Statutory Attorney Fees Is Considered A “Taxed” Cost Under An Insurance Policy

In Employers Mutual Casualty Co. v. Philadelphia Indemnity Insurance Co., (— Cal.Rptr.3d —, Cal.App. 2 Dist., Nov. 19, 2008), a California Court of Appeal considered whether an insurance company was required to contribute money for statutory attorney fees as a “taxed cost” and for defense fees and costs. The Court of Appeal concluded that the insurance company was required to contribute for both the statutory attorney fees as well as for the defense fees and costs.


Philadelphia Indemnity Insurance Company (“Philadelphia”) provided Louis Simpson (“Simpson”) general commercial liability policies for his business, Villa Park Mobilehome Park. Simpson also received insurance coverage from Employers Mutual Casualty Company (“Employers”) and Evanston Insurance Company (“Evanston”).

In December of 2003, Simpson was sued by 188 residents of his Villa Park Mobilehome Park for failure to maintain many of the utilities and common property features of the mobile home park. Simpson asked Employers, Evanston, and Philadelphia to defend Simpson in the suit. Employers and Evanston agreed but Philadelphia denied coverage.

In May of 2006, the lawsuit was settled for $3 million paid by Employers and Evanston, with $1.2 million going to damages and $1.8 million going toward statutory attorney fees. Employers and Evanston also paid approximately $740,000 in attorney fees and costs. Evanston assigned its rights to Employers and Employers commenced the present suit against Philadelphia for contribution toward the $3.7 million cost of the lawsuit.

The trial court found that Philadelphia owed approximately $150,000 in contribution for damages, $400,000 in contribution for the statutory attorney fees, and about $160,000 in contribution for attorney fees and costs. Philadelphia did not appeal the amount of contribution owed for damages under the settlement, but Philadelphia did appeal the contribution for the statutory attorney fees and the other attorney fees and costs.


The Court of Appeal began with a brief discussion of the responsibility of multiple insurers and how the risk of loss through coverage is reflected in the ratio provided by the insured’s policy. Philadelphia contended that it did not owe contribution toward the statutory attorney fees because the payment did not represent a “taxed cost.”

According to Philadelphia’s policy with Simpson, it would pay “all costs taxed against [Simpson] in the suit.” Philadelphia argued that the statutory attorney fees could not be considered a “tax” under Simpson’s policy because it was the result of a settlement and not a “judicially assess[ed] amount of costs.” The Court of Appeal disagreed with Philadelphia’s strict definition of “taxed” and found ample support for a broader definition of “taxed” under the California Rules of Court. Moreover, the court reasoned that as a matter of public policy, the broader definition of “taxed” to include statutory attorney fees helps promote incentives toward settlement.

Philadelphia also argued that Employers could not recover contribution for the statutory attorney fees because liability was not established under the settlement agreement, which Philadelphia contends was required for the statutory attorney fees to apply. The Court of Appeal disagreed with Philadelphia’s strict interpretation of the statute. Philadelphia also argued, in the alternative, that it should not have to contribute $400,000 and that the trial court erred in its calculation of Philadelphia’s contribution. Again, the court disagreed with Philadelphia and after explicating the flaws in Philadelphia’s argument, the court pointed out that Philadelphia did not provide authority to support its theory.

The Court of Appeal also addressed Philadelphia’s challenges to the defense attorney fees and costs. The court found that Philadelphia waived the argument under the appeal, but still explained that if Philadelphia had properly maintained the argument on appeal it was equitable for Philadelphia to pay contribution for the defense attorney fees and costs because Philadelphia stood to gain from the success of the defense counsel. The court also found that the allocation of the fees and costs were proper.

Finally, the Court of Appeal quickly dismissed an appeal by Employers that it was entitled to prejudgment interest. The court said that because there were still questions as to the amount of damages following the settlement agreement, Employers was not entitled to prejudgment interest.

In conclusion, the Court of Appeal found that Philadelphia was required to contribute money for statutory attorney fees as well as for defense attorney fees and costs following the settlement of the lawsuit by Employers.


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