Insurance Law Alert

November 2017

In This Issue
Massachusetts Appellate Court Rules That Insurer Is Not Responsible For
Defense Costs When Insured Unreasonably Rejects Insurer’s Defense
A Massachusetts appellate court ruled that when an insurer offers to defend without areservation of rights and the insured refuses to cede control of the defense to the insurer’s
selected counsel, the insured is not entitled to reimbursement of defense costs incurred
during the period in which control over the defense was in dispute. OneBeacon Am. Ins. Co. v.
Celanese Corp., 92 Mass. App. Ct. 382 (2017). (Click here for full article)“Simpson Thacher
is a premier firm in thisspace. The lawyers there
continue to do good workand they are commerciallyrespected.”–Chambers USA 2017
quoting a client

California Appellate Court Rules That Insurer Need Not Defend
Pharmaceutical Companies In Opioid Cases
A California appellate court ruled that an insurer is not obligated to defend or indemnify
pharmaceutical manufacturers and distributers in suits alleging deceptive marketing practices
and other state, federal and common law claims in connection with the sale and distribution of
opioids. Travelers Prop. Cas. Co. of Am. v. Actavis, Inc., 2017 WL 5119167 (Cal. App. Ct. Nov.
6, 2017). (Click here for full article)

Pennsylvania Appellate Panel Rules That Facultative Certificates Provide
Coverage For Defense Expenses In Excess Of Liability Cap
Ruling on a matter of first impression, a Pennsylvania Superior Court ruled that facultativereinsurance certificates provide coverage for defense expenses in excess of the liability cap
set forth in the reinsurance agreement. Century Indem. Co. v. OneBeacon Ins. Co., 2017 WL
4639578 (Pa. Super. Ct. Oct. 17, 2017). (Click here for full article)

Tenth Circuit Rules That SEC Investigation Is Not A Covered “Claim”
Under Claims-Made Policy
The Tenth Circuit ruled that an investigation and issuance of subpoenas by the Securities andExchange Commission are not covered “claims” under a claims-made policy. MusclePharm
Corp. v. Liberty Ins. Underwriters, Inc., 2017 WL 4675701 (10th Cir. Oct. 17, 2017). (Click here
for full article)

California Court Refuses To Extend Notice-Prejudice Rule To ClaimsMade-And-Reported Policy When Notice Is Late But Within Policy Period
A California federal district court ruled that an insurer need not establish prejudice when an
insured violates a time-specific notice provision in a claims-made-and-reported policy, even
if the notice was provided within the policy period. Centurion Med. Liab. Protective Risk
Retention Grp., Inc. v. Gonzalez, No. CV 17-01581 (C.D. Cal. Nov. 1, 2017). (Click here forfull article)

Simpson Thacher & Bartlett LLP

1

Missouri Supreme Court Rules That Pollution Exclusion Unambiguously
Bars Coverage For Lead Emissions
Ruling on a matter of first impression, the Missouri Supreme Court ruled that a pollution
exclusion bars coverage for claims alleging injury caused by toxic emissions of lead, arsenic
and other harmful substances. Doe Run Res. Corp. v. Am. Guarantee & Liab. Ins., 2017 WL
5078078 (Mo. Oct. 31, 2017). (Click here for full article)

New Jersey Court Finds No Coverage For Fraudulent Wire Transfers
Based On “Ownership of Property” Provision
A New Jersey district court ruled that a crime policy does not cover losses arising out of afraudulent wire transfer because the insured never had ownership of the funds. Posco Daewoo
Am. Corp. v. Allnex USA, Inc., 2017 WL 4922014 (D.N.J. Oct. 31, 2017). (Click here forfull article)

Concluding That Privacy Pledge Is Not Part Of Policy, Illinois Court
Dismisses Data Breach Suit Against Insurer
An Illinois district court dismissed a putative class action suit against an insurer alleging
improper handling of policyholders’ personal information, finding that a privacy pledge
submitted to insured parties with the insurance policy was not part of the contract. Dolmage v.
Combined Ins. Co. of Am., 2017 WL 5178792 (N.D. Ill. Nov. 8, 2017). (Click here for full article)

Montana Supreme Court Rules That Fee Shifting Applies To Favorable
Rulings As To Amount Of Coverage
The Montana Supreme Court ruled that a first-party insured is entitled to attorney’s fees if heis compelled to sue for benefits and recovers more than the insurer’s final settlement offer.
Mlekush v. Farmers Ins. Exch., 2017 WL 4785359 (Mont. Oct. 24, 2017). (Click here forfull article)

Florida Supreme Court Rejects Heightened Standard For Use Of
Contingency Fee Multiplier
The Florida Supreme Court ruled that use of a contingency fee multiplier in awarding
attorney’s fees is not limited to “rare and exceptional” circumstances, but rather may be
applicable based on various case-specific factors. Joyce v. Federated Nat’l Ins. Co., 2017 WL
4684352 (Fla. Oct. 19, 2017). (Click here for full article)

2Defense Alert:

Massachusetts Appellate Court
Rules That Insurer Is Not
Responsible For Defense Costs
When Insured Unreasonably
Rejects Insurer’s Defense
A Massachusetts appellate court ruled thatwhen an insurer offers to defend without areservation of rights and the insured refuses
to cede control of the defense to the insurer’s
selected counsel, the insured is not entitled
to reimbursement of defense costs incurred
during the period in which control over the
defense was in dispute. OneBeacon Am. Ins.
Co. v. Celanese Corp., 92 Mass. App. Ct.
382 (2017).
OneBeacon agreed to defend Celanese
without a reservation of rights and sought
to assume control of Celanese’s defense.
Celanese refused to cede control of the
defense or replace its existing counsel with
OneBeacon’s selected counsel, alleging thata conflict of interest existed. OneBeacon filed
suit, seeking a declaration that it had the rightto control Celanese’s defense, which the court
granted. Thereafter, a dispute arose as towhether OneBeacon was responsible for the
defense costs incurred during the time framein which the parties disputed control over the
defense. A Massachusetts trial court ruledthat OneBeacon was liable for the reasonable
fees incurred by Celanese during that period.
The appellate court reversed.
The appellate court ruled that when
OneBeacon offered to defend Celanese
without a reservation of rights, it obtained
the right to control the defense, including
the right to select counsel. The court further
held that although a conflict of interest may
justify an insured’s refusal to cede control ofthe defense, none existed here. In particular,
the court rejected Celanese’s assertion
that a conflict existed by virtue of a prior“unfair practices” ruling against OneBeacon,
explaining that that ruling related toa discrete issue about the cost sharing
agreement and did not concern the mannerin which OneBeacon would defend Celanese.
The court also noted that a conflict does notexist simply because the insured and insurer
have differing views as to the insured’s
liability or defense strategy.

Opioid Epidemic
Alert:

California Appellate Court Rules
That Insurer Need Not Defend
Pharmaceutical Companies In
Opioid Cases
A California appellate court ruled thatan insurer is not obligated to defend orindemnify pharmaceutical manufacturers
and distributers in suits alleging deceptive
marketing practices and other state, federal
and common law claims in connection withthe sale and distribution of opioids. Travelers
Prop. Cas. Co. of Am. v. Actavis, Inc., 2017
WL 5119167 (Cal. App. Ct. Nov. 6, 2017).
The coverage dispute arose out of suits filed in
California and Chicago against the Defendants
alleging a “highly deceptive marketing
campaign” designed to increase sales of
opioids by promoting the drugs for purposes
for which they are not suited or intended.
Travelers refused to defend the suits on thebasis that the alleged injuries were not causedby an accident under the liability policies.
Following a jury trial, a California court ruledthat Travelers had no duty to defend because
there was no “accident” as required by thepolicies’ “occurrence” provision. The appellate
court affirmed.
The appellate court held that there was nopotential for coverage because all claims
asserted against the Defendants aroseout of deliberate or intentional conduct.
The court further held that there was no“additional, unexpected, independent,
and unforeseen happening” that resulted
from the intentional conduct. The court
reasoned that all of the alleged injuries (e.g.,a “public health epidemic,” a resurgence inheroin use, and increased long term healthcare costs) were neither unexpected nor
unforeseen consequences of a marketing
campaign designed to promote opioid use.
The court emphasized that under California“occurrence” law, it is irrelevant whether
Defendants intended to cause injury orwhether they mistakenly believed that theirdeliberate conduct would not cause injury.
In addition, the court rejected Defendants’assertion that a public nuisance claim in the
California action triggered Travelers’ defense
obligation because nuisance claims may
be based on negligent conduct. The court3explained that notwithstanding the label ofthe cause of action, the facts alleged suggest
liability based only on intentional conduct.
Alternatively, the court held that even if thecomplaints created a potential for coveragebased on unintentional conduct, the claims
fall within the Product Exclusions, which
bar coverage for injury that arises out of“warranties or representations . . . withrespect to the . . . safety or use of such goods
or products.” In so ruling, the court rejected
the notion that Products Exclusions arelimited to defective products. As the court
noted, the Eleventh Circuit similarly applied a
Products Exclusion to bar coverage for opioidrelated claims. See Travelers Prop. Cas. Co.
of Am. v. Anda, Inc., 658 F. App’x 955 (11thCir. 2016).

Notably, two courts have reached a contraryconclusion with respect to other opioid
claims. See Liberty Mut. Fire Ins. Co. v. JM
Smith Corp., 602 F. App’x 115 (4th Cir. 2015);
Cincinnati Ins. Co. v. Richie Enters., LLC,
2014 WL 838768 (W.D. Ky. 2014). The court
distinguished these cases based on different
underlying allegations and applicable statelaw. In particular, the court explained thatthe complaints in JM Smith and Richie
contained allegations of negligence, and that,in any event, South Carolina and Kentucky
law define “accident” to include intentional
conduct that results in unintended injuries,
whereas “[u]nder California law, in contrast,
a deliberate act is not an accident, even if
the injury is unintentional, unless the injury
was produced by an additional, unexpected,
independent, and unforeseen happening.”

Reinsurance Alert:

Pennsylvania Appellate Panel
Rules That Facultative Certificates
Provide Coverage For Defense
Expenses In Excess Of Liability Cap
Ruling on a matter of first impression, aPennsylvania Superior Court ruled thatfacultative reinsurance certificates provide
coverage for defense expenses in excess of
the liability cap set forth in the reinsurance
agreement. Century Indem. Co. v. OneBeacon
Ins. Co., 2017 WL 4639578 (Pa. Super. Ct.
Oct. 17, 2017).
Century and Pacific Employers issued excess
policies to companies named in asbestosrelated lawsuits. The policies included
coverage for defense costs. The Century andPacific Employers policies were reinsured
under certificates issued by OneBeacon’s
predecessor. The current litigation arosewhen OneBeacon refused to pay the insurers
under the facultative certificates. Whilethe litigation was pending, OneBeacon
paid the limits listed in the “Reinsurance
Accepted” provision, but refused to pay any
amount above that for defense costs. In
ensuing litigation, a Pennsylvania trial court
denied OneBeacon’s summary judgment
motion as to liability limits, finding that thecertificates were ambiguous as to whether
the “Reinsurance Accepted” amount applied
only to losses or to both losses and defense
expenses. Following a non-jury trial, the trial
court entered judgment against OneBeacon.
The appellate court affirmed.
The “Reinsurance Accepted’ provision statesthat “the liability of the Reinsurer . . . shallfollow that of the Company and except asotherwise specifically provided herein, shallbe subject in all respects to all the terms
and conditions of the Company’s policy.”
OneBeacon argued that under Bellefonte
Reinsurance Co. v. Aetna Cas. & Sur. Co., 903
F.2d 910 (2d Cir. 1990) and its progeny, thislanguage provides a cap for both indemnityand defense costs. The appellate court
disagreed, emphasizing a variation in thepolicy language at issue in Bellefonte. There,
the clause stated that the reinsurance is“subject to the terms, conditions and amountof liability set forth herein,” whereas here, the“subject to” clause refers only to the generalconditions, not the reinsurance limit.

4

In addition, the court noted that its ruling
was supported by the follow form provisionbecause Century’s and Pacific Employers’
underlying policies provided coverage for
expenses in addition to limits. The court
stated: “absent language providing the entire
certificate is ‘subject to’ the ‘Reinsurance
Accepted’ amount, a reasonable interpretationof the language is that where the underlying
policy covers expenses in addition to liability
limits, the reinsurance certificate provides thesame coverage.”
As the court noted, two other courts havedistinguished Bellefonte based on variationsin policy language and deemed facultativecertificates ambiguous as to whether
expenses were excluded from the reinsurance
limits of liability. See Utica Mut. Ins. Co.
v. Munich Reinsurance Am. Inc., 594 F.
App’x 700 (2d Cir. 2014) (discussed in our
December 2014 Alert); Utica Mut. Ins. Co. v.
R & Q Reinsurance Co., 2015 WL 4254074(N.D.N.Y. 2015) (discussed in our June2015 Alert). Further, as discussed in our
December 2016 Alert, the New York Court ofAppeals has accepted a certified question toaddress whether the dollar amount provided
in a “Reinsurance Accepted” section of areinsurance certificate applies to both losses
and expenses. Global Reinsurance Corp. of
Am. v. Century Indem. Co., 843 F.3d 120 (2dCir. 2016).

Coverage Alert:

Tenth Circuit Rules That SEC
Investigation Is Not A Covered“Claim” Under Claims-Made Policy
The Tenth Circuit ruled that an investigationand issuance of subpoenas by the Securities
and Exchange Commission (“SEC”) are
not covered “claims” under a claims-madepolicy. MusclePharm Corp. v. Liberty Ins.
Underwriters, Inc., 2017 WL 4675701 (10thCir. Oct. 17, 2017).

MusclePharm sought coverage under aLiberty policy for defense costs incurredin connection with an SEC investigation.
The investigation began in May 2013 when
the SEC sent a letter indicating that an
inquiry was being conducted. In July 2013,
the SEC issued an order stating that it
had “information that tends to show” thatMusclePharm “possibly violated” federal
securities laws. Thereafter, the SEC issued
subpoenas directing testimony and the
production of documents. In February 2015,
the SEC issued Wells Notices to MusclePharm
executives, stating that a preliminary
determination had been made to recommend
an enforcement action against the individuals.
Liberty Mutual denied coverage for all costs
incurred prior to the Wells Notices, arguingthat prior events did not constitute a “claim”
alleging a “wrongful act” under the policy. A
Colorado district court agreed and ruled in
the insurer’s favor. See September 2016 Alert.
Last month, the Tenth Circuit affirmed.
The policy covers losses incurred as a resultof a “Claim first made during the Policy
Period . . . for a Wrongful Act.” Claim isdefined as “a written demand for monetaryor non-monetary relief” or a “formal
administrative or regulatory proceeding.”
The Tenth Circuit ruled that the July 2013
order and related subpoenas were not a
written demand for non-monetary relief,
reasoning that “the SEC was not seeking
relief, but was only gathering information.”
The court also ruled that the July 2013 order
was not a formal administrative proceedingnotwithstanding a caption on the document
stating that it “is a proceeding of the UnitedStates of America Before the Securities andExchange Commission.” Finally, the court
held that there was no “claim” prior to theWells Notices because there had been no
allegations of wrongdoing.

5Late Notice Alert:

California Court Refuses To Extend
Notice-Prejudice Rule To ClaimsMade-And-Reported Policy When
Notice Is Late But Within Policy
PeriodA California federal district court ruled thatan insurer need not establish prejudice when
an insured violates a time-specific noticeprovision in a claims-made-and-reported
policy, even if the notice was provided
within the policy period. Centurion Med.
Liab. Protective Risk Retention Grp., Inc. v.
Gonzalez, No. CV 17-01581 (C.D. Cal. Nov.
1, 2017).

The professional liability policy provides
coverage for claims “first made against theinsured and reported to the [insurer] inwriting during the policy period.” The policy
requires the insured to provide written
notice of a claim “not more than 20 days
after receiving such claim.” Based on theseprovisions, the insurer denied coverage forclaims that were served on the insured in
November 2016, but not tendered to theinsurer until January 2017. The court upheld
the denial.
The court noted that under California law,
the notice-prejudice rule applies to both
occurrence-based policies and claims-madepolicies that do not require the claims to bereported within the policy period or within a
specified period of time. However, the court
declined to extend the notice-prejudice ruleto the scenario presented here – when aclaim was not reported within the policy’s
specified time frame, but was reported within
the policy period. Emphasizing the restrictive
nature of claims-made-and-reported policies,

the court stated that “[c]ase law has yet tomake a distinction between a claim reported
within the policy period but outside of anadditionally imposed time limit, and a claim
reported outside of the policy period.”

Pollution Exclusion
Alert:

Missouri Supreme Court Rules That
Pollution Exclusion Unambiguously
Bars Coverage For Lead Emissions
Ruling on a matter of first impression,
the Missouri Supreme Court ruled that apollution exclusion bars coverage for claims
alleging injury caused by toxic emissions oflead, arsenic and other harmful substances.
Doe Run Res. Corp. v. Am. Guarantee & Liab.
Ins., 2017 WL 5078078 (Mo. Oct. 31, 2017).
Reversing a lower court decision, the Missouri
Supreme Court held that the exclusion was
unambiguous, notwithstanding its failure
to define “contaminant” or “irritant” or tolist specific contaminants. Significantly, thecourt distinguished Hocker Oil Co. v. BarkerPhillips-Jackson, Inc., 997 S.W.2d 510(Mo. App. 1999), which deemed a pollution
exclusion ambiguous as to gasoline-related
damage based on its failure to identify
gasoline as a pollutant. The court explainedthat the finding of ambiguity in Hocker was
based on the fact that the insured party wasa gasoline company that considered gasoline
to be a product rather than a pollutant. Here,however, the bodily injury claims arose out of
toxic substances released into the atmosphererather than out of exposure to Doe Run’scommercial lead products. Although someof the toxins were lead particulates, thecourt emphasized the distinction between
commercially valuable lead products andthe harmful particulate lead toxins in theatmosphere. The court stated: “That its
toxic or hazardous materials are valuable
products if Doe Run properly contains themdoes not make them any less ‘pollutants’
when they are abandoned and released into
the environment.”

6

That Privacy Pledge Is
Data Breach Alerts: Concluding
Not Part Of Policy, Illinois Court
New Jersey Court Finds No
Coverage For Fraudulent Wire
Transfers Based On “Ownership ofProperty” Provision

A New Jersey district court ruled that a crime
policy does not cover losses arising out of afraudulent wire transfer because the insured
never had ownership of the funds. Posco
Daewoo Am. Corp. v. Allnex USA, Inc., 2017
WL 4922014 (D.N.J. Oct. 31, 2017).
The dispute arose out of a wire transfer
that originated with a series of fraudulent
emails. Allnex owed Posco money for a
shipment of chemicals. An imposter posing
as a Posco employee sent emails to Allnex
requesting that payment be sent to certainbank accounts. Without confirming theauthenticity of the imposter’s email or bankaccounts, Allnex wired numerous payments tothe imposter. After the fraud was discovered,some but not all of the money was recoveredand sent to Posco. When Allnex refused to
pay the remainder of the amount due, Posco
sought coverage from Travelers pursuant
to a crime policy, which the insurer denied.
In ensuing litigation, the court granted
Travelers’ motion to dismiss the complaint.
The parties disputed whether the losses aroseout of “computer fraud” and whether there
was a “direct loss” given the intervening actsof Allnex prior to transferring the funds.
However, the court declined to address eitherof these issues, instead ruling that there wasno coverage based on the “Ownership ofProperty” provision, which requires Posco to“own or lease” the property at issue. The court
concluded that Posco did not plead sufficient
facts to establish that it possessed or had legal
title to the money that Allnex had transferredto the fraudulent accounts. The court
explained that although Allnex had intended
Posco to receive the money, intention does
not establish ownership. The court statedthat Posco “owned a receivable, or a rightto payment, as well as a potential cause ofaction for payment if it was not made,” but it
did not legally own the money that had been
wrongfully sent to the imposter’s account, andthus could not seek coverage for its loss.

Dismisses Data Breach Suit Against
Insurer
Our March 2016 Alert reported on an Illinois
district court decision denying an insurer’s
motion to dismiss a putative class action suitalleging improper handling of policyholders’personal information. Dolmage v. Combined
Ins. Co. of Am., 2016 WL 754731 (N.D. Ill.
Feb. 23, 2016). This month, the court granted
the insurer’s summary judgment motion,
finding that a privacy pledge submitted toinsured parties with the insurance policy
was not part of the contract. Dolmage v.
Combined Ins. Co. of Am., 2017 WL 5178792(N.D. Ill. Nov. 8, 2017).

The insurer issued disability, health, life
and accident policies to the plaintiff andputative class members. When the policies
were issued, the insurer sent each enrollee
a document entitled “Our Privacy Pledge toYou,” along with other materials relating to
the policies. The Privacy Pledge describes theinsurer’s handling of policyholders’ personal
information and states, among other things,
that it maintains safeguards that comply withfederal regulations to protect personal data.
The insurer retained Enrolltek, a vendor that
performs enrollment and other administrative
functions, and provided it with enrollees’
personal information. According to thecomplaint, the personal information was
readily accessible online to the general public
for several months before the security lapse
was discovered. Thereafter, a fraudulent
tax return was filed in the plaintiff’s nameby an unknown identity thief. Plaintiff filed
a putative class action against the insurer,
alleging, among other things, a breach ofcontract claim based on the insurer’s alleged
breach of the Privacy Pledge.

7

Plaintiff alleged that the Privacy Pledge
was part of the insurance contract based on
the following facts: (1) the policy expressly
states that “Policy means this policy withany attached application(s), and any riders
and endorsements”; (2) the table of contents
for the policy states that “A copy of theapplication and any riders and endorsements
follow page 17”; (3) following page 17 werevarious documents, including the Privacy
Pledge; and (4) some policy materials
contained an express disclaimer stating that
“THIS IS NOT A PROPOSAL AND IS NOTPART OF THE INSURANCE CONTRACT,”
but the Privacy Pledge contains no suchdisclaimer. The court disagreed and granted
the insurer’s summary judgment motion.
Applying Iowa law, the court concluded that
the Privacy Pledge was not part of the parties’agreement. In particular, the court held that
the Privacy Pledge did not constitute a “rider
or endorsement” to the insurance policy,
but rather was “simply a loose document,
like the blank forms and brochures, that was
included in the fulfillment materials sent toPlaintiff.” In so ruling, the court noted thatthe insurer had not filed the Privacy Pledge
with state insurance regulators, which is theusual and customary practice with respect toriders and endorsements. Additionally, thecourt explained that the Privacy Pledge does
not bear any of the traditional hallmarks of arider or endorsement, such as a “label” at the
top of the page or a signature by an insurancecompany representative.

Attorney’s Fee
Alerts:Montana Supreme Court Rules That
Fee Shifting Applies To Favorable
Rulings As To Amount Of Coverage
The Montana Supreme Court ruled that afirst-party insured is entitled to attorney’s
fees if he is compelled to sue for benefits
and recovers more than the insurer’s final
settlement offer. Mlekush v. Farmers Ins.
Exch., 2017 WL 4785359 (Mont. Oct. 24,2017). Mlekush sought benefits under aFarmers policy after sustaining injuries in an
automobile accident. After receiving someclaim information, Farmers stated that it
had not yet made a determination about

coverage. Thereafter, Mlekush sued, seeing“all sums due and owing” under the policy.
The parties exchanged numerous settlement
offers and engaged in mediation, but wereunable to reach an agreement. Farmers’ final
offer was $77,500. Following a trial, a jury
returned a verdict in favor of Mlekush for$450,000. Mlekush sought attorney’s fees
under Montana’s insurance exception to the“American Rule” prohibiting fee shifting.
A trial court denied the motion, findingthat Mlekush was not “forced to assume
the burden of legal action” to obtain thebenefit of an insurance contract. The trial
court reasoned that Farmers had not denied
coverage and that Mlekush had initiatedlitigation prematurely. The Montana
Supreme Court reversed, explaining that“the determination of whether an insured isentitled to attorney fees under the insurance
exception . . . necessitates factual findingsthat take into consideration both parties’
actions during the entire process leading
up to the ultimate resolution of the claim.”
On remand, the trial court again denied
Mlekush’s attorney’s fee motion, reasoningthat the insurance fee-shifting exception
does not apply to disputes over the value of
an insurance claim, but rather is limited tosituations in which an insurer denies coveragealtogether. The Montana Supreme Court
again reversed.
The Court ruled that the insurance exception
extends to cases where the value of the firstparty claim is in dispute, even if coverage is
not disputed. The court stated:when a first-party insured is compelled
to pursue litigation and a jury returns
a verdict in excess of the insurer’s
last offer to settle an underinsured
motorist claim, the insurer must pay
the first-party’s attorney fees in an
amount subsequently determined by8the district court to be reasonable.
To be clear, if a first-party insured
goes to trial and obtains a verdict inexcess of the insurer’s last offer, thisconstitutes prima facie proof thatthe insured was forced to assume theburden of legal action to obtain the full
benefits of the policy, thus obviating
the need for an inquiry as to whether
or not the insurance exception applies.
However, in cases in which the policy
limits are tendered prior to a verdict
being returned, the district court may
consider the entirety of the litigation
to determine “whether, and to what
extent, [the] insured was forced toassume the burden of legal action inorder to recover the full benefits of theinsurance contract.”

Florida Supreme Court Rejects
Heightened Standard For Use Of
Contingency Fee Multiplier
The Florida Supreme Court ruled that useof a contingency fee multiplier in awarding
attorney’s fees is not limited to “rare andexceptional” circumstances, but rather may
be applicable based on various case-specificfactors. Joyce v. Federated Nat’l Ins. Co.,2017 WL 4684352 (Fla. Oct. 19, 2017).
In a dispute between homeowners and aproperty insurer, the parties agreed thatthe homeowners were entitled to recoverreasonable attorney’s fees pursuant to Florida
statutory law. Following a fee hearing, aFlorida trial court awarded the homeowners$76,300 based on a two-step process. First,
the court calculated the “lodestar” amount,based on reasonable rates and billable hours.
Second, the court applied a contingency fee
multiplier of 2.0 to the lodestar amount,based on the following factors: the need ofa multiplier to obtain competent counsel
in the relevant market; counsel’s inability
to mitigate the risk of non-payment in any
way; the amount of money involved in thedispute; the complexity of the case; the results
obtained; and the type of fee arrangement
between plaintiff and counsel.
An intermediate appellate court affirmed thelodestar calculation, but reversed the trial
court’s use of a contingency fee multiplier.
The appellate court reasoned that the lodestar
approach includes a strong presumption thatthe lodestar amount is a “reasonable fee” andthat a multiplier may be used only in “rareand exceptional” cases. The Florida Supreme
Court reversed.
The Florida Supreme Court ruled that there
was no basis in Florida law for the “rareand exceptional” standard. Rather, trial
courts may utilize a multiplier based on
specific factual findings, including whether
the relevant market requires a multiplier
to obtain competent counsel, whether theattorney could mitigate the risk of nonpayment, and the fee arrangement between
plaintiff and attorney. The court expressly
declined to adopt the reasoning set forth in
two United States Supreme Court cases that
rejected contingency multipliers under federal
fee shifting statutes.
Notably, the court emphasized that courts are
not required to use a multiplier, and when
they do, evidence must be presented to justify
its use. Additionally, the court explained thatuse of multiplier must be consistent with the
purpose of the fee authorizing statute at issue,
citing a case in which the Florida Supreme
Court rejected a multiplier as inconsistent
with an offer of judgment statute.

9

Simpson Thacher has been an international leader in the practice of insurance and reinsurance law for
more than a quarter of a century. Our insurance litigation team practices worldwide.

David J. Woll
+1-212-455-3136
dwoll@stblaw.com

Bryce L. Friedman+1-212-455-2235
bfriedman@stblaw.com

Deborah L. Stein+1-310-407-7525
dstein@stblaw.com

Mary Beth Forshaw+1-212-455-2846
mforshaw@stblaw.com

Michael D. Kibler+1-310-407-7515
mkibler@stblaw.com

Craig S. Waldman+1-212-455-2881
cwaldman@stblaw.com

Andrew T. Frankel+1-212-455-3073
afrankel@stblaw.com

Michael J. Garvey+1-212-455-7358
mgarvey@stblaw.com

Susannah S. Geltman+1-212-455-2762
sgeltman@stblaw.com

Lynn K. Neuner+1-212-455-2696
lneuner@stblaw.com

Tyler B. Robinson+44-(0)20-7275-6118
trobinson@stblaw.com

Elisa Alcabes+1-212-455-3133
ealcabes@stblaw.com

Chet A. Kronenberg+1-310-407-7557
ckronenberg@stblaw.com

George S. Wang
+1-212-455-2228
gwang@stblaw.com

Summer Craig+1-212-455-3881
scraig@stblaw.com

This edition of the
Insurance Law Alert was
prepared by Mary Beth Forshaw
mforshaw@stblaw.com /+1-212455-2846 and Bryce L. Friedman
bfriedman@stblaw.com /+1-212-4552235 with contributions
by Karen Cestarikcestari@stblaw.com.

The contents of this publication are for informational purposes only. Neither this publication nor the
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