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November 06, 2017 | Blog Post| Contingency Fee Multipliers: Florida Supreme Court Rejects Rare and Exceptional Circumstances Requirement

Contingency fee multipliers increase attorney fee awards substantially. The general custom in American law is that each party is responsible for his or her own attorney’s fees, regardless of the outcome of the action. See Johnson v. Omega Ins. Co., 200 So.3d 1207, 1214 (Fla. 2016). An exception, however, arises when an agreement of the parties or a statute states otherwise. Id. at 1214-15. Section 627.428, Florida Statutes, allows an insured who prevails against an insurer to recover reasonable attorney’s fees. This statute shifts fees to the insurer if the insured wins. The statute is intended to discourage insurers from contesting valid claims. Prevailing insureds often ask trial courts to award a multiplier when they win a lawsuit against their insurer. Insurers must appreciate exposure to attorney’s fees and contingency fee multipliers when coverage disputes are litigated.   

In Florida, a trial court must consider whether to award a multiplier to a prevailing insured. But, it is not required to award a multiplier. Federal and state court decisions have debated when to apply contingency enhancements and fee multipliers. United States Supreme Court decisions disfavor contingency enhancements and find that they should only apply in “rare” and “exceptional” cases. The Florida Supreme Court, however, rejected that requirement in Joyce v. Federated National Insurance Company, 2017 WL 4684352 (Fla. 2017). The Joyce decision concluded that the Fifth District Court of Appeal erred by imposing a rare and exceptional circumstances requirement before a trial court may apply a contingency fee multiplier. It reaffirmed the contingency fee multiplier requirements articulated in three prior fee decisions: Florida Patient’s Compensation Fund v. Rowe, 472 So.2d 1145 (Fla. 1985); Standard Guaranty Insurance Co. v. Quanstrom, 555 So.2d 828 (Fla. 1990), and Bell v. U.S.B. Acquistion Co., 734 So.2d 403 (Fla. 1999).

Florida applies the federal lodestar approach for computing reasonable attorney fees. The Florida Supreme Court adopted the lodestar for the first time in Florida Patient’s Compensation Fund v. Rowe, 472 So.2d 1145 (Fla. 1985). Every attorney fee claim starts with the lodestar. It is a two-step process. The trial court must first determine the number of attorney hours reasonably expended multiplied by a reasonable hourly rate. Id. at 1150-51. Under Rowe, the trial court could adjust the lodestar and apply a multiplier from 1.5 to 3.0 based on the “likelihood of success” at the outset of the case. Id. at 1151.

The Florida Supreme Court reexamined Rowe in Standard Guaranty Insurance Co. v. Quanstrom, 555 So.2d 828 (Fla. 1990). The Quanstrom decision modified the analysis for contingency fee multipliers. A trial court must consider whether or not to apply a contingency fee multiplier, but it is not required to apply a multiplier. Id. at 831.  When determining whether a multiplier is necessary, a trial court should consider three factors: (1) whether the relevant market requires a contingency fee multiplier to obtain competent counsel; (2) whether the attorney was able to mitigate the risk of nonpayment in any way; and (3) whether any of the factors set forth in Rowe are applicable, especially, the amount involved, the results obtained, and the type of fee arrangement between the attorney and his or her client. Evidence of these factors must be presented to justify a multiplier. In contract cases, a trial court may apply a multiplier from 1 to 2.5 based on likelihood of success at the outset of a case. Id. at 834.

The United States Supreme Court analyzed the availability of contingency fee enhancements under fee-shifting statutes in Burlington v. Dague, 505 U.S. 557 (1992). There, the Court held that a contingency enhancement was not permitted under fee-shifting provisions of the Solid Waste Disposal Act and Clean Water Act. It reversed a 25% lodestar enhancement. Justice Scalia wrote the majority decision. He emphasized that fees are “certain” or “contingent.” Id. at 560. A fee is certain if it is payable without regard to the outcome of the suit; it is contingent if the obligation to pay depends on a particular result obtained. Id. at 560-61.

The Burlington decision disapproved contingency enhancements. The Court’s prior decisions establish a “strong presumption” that the lodestar represents a “reasonable” fee. Id. at 562. An enhancement for contingency duplicates factors already subsumed in the lodestar. Id. The lodestar considers case difficulty based on the number of hours expended and the hourly rate. A contingency enhancement, in addition to the lodestar, “amounts to double counting.” Id. at 563. The attorney is rewarded twice. Justice Scalia argued further that contingency fee enhancement encourages nonmeritorious claims. Id. Moreover, enhancements increase litigation over fees. They make the setting of fees more complex, arbitrary, and unpredictable. Id. at 567.

In 1999, the Florida Supreme Court determined that a multiplier could be applied to court awarded fees based on a contractual provision, rather than a statute. See Bell v. U.S.B. Acquistion Co., 734 So.2d 403 (Fla. 1999). But the Court refused to deviate from the objective structure established by Quanstrom and Rowe for assessing a reasonable attorney fee. Id. at 411. A multiplier is a “useful tool” in determining a reasonable fee. Id. at 412. The Bell decision illustrates the Florida Supreme Court’s separation from federal precedent in cases involving a multiplier.

The United States Supreme Court addressed contingency enhancements under fee-shifting statutes in Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010). The district court awarded a $4.5 million fee enhancement to a lodestar in a civil rights case. It based the enhancement on the quality of representation provided by the attorneys and results obtained. The Eleventh Circuit affirmed the award. The Supreme Court reversed, finding that the award was arbitrary. However, extraordinary cases may warrant an enhancement above the lodestar. Enhancements may be awarded in rare and exceptional circumstances.

The Florida Supreme Court’s decision in Joyce rejects a rare and exceptional circumstances requirement. The facts in Joyce involved a coverage dispute between insureds and their insurer under a homeowners’ policy. Water damaged a home in St. Johns County. The insureds filed a claim. The insurer thought that the insureds made material misrepresentations when they applied for insurance. Specifically, the insurer believed that the insureds failed to disclose prior losses on the insurance application. The insurer denied coverage for the claim based on material misrepresentations and failure to disclose prior losses. The insureds could not afford an attorney charging an hourly rate so they hired one on a contingency fee basis.

The insureds sued their insurer for coverage. The parties litigated for several months. But pre-litigation mistakes changed the case and forced a settlement. The insureds produced a copy of their original insurance application during discovery. The application properly disclosed the prior losses. The insured’s agent incorrectly transmitted the application data to the insurer without the prior claims. The insurer conceded coverage after the first deposition. The insureds recovered $23,500 for the damage and settled the case, exclusive of attorney’s fees. The parties stipulated that the insureds were entitled to recover reasonable attorney’s fees under the fee-shifting statute, because the insureds won. 

The attorney fee award exceeded the insureds’ recovery under the insurance contract. The trial court held a fee hearing. It determined that the insureds’ attorney spent 109 hours on the case at a reasonable hourly rate of $350, which supported a lodestar amount of $38,150. Next, the trial court considered whether to apply a contingency fee multiplier. It added a 2.0 multiplier to the $38,150 lodestar amount and awarded $76,300 in fees to the insureds’ attorney.

The trial court applied all three Quanstrom factors to justify the 2.0 multiplier. The first factor—the relevant market—supported a multiplier. The insureds’ attorney and fee expert testified that they were unaware of any other attorneys in St. Johns County who specialized in representing first-party plaintiffs against insurers. The attorney said she took the case with the “hope and expectation” that, if she won, the court would award a contingency fee multiplier. She would not have taken the case without that possibility because it would not have been economically feasible. The fee expert testified a contingency fee multiplier was necessary to obtain a competent attorney. The trial court concluded that “there are few or no other attorneys who undertake this work who have offices in the St. Augustine area.” Without the possibility of a contingency fee multiplier, the insureds would not have found another competent attorney who would have agreed to take the case.

The second Quanstrom factor supported a multiplier, because the insureds’ attorney could not have mitigated the risk of nonpayment. The insureds could not pay a retainer fee. The fee expert testified that there was no meaningful way for the attorney to mitigate the risk of nonpayment based on the insureds’ economic situation.

The trial court also determined that the third Quanstrom factor supported a multiplier. The Rowe factors were present. The case was complex. And, the likelihood of success at the outset was even at best.

The insurer appealed the attorney fee award. The appellate court agreed with the trial court on the lodestar calculation of $38,150, but disagreed with the 2.0 multiplier. The case was not complex. The insureds had no trouble finding an attorney to represent them. The appellate court reversed the multiplier and relied on the rare and exceptional circumstances requirement. It cited to the Perdue decision and said that a contingency fee multiplier is to be used only in rare and exceptional circumstances. The insured appealed to the Florida Supreme Court.

Florida trial courts may apply a contingency fee multiplier if there is competent and substantial evidence supporting a multiplier. But a rare and exceptional circumstances requirement does not apply to contingency fee multiplier claims. The Florida Supreme Court quashed the decision and said the Fifth District erred by imposing a rare and exceptional circumstances requirement. No such requirement exists under Rowe, Quanstrom, and Bell. Moreover, the Fifth District’s reliance on Perdue was wrong. That decision addressed lodestar enhancements in contexts other than contingency fee multipliers. The Joyce decision supports Florida’s continued commitment to allow (but not require) the use of contingency fee multipliers where appropriate. The decision applies to cases in federal court removed from state court on the basis of diversity jurisdiction. 

Insurers and insureds will continue to litigate contingency fee multipliers. Last month, Hurricane Irma—a storm wider than the State—damaged properties across Florida. The storm interrupted businesses. Millions of Floridians lost power. Insurers and insureds are still assessing the damages caused by Hurricane Irma.

Hurricane Irma will produce coverage disputes between insureds and their insurers. Every claim for hurricane-related damage begins with a coverage analysis under the insurance policy. Expect causation disputes: wind versus water; wind versus flood; wind versus storm surge; concurrent causation versus efficient proximate cause; exterior openings caused by a covered peril versus interior water intrusion limitations; wind-driven rain; and ensuing water losses. Expect damage valuation disputes: Replacement Cost versus Actual Cash Value. Expect roof disputes: 25% rule; 50% rule; code upgrades; and matching. Expect more litigation over attorney fees. 

Insurers must appreciate their exposure to contingency fee multipliers when coverage disputes are litigated in court. If the insured prevails on a coverage dispute during litigation, the insured’s attorney recovers reasonable fees from the insurer. As part of the fee claim, the attorney may claim entitlement to a contingency fee multiplier. Like Joyce, the fee award for the attorney, may exceed the insured’s damages and recovery under the insurance contract. Contingency fee multipliers, when applied correctly, reward risk. But, remember, a multiplier claim may not be supported by the facts. Insureds must prove entitlement to a multiplier by competent and substantial evidence on the record.

Hudson Jones

A Senior Associate at Butler Weihmuller Katz Craig LLP in Tampa, FL. Hudson practices in our Arson & Fraud, Extra-Contractual, First Party-Coverage, and Third-Party Coverage departments.

September 06, 2018 Blog PostFull Consent to Assignments

Consent Not Fully Given: Fourth District Court of Appeal Enforces Policy Provision Requiring Consent of All Insureds and Mortgagees to Any Assignment of Benefits

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The legislatures are directing the public adjuster to focus on negotiating the insurance claim as opposed to profiting from remediation or remediation efforts and to ensure that all relationships are properly disclosed to the insured. This is certainly a move in the right direction.

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March 07, 2018 Blog PostFirst-Party Property Bad Faith in Florida - Podcast

Increasingly, property insurers in Florida are being sued for bad faith. What accounts for this increase?  Mainly, it has been driven by recent appellate court decisions that have eroded and all but eliminated any prerequisites to bad faith actions.  In part one of this two-part webinar series, we will outline the legal environment created by those decisions; attempt to define “bad faith”; explore the use and abuse of the civil remedy notice of insurer violation, and; discuss some things that can be done either to avoid a bad faith lawsuit altogether or, at least, to put the file in the best posture if a bad faith lawsuit can’t be avoided.

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September 01, 2017 Blog PostHurricane Hindsight is 20/20

It took years of depositions and other discovery to realize that that most of my 2004-2005 hurricane condominium association claims were much simpler to defend than I thought.   The center of gravity of these claims was the proper calculation of Actual Cash Value (ACV).

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Due to its holding in Macedo II, the Florida Supreme Court created a situation where, arguably, many auto policies now provide coverage for attorney’s fees and expenses awarded against an insured following an adverse verdict triggering the penalties under a proposal for settlement.

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July 26, 2017 Blog PostThe Continuing Saga of Sebo v. American Home Assurance Company: The Second District Court of Appeal Rules on Remand

On July 20, 2017, the Second District Court of Appeal issued an order that closed its books on the Sebo appeal.  Mr. Sebo made a homeowner’s claim to American Home contending construction deficiencies had allowed water to enter the residence at multiple points, causing, eventually, a complete destruction of the residence.  The trial court ruled the concurrent cause doctrine applied, and so that the combination of covered water damage and excluded faulty, inadequate and defective construction had resulted in coverage for the loss. 

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July 25, 2017 Blog PostThat Sinking Feeling: Sinkholes, Florida Law, and Some Questions Raised by The Recent Collapse in Land O' Lakes

The recent catastrophic ground cover collapse in Land O’Lakes attributed to a sinkhole highlights the unique aspects of Florida geology and the impact it can have on the risks faced by building owners and their insurers. In central and western Florida, the land generally consists of a layer of limestone topped by layers of clays and sands. The limestone is a vestige of the shells and skeletons of marine life deposited during prehistoric periods when that layer was at the bottom of shallow seas. Over time, limestone was formed and covered by layers of silts and sands. The limestone is slowly dissolved by groundwater, and constitutes part of the aquifer.

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July 17, 2017 Blog PostThe Innocent Co-Insured: Underestimating Definite and Indefinite Articles

Four little words—a, an, any, and the—can mean a world of a difference with respect to coverage for an innocent co-insured.  A federal judge (applying Florida law) recently ruled that “that the phrase ‘any insured’ unambiguously expresses a contractual intent to create joint obligations.” Stettin v. National Union Fire Insurance Company of Pittsburg, PA, 2017 WL 2858768 (11th Cir., July 5, 2017) (emphasis added).  The Settin Court solidified a prior U.S District Court for the Southern District of Florida case, which held that an intentional loss provision precluded coverage for even innocent co-insureds when the intentional loss provision contained language prohibiting coverage for intentional acts by any insured.

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July 05, 2017 Blog PostEarth Movement: "Any" Means Any; Home-Owners Insurance Company v. Dominic F. Andriacchi (Michigan Court of Appeals)

For years, courts across the country have considered whether an earth movement exclusion in a policy applies only when the earth movement losses are caused by or stem from natural causes or phenomena, or whether it applies to earth movement losses from both natural and man-made causes.

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June 22, 2017 Blog PostBottini v. GEICO: Parties to Bad Faith Action Not Bound by $30.8 million-dollar Verdict Without Appellate Review

For years, when a bad faith action was brought pursuant to a jury verdict in excess of policy limits in the underlying UM claim, everyone assumed the jury verdict was binding in the bad faith action. Then, Bottini v. GEICO resulted in a $30.8 million-dollar verdict – over 600 times the policy’s UM limit of $50,000! GEICO appealed, and the Second DCA concluded that even if GEICO were correct that errors affected the jury’s computation of damages, any such errors were harmless in the context of this case.

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In Kendall South Medical Center v. Consolidated Insurance Nation, No. 3D16-926, 2017 WL 1908376, *1 (Fla. 3d DCA May 10, 2017), the Third District Court of Appeals reversed the lower court’s fourth dismissal of Kendall South Medical Center’s complaint for negligent procurement, holding that there may be liability for negligent procurement where an agent fails to explain to an insured a coinsurance provision that could reduce coverage to less than the amount requested by that insured.

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The Third Circuit Court of Appeals sitting in Pennsylvania recently issued a precedential decision that interpreted the definition of a “named insured” under a tax delinquency statute to encompass tenants of a property even though the property owner, not the tenant, owed the delinquent taxes.

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March 23, 2017 Blog PostNebraska Supreme Court Rules that an Insurer Can Depreciate Labor in Determining Actual Cash Value

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March 21, 2017 Blog PostPennsylvania Superior Court adopts narrow interpretations of surface water exclusion and ensuing loss clause

In the Ridgewood Group LLC v Millers Capital Insurance Company, No. 1138 EDA 2016, February 27, 2017, the Superior Court of Pennsylvania analyzed two often troublesome policy provisions, the surface water exclusion and the ensuing loss cause .

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March 07, 2017 Blog PostFederal Diversity Jurisdiction: Proving Citizenship of Limited Liability Companies

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February 16, 2017 Blog PostSurplus Insurers, Too, Can Rely on the Application to Interpret Policy

Section 627.419 of the Florida Statutes provides that “[e]very insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy and as amplified, extended, or modified by any application therefor or any rider or endorsement thereto.”  This statute has not applied to surplus lines insurers since the “Zota-fix” legislation of 2009, which generally exempted surplus lines insurers from Chapter 627.

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Insurance coverage litigation today is often time consuming and expensive.  Many cases include claims for “bad faith” damages, and some cases seek punitive damages.  To support their allegations, litigants will usually seek a wide-array of documents and testimony.  Accordingly, litigating such matters can also become expensive. 

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October 28, 2015 Blog PostWhen Revenge Is Not So "Sweet": The Wages of "Revenge Porn" under Florida's New Cyber Harassment Statute

Policyholders who seek coverage for the monetary consequences of a violation of the statute under the “personal and advertising injury” or general liability coverage in their insurance’ policies are likely to find themselves looking elsewhere for funds.

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September 08, 2015 Blog PostNJ: Insurers Still On The Hook To Pay Innocent Parties Under Fraudulent Policies

The decision offers further guidance in the somewhat inconsistent world of rescission and automobile policy statutes, which – when accounting for the application misrepresentation, policy, and statutes – can be a tricky process.

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August 27, 2015 Blog PostLa. Federal District Court Greatly Expands the Duty to Preserve in Response to a Litigation Hold Notice

Takeda appealed the ruling to the Fifth Circuit Court of Appeals, but it reached a settlement in the MDL litigation in May of 2015 before appellate briefing commenced.  The Actos ruling is isolated to date; no other court has applied this holding or followed its interpretation.

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August 11, 2015 Blog PostInsurers Don't Sleep on Your Rights: Insurer's Motion to Intervene Denied as Untimely

The court noted that Cincinnati had been defending the action since 2012, but did not file the motion until 2015 and only on the eve of trial.  With regard to the damage interrogatories themselves, the parties argued that neither party’s expert had broken down the damages in the manner proposed by Cincinnati.

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June 10, 2015 Blog PostPost-Complaint Communications by Insurer's Employees Protected from Discovery in Bad Faith Litigation

The insured failed to articulate any type of argument that he could not obtain the substantial equivalent by other means without undue hardship.  The court recognized that the insured has the opportunity to conduct bad faith discovery, which may include deposing State Farm adjusters, to obtain the substantial equivalent...

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April 09, 2015 Blog PostCan an Insured Sue His Adjuster When the Insured is Injured Cleaning Debris, Because the Adjuster Incorrectly Denied Coverage for Debris Removal?

Imagine a gigantic tree limb weighing over 7,000 lbs falling onto your home.  You dutifully call your insurance company to report the loss. So when the adjuster inspects your home and (verbally) tells you that debris removal is not covered by your policy and that you need to clean up the debris (glass, limbs, branches) all by yourself, you clean it up yourself, right?  And when you hurt your hand in the process ...

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April 08, 2015 Blog PostFourth Circuit Sets Stage For Interpreting Contingent Business Interruption

CBI insurance provides coverage for loss of sales or revenue sustained when business is interrupted due to property damage that occurs away from the insured premises and, consequently, disrupts the flow of goods and services from/to a supplier or customer (referred to as the “dependent” or “contributing” properties). There are a limited number of cases discussing issues relating to CBI insurance; and the Fourth Circuit’s ruling provides greater clarity as to what constitutes a “direct” supplier, which is a common...

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September 26, 2014 Blog PostWhen It Comes to Sinkholes, Contracts, Statutes and Regulations Do Matter

On August 21, 2014, the United States Court of Appeals for the Eleventh Circuit vacated the decision of the U.S. District Court for the Middle District of Florida in Shelton v. Liberty Mutual, Case number 13-15371 / D.C. Docket No. 8:12-cv-02064-JSM-AEP. This decision confirms that the statutory definitions for structural damage under the May 17, 2011 amendments to the Florida sinkhole statutes apply to property policies issued after those amendments were enacted. The court’s order reversed the positions taken by the District Court that seemed bent on plotting a new course for Florida jurisprudence.

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July 22, 2014 Blog PostFeng Shui: Direct Physical Loss Does Not Include Damage to Invisible Forces

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