Metropolitan News-Enterprise


Thursday, May 12, 2011


Page 1


Insurer Need Not Pay Lawyers for Representing Selves—C.A.


By SHERRI M. OKAMOTO, Staff Writer


Two Northern California attorneys who defended themselves from a lawsuit until their insurer accepted tender of their defense were not entitled to compensation for their time,  the First District Court of Appeal has ruled.

Div. Three concluded that Linda and Thomas Richards sustained no damages in the form of attorney fees as a result of the insured’s alleged breach of contract, in an April 28 decision ordered published Tuesday.

The Richardses own and operate the Jack London Lodge, a 22-room hotel, restaurant and saloon in the Sonoma Valley wine country. The lodge  was covered by the Sequoia Insurance Company, though a policy which included liquor liability coverage.

In 2004, a 20-year-old patron was fatally injured in a single car accident after leaving the lodge’s bar, and the special administrator of her estate filed a complaint against the Richardses and the lodge alleging she was negligently served alcohol that contributed to her death.

The Richardses tendered defense of the suit to Sequoia, which responded in a letter dated March 8, 2006 that it was “referring this matter to coverage counsel for review and an opinion as to Sequoia’s potential[] obligations.”

Sequoia’s letter advised the Richardses to “act immediately to protect your interests by retaining counsel of your choice and at your expense to respond to the allegations in the complaint” and “represent you until such time as Sequoia has determined the nature and extent of any potential obligation.”

If Sequoia’s attorney determined that the insurer was obliged to assume the Richards’ defense, the letter said “we will reimburse your reasonable defense costs incurred from the date of tender of this suit.”

When they received Sequoia’s letter, the Richardses said they contacted Sacramento attorney Brian Charter, who agreed to represent them without a retainer, with the understanding that they “would do the majority of the legal research, pleadings, and investigation necessary in the case.” 

Sequoia sent a second letter to the couple, dated March 17, informing them that the tender of their defense had been accepted, subject to a reservation of rights.

The insurer eventually settled the lawsuit against the Richardses and paid all attorney fees owed to Charter and the other attorneys who represented them after Sequoia assumed their defense. 

After that case was dismissed, the Richardses wrote to Sequoia demanding $30,000 to settle their claims against the insurer for “denial of the defense and indemnity” of the underlying suit. They claimed they each had spent 60 hours researching and evaluating the underlying case, and sought $250 per hour for their time. The Richardses also said that if they could not reach a settlement, they would file suit for emotional distress and punitive damages. 

Sequoia requested and received a detailed billing from the couple which showed approximately $43,000 in fees, but the insurer did not otherwise respond to the Richardses’ demand.

The Richardses then sued Sequoia for breach of contract and breach of the covenant of good faith and fair dealing. They alleged Sequoia’s March 8 letter had wrongly denied them a defense, and as a result, they incurred reasonable expenses in preparing to litigate the case themselves.

Sequoia moved for summary judgment, contending that the Richardses were not entitled to recover for the time they expended in their own defense, and that Sequoia had acted in good faith in expeditiously accepting the tender. Sonoma Superior Court Rene Auguste Chouteau agreed, and granted Sequoia’s motion.

Writing for the appellate court, Justice Peter J. Siggins explained that the consequences of Sequoia’s hesitation in accepting the tender did not need to be considered since Chouteau’s decision was “supportable on the basis that the Richards sustained no legally cognizable damages for any alleged breach of the insurance contract or the covenant of good faith and fair dealing.” 

He explained that the general measure of contract damages owed an insured due to an insurer’s breach of the duty to defend are the costs expended by the insured in defending the underlying action.

The justice reasoned that Trope v. Katz (1995) 11 Cal.4th 274—which held that attorneys who represent themselves in disputes involving contracts containing attorney fees provisions cannot recover “reasonable attorney’s fees” as compensation for the time and effort they expend on their own behalf—was “instructive” even though this case involved a contract of insurance rather than a prevailing party attorney fees provision of the type commonly found in a commercial contract.

Since the insurance contract, and Sequoia’s March 8 letter, obligated the insurer to compensate the insureds for “expenses incurred” in defending from the underlying suit, and, “as stated in Trope, the commonly accepted usage of  ‘incur’ means ‘to become obligated to pay [a fee],’ ” Siggins said, persons litigating in propria persona like the Richardses  cannot “incur” attorney fees. 

As the amount of attorney’s fees possibly owed by Sequoia for its delay in accepting the insureds’ tender of defense was the actual amount expended, not the value of their time or services, Siggins concluded, they had no valid claim for compensation and could not show contract damages due to the insurer’s delay in assuming responsibility.

Presiding Justice William R. McGuiness and Justice Martin J. Jenkins joined in Siggins opinion.

The case is Richards v. Sequoia Insurance Company, 11 S.O.S. 2474.


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