A Federal District Court has ruled that a liability insurer was within its rights to claim a credit on defense bills based upon audits revealing excessive charges on bills that it had paid in full in the past. The case is 360Heros, Inc. v. Mainstreet America Assur. Co., No. 17-549 (N.D.N.Y. Aug. 25, 2021).
360Heros Inc. manufactures, sells, and distributes photographic harness products in the U.S. and worldwide. Mainstreet American Assurance Company is a Florida corporation that sells insurance contracts. 360 Heros was added on as a named insured to a business policy owned by CNERD Inc.
A suit was filed by GoPro against 360 Heros for copyright infringement and unfair competition. Counsel for 360 Heros received notice of the lawsuit and MSA agreed to defend 360 Heros in the action, and subsequently confirmed that its reservation of rights letter created a conflict of interest entitling 360 Heros to retain "independent counsel at MSA's expense." Attorneys were hired to represent 360 Heros, and MSA was aware of and approved of the retention of those attorneys and their appearance as defense counsel. MSA paid most of the fees as they were billed until this action was commenced. In total, the amended complaint alleged that MSA failed to pay two invoices totaling $289,434. The firm inquired into payment status but MSA only stated that it was "reviewing" the bills. The documents were in the process of review when MSA became aware of this suit seeking injunctive relief.
MSA argues that the duty to defend only obligates MSA to pay "reasonable" attorneys fees. It does not obligate MSA to pay attorney's fees or costs that are unreasonable, unnecessary, excessive, or erroneous.
The Court noted numerous examples of improper or excessive charges including the failure to use paralegals or law clerks, charging 1,005 for travel and charging dozens of hours to prepare short depositions. Other courts have held that spending less than half of that is excessive.
The Court found that a 15% reduction in fees was warranted, due to the repeated practice of excessive redundant or otherwise unnecessary billing. Because MSA's prior payments exceed the amount of the reduced fee authorized by the Court, the firm was asked to reimburse MSA for the difference.
Editor's Note: The duty to defend is not all-encompassing, and can be exhausted as we saw in the above case. Some of the most egregious examples of over-billing included an attorney billing 1.1 hours (almost $400) for calling an expert to get their tax ID number and billed over $400 for one day's meals while out of town for a settlement conference.