Page 7 - 2015_0908Litigation

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Litigation | Tuesday, sepTember 8, 2015 | S7

with the majority, which favors allocation [motion], whereas a covered claim for only if the insurer produces undeniable the significant difference between the

based on attorneys’ time spent on covered $10,000 may not be disposed of until evidence of the allocability of specific maryland ruling and the new York and
versus non-covered claims (regardless of the conclusion of trial.
expenses.9
California rulings is which party has the
outcome).
the court ordered the parties to file accordingly, in California, from a real- burden of proof, a major issue in alloca-
these decisions constitute the entire detailed statements of legal services so istic perspective, it would be extremely tion disputes. If the insured must prove
body of new York law on allocation of that proper apportionment can be made, difficult, if not impossible, for an insurer that each billable event that his attorney
expenses between insureds and insur- based on “reasonable value.” the court to obtain allocation for expenses back from undertook was related to covered claims
ers arising out of policies and situations emphasized that, if apportionment can- an insured.
or covered persons, then the insured
where allocation is necessary. there is no not be rightfully accomplished because of another comprehensive analysis of this has a very steep hill to climb. on the
ruling as to what formula to use to actually confusion, then “the insurer must assume subject was undertaken by a u.s. district other hand, if the presumption is that

determine allocation or how, if a law firm is the costs of defense for both covered and Court in maryland.10 In that case, counsel the insurer must “disprove” the presump-
representing an insured for both covered non-covered claims.”
represented one party who was insured tion of coverage, then the likelihood of
and uncovered claims, a court or jury or In a district court decision in Califor- and one who was not, in the same lawsuit. a more rapid resolution [settlement] is
arbitrator would determine how to split nia,7 an insurer sought reimbursement of Contrary to both new York and California apparent.
the legal fees between the insured and the defense expenses for uncovered claims. standards, the court ruled that the burden the new Jersey court’s approach cer-
insurer. the current solution seems to be the court, following California law, said of proof was on the insured to demonstrate tainly is very even-handed but perhaps
that arbitrariness prevails, with a strong that indeed an insurer may be entitled to by a preponderance of the evidence that overly cumbersome, yet does enable the
presumption in favor of the insured’s claims reimbursement for defense expenses for each particular legal fee or expense “ was decision maker to possess sufficient back-
claims asserted in a litigation that fell out- reasonably related to the defense [of the up material to justify a fair ruling.
for reimbursement.
In new Jersey, an appellate court over- side the coverage of the policy. Initially, covered party] ... . with respect to the many allocation disputes come into the
turned a trial level court’s arbitrary alloca- the insurer has a duty to defend the entire contested items, a fee or expense is rea- alternative dispute resolution arena, as
tion of 10 percent of defense costs to an action, but can come back to the insured for sonably related to the defense [of the cov- there are insurance policies, especially in
insurer where there were mixed covered “costs that can be allocated solely to the ered party] if an attorney hired to defend the directors and officers area, such as
and non-covered claims.6 the appellate claims that are not potentially covered.”8 a suit only against [ the covered party] quoted above, that require that coverage
court held:
however, the court set the bar very high on only covered claims reasonably would disputes be arbitrated. In a mediation set-
[a]pportionment should have been for the insurer to prove its case:
have decided to perform the legal service ting, the parties usually agree to a split
based on claims asserted, covered an insurer must carry the burden of applicable to the fee or expense.”11 the percentage based on a random allocation

and non-covered, and on legal ser- proof for reimbursement by a pre- court went on to say that as long as an item of fairness, loosely tied to covered vs. non-
vices rendered in defending each of ponderance of the evidence that the of service is related to defense of a covered covered claims. In an arbitration setting,
the claims, not the claimed damages defense expenses are solely allocable claim, it should be apportioned fully to precision is crucial. extensive hearings and
divorced from legal services performed to claims not potentially covered. the covered claim. thus, presumably in a documents (attorneys’ detailed bills) and
... . for example, a non-covered claim [a]ny precise allocation of expenses in deposition lasting all day, of both covered analysis of time spent, including review
seeking $100,000 in damages may be this context would be extremely diffi- and non-covered issues, the costs would of deposition transcripts, is required to
disposed of early in the litigation by
cult and, if ever feasible, could be made
all be charged to the insurer’s “column.”
determine the time-spent » Page S10