(Insurer Can Maintain a Lawsuit for Reimbursement of Unreasonable Attorneys' Fees and Expenses Charged by Insured's Independent Counsel)
In Hartford Cas. Ins. Co. v. J.R. Marketing, L.L.C., 61 Cal.4th 988 (August 10, 2015), the California Supreme Court, in a narrowly reasoned decision, held that Hartford Casualty Insurance Company (Hartford) can maintain a lawsuit for unjust enrichment and restitution against insured, J. R. Marketing, L.L.C.'s (J.R. Marketing) independent counsel (a.k.a.: Cumis counsel), for unreasonable fees and costs charged in connection with the defense of an underlying intellectual property lawsuit filed against J.R. Marketing. The court order allowing Hartford to file an action for recovery of unreasonable attorneys' fees and costs was drafted by J. R. Marketing's counsel and formed the basis for Hartford's lawsuit for recovery of unreasonable attorneys' fees and costs.
The parties' dispute arose out of an underlying action filed in Marin County Superior Court against J.R. Marketing, Noble Locks and several of their employees. The Complaint alleged claims for intentional misrepresentation, breach of fiduciary duty, unfair competition, restraint of trade, defamation, interference with business relationships, mismanagement and conspiracy. Noble Locks and J.R. Marketing tendered the defense of the Marin County lawsuit to Hartford under two different policies issued by Hartford to Noble Locks for the period of July 28, 2005 to July 28, 2006 and to J.R. Marketing for the period of August 18, 2005 to August 18, 2006. The policies afforded personal and advertising injury coverage to include business related defamation and disparagement.
Subsequently, Hartford denied J.R. Marketing's and Noble Locks' tenders of defense of the Marin County action based on the first publication exclusion in its policies. Subsequently, counsel for Noble Locks and J.R. Marketing, Squire Sanders, filed an action for declaratory relief and bad faith against Hartford regarding its denial of defense of Noble Locks and J.R. Marketing of the Marin County action. Squire Sanders was also acting as independent counsel for these parties in the defense of the underlying Marin County action.
In July 2006, the trial court in the coverage action entered a summary adjudication order finding that Hartford had a duty to defend Noble Locks and J.R. Marketing (insureds) in the Marin County action effective on the date of tender. The court also held that Hartford's reservation of rights triggered a right to Cumis counsel to represent the insureds in the underlying Marin County action. In that regard, the insureds retained Squire Sanders as Cumis counsel.
The trial court also issued an enforcement order on September 26, 2006 directing Hartford to promptly pay all defense invoices submitted to it as of August 1, 2006, and to pay all future defense costs in the Marin County action within 30 days of receipt. The order, which was drafted by Squire...
