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Vol. 8 - Issue 5
May 31, 2019


Court Distinguishes Between Rates For Policyholder Counsel And Insurer Counsel 


The rates to be paid by insurers to the policyholder's selected counsel – for defense or recovery of DJ fees – has long been a contentious issue.  Insurers often seek to pay such counsel the same rates that they pay their own defense or coverage counsel.  Policyholders often balk, saying that a distinction should be made, because the rates that insurers pay, to so-called panel counsel, are not a reflection of market rates.  You know this drill.

The court in C.M.S. v. American European Insurance Co., No. A-2056-17T3 (N.J. Super. Ct. App. Div. May 28, 2019) upheld such a distinction in the context of determining the hourly rate to be paid to the insured's counsel, under New Jersey law, as a prevailing party in a coverage action.  The court had this to say about it:  

"Rule4:42-9(a)(6) specifically permits a fee award in an action upon a liability or indemnity policy of insurance in favor of a successful claimant. A 'trial judge has broad discretion as to when, where, and under what circumstances counsel fees may be proper and the amount to be awarded.  In setting the lodestar, a trial court must first determine the reasonableness of the rates proposed by prevailing counsel in support of the fee application.  Generally, a reasonablehourly rate is to be calculated according to the prevailing market rates in the relevant community[] . . . for similar services by lawyers of reasonably comparable skill, experience, and reputation.  Next, the 'court must determine whether the time expended in pursuit of the 'interests to be vindicated' . . . is equivalent to the time 'competent counsel reasonably would have expended to achieve a comparable result[.]'"  (numerous citations omitted). 

Turning to the appropriate hourly rate to use, the court drew a distinction between who hires the lawyer: "The trial judge did not abuse his discretion in arriving at a lodestar rate of $350.  AEIC based its proposed figure of $190 on a certification of its claims examiner who attested to the market rate for coverage litigation and insurance defense in northern New Jersey.  However, as the trial court pointed out, this figure only represents the market for counsel representing insurance companies, not claimants seeking coverage.  Insurance companies have significantly more bargaining power than claimants in fee negotiations, and, in exchange, provide the lawyer with the security their bills will be paid.  Comparatively, counsel for a claimant takes on more risk than counsel for the insurer in the form of volume of work and non-payment.  The trial judge concluded counsel for CMS [the insured] should not be paid a similar fee as counsel for AEIC because their respective cost/benefit analyses were different.  Moreover, AEIC could have, but failed to, provided CMS with counsel at a negotiated rate under a reservation of rights."



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