Avoiding Liability for Paying Independent Counsel Fees
In Center Foundation v. Chicago Ins. Co. (1991), 227 Cal. App. 3d 547, an insurer sought to avoid liability for the fees of independent counsel that certain insureds had engaged in 1981--years before section 2860(c)--to defend litigation also commenced in 1981, and with respect to which a reservation of rights had then been asserted.
Contesting the trial court's holding that the insured had absolute discretion to select its independent counsel without any interference, the insurer sought to rely upon section 2860(c)'s provision of the right to require minimum qualifications of counsel. (Center, at pp. 555, 557.)
The Court of Appeal ruled that section 2860(c) could not thus be "applied retroactively to this 1981 dispute . . . ." (Center, at p. 557.)
Wienholz v. Kaiser Foundation Hospitals (1989), 217 Cal. App. 3d 1501, is also distinguishable.
That case involved a medical malpractice contingency fee agreement, governed by the fee limits of Business and Professions Code section 6146, that had been entered into in 1986.
The legislation that enacted section 2860(c) also enlarged those limits.
Thereafter, following a verdict for the malpractice plaintiff, the trial court held the new, higher limits applicable to the fees allowable to her attorney.
After determining that the amended version of Business and Professions Code section 6146 was not intended to be retroactive, the appellate court reversed.
It stated that "the statutory limits established by the 1975 version of section 6146 . . . were adopted by the parties in their contingency fee agreement" (Wienholz, at p. 1504), and that to apply the new limits would, or at least could, impair the obligations of that contract. (See id. at pp. 1506-1507.)
United States Fidelity & Guaranty Co. v. Superior Court (1988) 204 Cal. App. 3d 1513 [252 Cal. Rptr. 320] (USF&G) also confirms that the presence of pre-1988 policies does not itself preclude application of section 2860(c) as retroactive.
That case involved pre-1988 policies and liability litigation, and presented a dispute about the insured's entitlement to select independent counsel.
After deciding that issue in favor of the insured, the court addressed questions it had posed the parties regarding an insurer's remedies when concerned about the competence of independent counsel's representation or wishing to obtain nonprivileged information from counsel.
The court declared that the then recently effective "Civil Code section 2860 now applies to this case" (USF&G, at p. 1526), and discussed section 2860, subdivisions (d) and (f), and section 2860(c)'s provision for arbitration, as "now available to the parties." (USF&G, at p. 1527.)
Diamond Walnut Growers, Inc. v. American Motorists Ins. Co. does not propound a different conclusion. In Diamond, an insurer that had reserved rights agreed in 1986 to pay roughly the normal rates of the insured's independent counsel.
Then in 1988, shortly after the enactment of section 2860(c), the insurer declined to pay more than a lesser rate, apparently the rate it paid attorneys defending similar actions.
The insured sued for breach of contract, and obtained summary judgment that section 2860(c) did not govern.
This result paralleled that in Wienholz, supra, 217 Cal. App. 3d 1501, upon which the court relied, because the insurer was seeking to apply section 2860(c) retroactively to a prior fee agreement.
But despite certain statements in the opinion that section 2860(c) did not retroactively apply to pre-1988 insurance policies (Diamond, supra), that point was neither presented and nor actually decided. (See id.)