Payback To Insurance Company After It’s Ordered To Pay Cumis Counsel To Defend Its Insured, And It Claims Cumis Counsel Padded The Bills.

The question tackled by the California Supreme Court here is that after an insurance company is compelled by a court order to provide independent counsel to defend its insured in a third-party action pursuant to San Diego Federal Credit Union v. Cumis Ins. Society, Inc. (1984) 162 Cal.App.3d 358 [208 Cal.Rptr. 494], and the insurer complies under a reservation of rights, may the insurance company later proceed against independent counsel for padding the bills? The high court answered in the affirmative, stating: “We conclude that under the circumstances of this case, the insurer may seek reimbursement directly from Cumis counsel. If Cumis counsel, operating under a court order that expressly provided that the insurer would be able to recover payments of excessive fees, sought and received from the insurer payment for time and costs that were fraudulent, or were otherwise manifestly and objectively useless and wasteful when incurred, Cumis counsel have been unjustly enriched at the insurer’s expense. Cumis counsel provide no convincing reason why they should be absolutely immune from liability for enriching themselves in this fashion. Alternatively, Cumis counsel fail to persuade that any financial responsibility for their excessive billing should fall first on their own clients — insureds who paid to receive a defense of potentially covered claims, not to face additional rounds of litigation and possible monetary exposure for the acts of their lawyers. For these reasons, we reverse the judgment of the Court of Appeal insofar as it concluded that in this case, reimbursement cannot be obtained directly from Cumis counsel.” (Hartford Casualty Ins. Co. v. J.R. Marketing, L.L.C. (Cal. Sup. Ct.; August 10, 2015) 61 Cal.4th 988 [190 Cal.Rptr.3d 599, 353 P.3d 319].)