93A.

That is why PIP claims are rarely litigated.

Superior Court correctly awards 93A damages based only on lost interest

Update: See this post for a clarification.

In my last two posts I have discussed the recent Superior Court decision in Sterlin v. Commerce Insurance Company. As I noted, Commerce was slapped with 93A damages for ignoring overwhelming evidence that a car accident was the fault of its insured driver.

The plaintiffs' damages in that case were enough to make even a cold-hearted over-analytical lawyer like myself feel a twinge of sympathy. The car that was hit had three occupants. The woman who spent two weeks in a body cast was not the worst-injured. Rather that was Pierre, who suffered a degloving injury to his dominant right hand, and various fractures of his hand, fingers, and wrist. He was hospitalized for 16 days and had a total of four operations. His thumb was amputated. Eventually his pinky was amputated and reattached in his former thumb's position.

In addition, because he could not work he lost his job and his medical insurance. His wife also lost her job. After maxxing out help from charities, friends, family, and credit cards, he received a loan against the expected proceeds of the lawsuit.

With a $500,000 policy limit to be divided among Pierre and two other occupants of the car, he received $275,000 in settlement of the underlying claim.

The court held that the 93A damages would start to run from a month after the insurer received complete medical records, and would be cut off at the time that it finally made a reasonable offer of settlement, a period of about five months.

The court noted that unjust delay in reaching a settlement subjects a claimant to costs and frustrations that are encountered when litigation must be instituted. It continued, "Moreover, when an insurer wrongfully withholds funds from a claimant, it is depriving that claimant of the use of those funds." The court held that the loss of use of money constitutes actual damages, consisting of the interest that would have been earned on that money at a rate of five percent. Therefore, the judge held, the actual damages were $5,733.75. He trebled that amount pursuant to the punitive damages provision of 93A, to $17,201.25.

The judge correctly calculated the 93A damages. This case is a good reminder that no matter how egregious an insurer's actions are, damages are based on lost interest, not the amount of the settlement or verdict.

The judge also awarded costs and attorney's fees, to be determined at a later hearing.

SJC holds prevailing insurer not entitled to attorney's fees when it establishes another insurer's duty to defend

From my best source, Mike Tracy at Rudolph Friedmann LLP comes a decision issued today by the Supreme Judicial Court of Massachusetts:

As I have discussed in a previous post, an insured is entitled to recover attorney's fees and expenses incurred in successfully establishing in a declaratory judgment action that an insurer has a duty to defend.

In John T. Callahan & Sons, Inc. v. Worcester Ins. Co., the SJC held today that that rule does not apply when the insured's attorney's fees in the declaratory judgment action are paid by a second insurer.

Callahan was a general contractor on a construction site and was insured by Zurich. NEAC was its subcontractor, and was insured by Worcester. Callahan was an additional insured on the Worcester policy.

Lagoa, an employee of another subcontractor, was injured at the job site. He sued Callahan. Zurich agreed to defend and indemnify Callahan. Worcester refused to defend Callahan.

Callahan and Zurich brought a declaratory judgment action against Worcester, seeking a declaration that Worcester had a duty to defend and indemnify Callahan. Zurich paid the attorneys in the declaratory judgment action on behalf of itself and Callahan. Zurich and Callahan won the declaratory judgment action. Zurich sought reimbursement of the attorney's fees it incurred in the declaratory judgment action.

The SJC denied the claim for attorney's fees. It stated that the policy reason for awarding attorney's fees to insureds who are successful in establishing a duty to defend is not to punish wrongdoers or reward those who act responsibly. Rather, it is to protect the insured's right to receive the full benefit of its liability insurance contract. The court stated that Callahan received that benefit at no cost to itself because Zurich defended it.

Rather disingenuously, the court stated that Zurich also received a benefit from bringing the declaratory judgment action, because it received a judgment that Worcester reimburse it for one half of the settlement amount and attorney's fees in the underlying action. The court does not address whether that amount was more or less than the attorney's fees incurred in the declaratory judgment action.