Opinion ID: 520665
Heading Depth: 3
Heading Rank: 2

Heading: Apportionment of Legal Expenses

Text: 26 The final issue is whether the district court can require payment of all legal expenses as incurred, where, as here, the policy does not include a duty to defend, but only a duty to pay legal expenses. The district court found that First State was entitled to apportion the legal expenses, but that, under the facts of this case, it was impractical to do so before judgment. Here, again, we agree with the district court. Although First State is entitled to apportion the expenses between covered and uncovered claims and persons, it cannot do so at the expense of the insured. 27 In Okada, we favored apportionment early in the underlying suit. We found that some exclusions, such as libel or slander, are easy to distinguish from covered claims by analyzing the underlying complaint. Okada, 823 F.2d at 282. But where the nature of the claims made in the complaint do not clearly indicate whether they would be covered or uncovered, the apportionment issue is much more difficult. Where, for example, the defense of a claim based on an alleged act would be covered under the policy if the act were committed negligently, but would not be covered if it were committed intentionally, apportionment in advance would be very difficult, if not impossible. 28 A review of the FSLIC complaint confirms the district court's finding that apportioning legal expenses based on the claims made in the complaint would not be feasible. Although some of the FSLIC's claims may well include personal advantage and dishonesty, which are excluded claims, they will also include neglect, mismanagement, breach of duty, omissions, and errors and misstatements, which are covered under the policy. 29 Two policy reasons also support our holding. First, the third party complainant, who may overstate the claims against the insured, should not be the arbiter of the policy's coverage. See Gray v. Zurich Ins. Co., 65 Cal.2d 263, 419 P.2d 168, 176-77, 54 Cal.Rptr. 104, 112-13 (1966). Second, apportioning legal expenses where coverage is not yet clear, because the facts are not fully developed, may deny the insureds the benefits of the protection they purchased. 30 We are not, however, unconcerned with First State's predicament. First State may be advancing legal fees that it will have great difficulty in recovering should the court subsequently decide that a claim or individual was not covered by the policy. The district court may well wish to consider the use of a master or other case management techniques to monitor the legal fees in order to keep track of those which are attributable to covered and uncovered matters, and to permit an earlier apportionment if it should develop that some portions of the incurred expenses prove to be uncovered and easily separable, without prejudice to the defense of covered claims.