Betts Patterson Mines

Limitations on Recoverable Costs and Attorney Fees to a Prevailing Insured in Litigation

In Washington, an insured is entitled to recover attorney fees and litigation costs where the insurer compels it to assume the burden of legal action to obtain the full benefit of the insurance contract. Olympic Steamship Co. v. Centennial Ins. Co., 117 Wn.2d 37, 53, 811 P.2d 673 (1991); Panorama Village Condo Owners Ass’n Bd. of Dirs. v. Allstate Ins. Co., 144 Wn.2d 130, 144, 26 P.3d 910 (2001). Additionally, an insured may recover attorney fees and litigation costs if it is successful in prosecuting extra-contractual claims against its insurer. See e.g., RCW 19.86.090; RCW 48.30.015(3).

In MKB Constructors v. Amer. Zurich Ins. Co., 2015 WL 362747 (W.D. Wash. Jan. 2015), the jury awarded the insured plaintiff damages based on the defendant insurer’s breach of contract, bad faith and IFCA claims. Following entry of the verdict, the insured made a motion for costs and attorney fees. In the motion, the insured asked the Court to award it $160,580.50 in costs including such typical items as expert witness fees, travel costs, electronic research and copying charges. However, the insured also sought reimbursement of other items, including approximately $49,250 in labor costs incurred as a result of its employees’ attendance at depositions and trial. The Court held that these labor costs would have been incurred irrespective of litigation and were not reimbursable. The Court also declined to reimburse costs because they were not “necessary to establish coverage” or “actual litigation costs”: (1) mediation fee; (2) meals during working lunches; (3) a magnifying glass; (4) ferry charges for commuting lawyers; (5) daily trial transcriptions; (6) hotel rooms near courthouse; and (7) parking and meals for the trial team. As a result, the Court awarded $104,980.10 of the requested $160,580.50 in requested costs.

With respect to attorney fees, the insured asked the Court to increase the amount of the jury verdict by 33% for attorney fees to account for the contingent fee arrangement it had with its attorneys. Alternatively, the insured asked for an award of $445,713.80 based on an unenhanced lodestar calculation. The insurer objected on the basis that such an award would be excessive for various reasons. Initially, the Court declined to increase the overall judgment by 33% as there was no legal authority under Washington law, noting that the lodestar method was “the default principle for fee calculation.”

In evaluating the lodestar calculation, the Court sought to determine whether the insured could sustain its burden of demonstrating that the number of hours expended by counsel was reasonable, rather than relying upon its billing records. In finding that the insured could not meet this burden, the Court expressed its concern about the number of “block billing” entries in the billing records: “[n]evertheless, the number of block entries overall is significant and undermines the sufficiency of those records for purposes of MKB meeting its burden of proof on this motion.” Relying on legal authorities granting it authority to reduce hours that are billed in block format, the Court applied a 20% reduction of all the block billed entries. The Court also applied an across-the-board 20% reduction to the insured’s attorney fee request for “its failure to account for the hours it spent on a variety of unproductive pretrial activities and damages claims,” including unsuccessful motions to bifurcate, to compel, and for summary judgment and for pursuing certain unsuccessful categories of damages. As a result, the Court awarded $346,659.50 of the $445,713.80 requested by the insured.

As this decision indicates, insurers should be vigilant in reviewing motions for costs and attorney fees where the costs being claimed are not “necessary to establish coverage” under Panorama Village or were not “actual litigation” costs. Additionally, this case confirms that courts can discount attorney fee requests where block billing is used or for the prosecution of unsuccessful tasks during litigation.

Jeff Tindal