Thursday, December 18, 2008
Court: Cumis Counsel Fee Dispute Subject to Mandatory Arbitration
By a MetNews Staff Writer
Any contested issues concerning the amount of attorney’s fees allegedly owed by an insurer to an insured for independent, or Cumis, counsel’s attorney fees are subject to mandatory arbitration, this district’s Court of Appeal ruled yesterday.
Reversing Los Angeles Superior Court Judge Ruth Ann Kwan’s dismissal of St. Paul Fire and Marine Insurance Company’s petition to compel arbitration, Div. Seven explained that fee disputes coupled with additional bad faith claims are not exempt from arbitration.
St. Paul had agreed to defend its insured, Compulink Management Center Inc., against two cross-complaints subject to a reservation of rights, and, to avoid a potential conflict of interest, allowed Compulink to select independent counsel.
After the case settled, Compulink filed suit against St. Paul for breach of contract and breach of the implied covenant of good faith and fair dealing. Compulink alleged that St. Paul had prevented a timely settlement of the cross-complaints, which forced it to incur additional legal fees and eventually to enter into a less favorable settlement.
Compulink sought economic damages in excess of $1,000,000, along with a declaration that St. Paul had a duty to pay all outstanding legal fees incurred by Compulink in defending against the cross-complaints.
The trial court denied St. Paul’s petition to compel arbitration in its entirety because Compulink’s complaint included allegations beyond a mere attorney’s fees dispute and the additional bad faith allegations took the complaint beyond the scope of Civil Code Sec. 2860(c)’s mandatory arbitration requirement.
Sec. 2860 provides that when an insured has selected independent counsel, the insurer’s obligation to pay the independent counsel selected by the insured is “limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.”
It further states that “[a]ny dispute concerning attorney fees…shall be resolved by final and binding arbitration by a single neutral arbitrator selected by the parties to the dispute.”
Writing for the appellate court, Justice Laurie D. Zelon concluded that the plain language of Sec. 2860(c) did not limit its application to situations where the sole issue in dispute is the amount or rate of independent counsel’s fees.
“While Compulink’s complaint alleges wrongful conduct beyond the mere failure to pay attorney’s fees, the parties do not dispute that the amount of attorney’s fees owed by St. Paul is a contested issue in this action,” Zelon wrote. “Pursuant to section 2860, subdivision (c), that issue must be resolved by an arbitrator, not by any other trier of fact.”
Presiding Justice Dennis M. Perluss and Justice Frank Y. Jackson joined Zelon in her opinion.
Robert C. Weiss, Yolanda Orozco and Anna E. Raimer of Jones Day represented Compulink.
Mark D. Peterson of Cates Peterson represented St. Paul along with Robert A. Olson and Marc J. Poster of Greines, Martin, Stein & Richland.
The case is Compulink Management Center, Inc. v. St. Paul Fire and Marine Insurance Company, 08 S.O.S. 6755.
Copyright 2008, Metropolitan News Company