The possibility that an insurer will have to pay its policyholder’s attorney’s fees, in a coverage action, is one that exists – in one form or another – in 45 states. For more about this see the discussion above in Long v. Farmers.

Once it is determined that an insurer is obligated to pay its policyholder’s attorney’s fees, another question usually arises -- How much must be paid, i.e., are the fees reasonable? There is a substantial amount of case law nationally that has addressed this issue. One consideration in that calculus can be the amount of the insurer’s attorney’s fees. In other words, if an insurer is going to allege that the policyholder’s fees are excessive, the policyholder may then decide to serve discovery on the insurer, seeking to learn the amount of its fees. The policyholder’s argument being – how can you, insurer, say our fees are excessive, when you spent just as much in the case, or more? Of course, the risk of backfire for a policyholder, in seeking such information, is obvious.

Whether a policyholder in a coverage dispute was entitled to obtain the insurer’s counsel’s billing records was at issue before the Supreme Court of Texas in In Re National Lloyds Insurance Company. This is not the first case to address this issue. However, it may be the longest and most detailed decision. That, and coming from such an important supreme court, especially on coverage issues, is why I selected it for the 2017 Top Ten list.

The policyholder’s attorney’s fee claim arose out of coverage litigation for claims for hail damage under homeowner’s policies. The policyholders sought their fees as part of their statutory, contractual and extra-contractual claims. While no determination had been made that the policyholders’ fees were recoverable, they sought discovery of a host of insurer attorney-billing information.

The insurer objected on the basis that “the requested discovery is overly broad and seeks information that is both irrelevant and protected by the attorney-client and work-product privileges.” As for relevance, the insurer relied on a “stipulation that it ‘will not use its own billing invoices received from its attorneys; payment logs, ledgers, or payment summaries showing payments to its attorneys; or the hourly fees or flat rates being paid to its attorneys; audits of the billing and invoices of its attorneys to contest the reasonableness of [the homeowners’] attorney's fees.’”

The court ordered the insurer to respond to the discovery requests. The court of appeals denied the insurer’s petition for mandamus relief. While the court of appeals acknowledged that an opposing party’s attorney-billing information may be irrelevant in a given case, the discovery order was, for various reasons described, not an abuse of discretion.

The insurer’s petition for mandamus made it to Austin. The Texas Supreme Court, in a 6-3 opinion, held that the attorney-billing information was not discoverable. The opinion and dissent are lengthy. I set out, verbatim, several of the court’s conclusions below. This is the best way to provide a sense of both the issues discussed and how they were resolved.

Work Product Privilege

The court held that the work product privilege prevented the attorney-billing information from being discovered: “[B]illing records reveal when and where attorneys strategically deploy a client’s resources; which issues were addressed by experienced lawyers as compared to less experienced counsel; the subject-matter expertise of an attorney working on a particular aspect of the case; and who was hired as consultants—including consulting experts and jury consultants—and when. This information provides detailed information regarding a party’s litigation decisions and also illuminates the relative significance of or concern about particular matters. Especially when a party is a repeat litigant, as the insurer is here, decisions revealed through billing records represent strategic choices and are pieces of ‘an overall legal strategy for all the cases in which it is involved,’ which a party must be allowed to develop without intrusion. Discovery of billing records in their entirety would provide a roadmap of how the insurer plans to litigate not only this particular case but also other MDL cases.”

The court rejected the policyholders’ argument that all could be solved through the use of redaction of billing entries: “We also conclude that redacting privileged information—such as the specific topics researched or the descriptions of the subject of phone calls—would be insufficient as a matter of law to mask the attorney's thought processes and strategies. The chronological nature of billing records reveals when, how, and what resources were deployed. With this knowledge, a party in the same proceeding could deduce litigation strategy as to specific or global matters.”

The court made a couple of other important points on the issue of work privilege:

“Our holding does not prevent a more narrowly tailored request for information relevant to an issue in a pending case that does not invade the attorney’s strategic decisions or thought processes. Nor does our holding preclude a party from seeking noncore work product ‘upon a showing that the party seeking discovery has substantial need of the materials in the preparation of the party’s case and that the party is unable without undue hardship to obtain the substantial equivalent of the material by other means.’ But, here, the record bears no evidence of either.”

“We acknowledge that an opposing party may waive its work-product privilege through offensive use—perhaps by relying on its billing records to contest the reasonableness of opposing counsel's attorney fees or to recover its own attorney fees. But in this case, the insurer has stipulated it will not use its own billing records to contest the homeowners' attorney fees. Nor is the insurer seeking to recover its own attorney fees from the homeowners.”

Relevance

The court noted that, “[t]hough the parties disagree about whether the requested factual information is privileged, even unprivileged information is not discoverable unless the information is relevant.”

So the court turned to relevance of the attorney-billing information and held that it was not relevant because “(1) the opposing party may freely choose to spend more or less time or money than would be ‘reasonable’ in comparison to the requesting party; (2) comparisons between the hourly rates and fee expenditures of opposing parties are inapt, as differing motivations of plaintiffs and defendants impact the time and labor spent, hourly rate charged, and skill required; (3) the tasks and roles of counsel on opposite sides of a case vary fundamentally, so even in the same case, the legal services rendered to opposing parties are not fairly characterized as ‘similar’; and (4) a single law firm’s fees and hourly rates do not determine the ‘customary’ range of fees in a given locality for similar services. However, when a party uses its ‘own hours and rates as yardsticks by which to assess the reasonableness of those sought by [the requesting party]’ or seeks to shift responsibility for those expenditures, the party places its own attorney-billing information at issue, making the information discoverable.”

The court also made these interesting observations on the issue:

“[A] party subject to repeat litigation, such as an insurer or corporate defendant, may view the precedential value of a case more significantly than an opposing party who might not anticipate ever being involved in similar litigation again. Likewise, one side may have more at risk in a case. Such considerations could reasonably justify greater expenditures in time, labor, and money than might be considered ‘reasonable’ from the other party’s perspective. As the expression goes, one side of the litigation may have more skin in the game than the other.”

“[T]he nature of the attorney-client relationship may differ in ways that affect the rates charged and the demands on counsel’s time. In that vein, ongoing attorney-client relationships often exist between corporate and governmental parties and their counsel and frequently involve negotiated rates that take into consideration future litigation work. And ‘[l]arger organizations, often armed with more resources to expend on litigation than individuals, are frequently more demanding on their counsel in requesting constant updates on the litigation and detailed summaries on recent rulings, thereby requiring more time by their attorneys.’ These considerations are especially pertinent in multi-party litigation, like the MDL proceedings here.”

“Even when working on the same tasks, attorneys litigating the same case do not approach those tasks in a sufficiently comparable manner to be genuinely probative of the degree of effort or skill required by one another. Indeed, while counsel for both sides may attend the same deposition, the attorney taking the deposition would reasonably be expected to expend more time and expense in preparing for the deposition than the attorney defending the deponent. In like manner, the contrast between responding to discovery requests and reviewing and analyzing information produced creates significant variations in time and money spent. Suffice it to say that counsel in the same case are not actually or even effectively performing ‘similar legal services’ for the litigation.”

As you can see, the SCOTX discussion of whether a policyholder in a coverage dispute, seeking its attorney’s fees, was entitled to obtain the insurer’s counsel’s billing records, was extremely lengthy and detailed (and there’s lots more here that I didn’t mention). It is easy to image a court in the future, addressing this issue, looking to the Supreme Court of Texas’s thorough decision in In Re National Lloyds Insurance Company for guidance.