Source: http://dutytodefend.com/buss-reimbursement/
Timestamp: 2019-04-22 08:35:15+00:00

Document:
Under California law, a liability insurer may reserve its rights to later deny coverage to its policyholder, pay for the policyholder’s defense, and recover reimbursement from its policyholder of defense costs allocable to claims that were never even potentially covered and recovery reimbursement from independent counsel of excessive defense fees that are fraudulent, useless, or wasteful.
Because the duty to defend is broader than the duty to indemnify, liability insurers assume an obligation to defend claims that are not or may not be covered for indemnity by their policies. These claims fall into three categories: 1) claims that are clearly covered for indemnity; 2) claims that are potentially covered for indemnity; and 3) claims that are never even potentially covered for indemnity. A liability insurer may recover from its policyholder reimbursement of the costs of defend properly allocable to claims that are never even potentially covered for indemnity, but not the other two kinds of claims. This right is known as Buss reimbursement. The rationale for this rule is that the policyholder has not paid premiums for claims in the third category, while the policyholder has paid premiums for the first two kinds of claims.
The Buss rule does not specify how one is to allocate the costs of defense among the three kinds of claims. However, the attorney is usually the best witness to testify as to proper allocation as the person who is actually performing the defense work. The policyholder may resist a Buss reimbursement claim by independent counsel using a favorable method of allocation and by withholding consent for dependent counsel to be paid by the insurer.
The existence of a Buss reservation creates an ironic incentive for the policyholder to welcome covered and potentially covered claims by the plaintiff. A policyholder who is exposed to its own insurer to reimburse defense costs allocable to claims that were never even potentially covered, but immune to reimbursement claims for other claims will benefit by maximizing claims that are potentially and actually covered. This incentive may impact the duties of independent counsel and dependent counsel to protect the interests of the policyholder by supporting, rather than resisting, covered and potentially covered claims. Since the vast majority of liability lawsuits are settled, and a Buss reimbursement claim survives resolution of the plaintiff’s lawsuit, it may be important to the policyholder that substantial evidence exist supporting the viability and value of covered and potentially covered claims. Accordingly, it may work against the policyholder’s interests for defense counsel to eliminate covered and potentially covered claims by demurrer, motions for judgment on the pleadings, motions for summary adjudication, or motions for summary judgment. Similarly, it may work against the policyholder’s interests to give testimony that undermines the viability or value of covered and potentially covered claims. Instead, it may work in the policyholder’s favor to give evidence supporting covered and potentially covered claims. This ironic reality is among the reasons why the policyholder and plaintiff may choose to properly cooperate with one another.
Trustworthy and convincing evidence of how the costs of defense should be allocated is likely to come from defense counsel who has performed the defense work and is familiar with the various claims asserted by a plaintiff. Civil Code § 2860(c) does not require arbitration of Buss allocation, so that the policyholder is entitled to a jury trial on this issue.
Independent counsel may use a “but for” analysis to allocate among the three kinds of claims and combinations of them. In this fashion, only time and costs that are properly allocable exclusively to claims that were never even potentially covered will be reimbursed. The policyholder and independent counsel should consider trying to find some time and costs that fall into the reimbursement column so that the trier of fact may have confidence that independent counsel has diligently and fairly done a proper allocation.
The policyholder may expressly withhold consent for dependent counsel to accept payment from the insurer. If the insurer sues the policyholder seeking Buss reimbursement, the policyholder may cross complaint against the insurer alleging that it unlawfully paid dependent counsel in violation of Rule 3-310(F) and sue dependent counsel for breach of fiduciary duty and disgorgement of defense costs accepted by dependent counsel and paid by the insurer in violation of Rule 3-310(F).
 Hartford Cas. Ins. Co. v. J.R. Marketing (2015) 61 Cal.4th 988, 992-93 (J.R. Marketing).
 Buss, supra, 16 Cal.4th at 45-49 (ellipses omitted).
 Id. at 49-52 (citations and ellipses omitted).
 Id. at 53 (ellipses omitted).
 Blue Ridge Ins. Co. v. Jacobsen (2001) 25 Cal.4th 489, 501.
 Dynamic Concepts, Inc. v. Truck Ins. Exchange (1998) 61 Cal.App.4th 999, 1007, fn. 6.
 J.R. Marketing, supra, 61 Cal.4th at 992-93.
 See, collusion/">Line Dividing Cooperation from Collusion and Buss Defense Cost Reimbursement – Response Options.
 James 3 Corp. v. Truck Ins. Exchange (2001) 91 Cal.App.4th 1093, 1109.
 Attorneys Liab. Pro. Soc. v. Ingaldson Fitzgerald, PC Supreme Court No. S-15683 (Ala. 2016).

References: § 2860
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