August 2004
LEGAL COST CONTAINMENT
CALIFORNIA
SUPREME COURT COMPLICATES
COMPUTATION OF BRANDT FEES
Attorney fees are an important element of damages in an
insurance bad-faith case. Under principles announced in Brandt v. Superior
Court, 37 Cal.3d 813 (1985), an insured who has unreasonably been denied
policy benefits can recover tort damages, including attorney fees incurred to
obtain the policy benefits.
The California Supreme Court recently issued its opinion in Cassim v. Allstate Ins. Co., 33 Cal.4th 780 (2004), giving guidance as to how those attorney fees are to be calculated. That opinion makes the calculation quite complicated in cases in which the insured’s attorney prosecutes the action under a contingency-fee agreement. Computation of the fees will likely require presentation of expert testimony on each side of the issue.
In Cassim, policy benefits of approximately $40,000 were obtained. Because of Allstate’s alleged bad faith in failing to pay those benefits in a fire loss case, the jury awarded $1.8 million in compensatory damages and an additional $5 million in punitive damages.
On appeal, Allstate argued that, because plaintiffs’ counsel had a 40 percent contingency-fee arrangement with his client, plaintiffs’ attorney-fee recovery should be limited to 40 percent of the contract benefits obtained, that is, 40 percent of $40,000, or $16,000. This view was adopted by three Supreme Court justices in a concurring and dissenting opinion. However, the majority thought otherwise.
The majority also disagreed with plaintiffs’ contention that the fees awarded, $1.2 million, were appropriate, because 40 percent of the entire amount awarded was the only limitation on fees. Plaintiffs argued that all of the causes of action and all of the defenses were inextricably related in the litigation because Allstate took the position that the policy was void because of allegations that the plaintiffs had committed arson and fraud.
Plaintiffs’ counsel kept no contemporaneous time records from which any reasoned analysis could be done as to the amount of effort spent obtaining the contract benefits as opposed to obtaining the tort recovery and punitive damages.
Under these circumstances, the state Supreme Court adopted a unique method for establishing attorney fees.
The court recognized that the attorney fees may not exceed the amount attributable to the attorney’s efforts to obtain the payment due under the insurance contract. Correspondingly, fees attributable to obtaining any portion of the plaintiffs’ award that exceeds the amount due under the policy are not recoverable.
The court recognized that a computation on these principles was “best done by the trial court, sitting as a trier of fact.” However, the parties have a right, if they desire, to have the issue submitted to a jury for determination.
The court also recognized that differences would exist if plaintiffs’ counsel had an hourly fee agreement as opposed to a contingency agreement. Under an hourly agreement, time spent to obtain policy benefits could be allocated from time records. Since the insured would have incurred those amounts directly, that is the amount which should be paid. However, in a contingency-fee agreement, especially where contemporaneous time records are not available, the computation is more difficult. Further, in each instance, a complication arises to the extent that some portion of the legal fee represents legal work that was related to both the tort and the contract recoveries and was, thus, at least partially attributable to the attorney’s efforts to obtain the amounts due on the insurance contract.
In those circumstances an apportionment is necessary.
The Supreme Court explained what it believed was the proper method of calculating Brandt fees in a contingent-fee context. That method requires the trier of fact to determine the percentage of the legal fees paid to the attorney that reflects the work attributable to obtaining the contract recovery.
The following principles apply:
• No portion of legal fees attributable to the punitive damage award can be recovered as Brandt fees.
• The Brandt fees can never exceed the legal fees for the combined tort and contract recovery; in most cases the amount will be far less.
• To determine the percentage of the legal fees attributable to the contract recovery, the trial court should determine the total number of hours an attorney spent on the case, then determine how many hours were spent working exclusively on the contract recovery. This amount is clearly recoverable.
• Hours spent working on issues jointly related to both tort and contract should be apportioned, with some hours assigned to the contract and some to the tort. The object here would be to develop an appropriate percentage of those fees which are appropriately recoverable.
Unfortunately, the court gave no real guidance as to how the apportionment should be done. In a hypothetical situation stated in the opinion, the court surmised that a trial court could reasonably conclude that half the hours spent on the joint contract/tort issues are fairly attributable to the contract. That apportionment is, however, not required and is subject to determination based on the facts actually presented.
Ultimately, the plaintiff bears the burden of proving by a preponderance of the evidence the amount of attorney fees due.
The formulation by the Supreme Court is complex and will lead, as the dissenting justices stated, to “complicated and protracted litigation.” As in many contexts, this fee litigation will present issues perhaps as complex as the underlying case itself. The fee litigation must be appropriately strategized to permit the best possible result. Evidence and witnesses must be marshaled in support of each parties’ position concerning the appropriate amount of fees. At stake, in many cases, as in Cassim, will be hundreds of thousands of dollars.
In these circumstances, any assistance to the trial court (or the jury) should be welcomed. That assistance could come in the shape of expert opinion, by credible attorney-fee experts or consultants who can present a detailed analysis of how time was spent (or likely spent) in the case by counsel and which amounts should be recoverable, measured by the standards established by the Supreme Court in Cassim. Counsel should seriously consider the use of expert testimony on this key component of insurance litigation.
ANDRÉ E. JARDINI
Mr. Jardini is a partner with the firm and President of KPC Legal Audit Services Inc. Email: aej@kpclegal.com.
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