Upper Deck Co. has sued its general liability insurer, Liberty Mutual Fire Insurance Co., in California federal court last week, alleging that Liberty Mutual failed to satisfy its defense obligations in an antitrust lawsuit brought against Upper Deck by rival trading card maker Leaf Trading Cards LLC. According to the complaint, Liberty Mutual agreed that the allegations in Leaf’s suit triggered coverage under Upper Deck’s policy and acknowledged its duty to defend and Upper Deck’s right to independent counsel. However, Liberty Mutual stopped paying the defense fees of one of the firms Upper Deck hired, and also failed to pay the fees of a different firm.
Leaf sued Upper Deck in the Northern District of Texas in November 2017, alleging that Upper Deck illegally attempted to push Leaf out of competition. Leaf’s allegations of personal and advertising injuries triggered coverage under Upper Deck’s policy with Liberty Mutual. Upper Deck had previously filed a separate action against Leaf in the Southern District of California. Upper Deck retained one firm to represent it in the California action and hired a different firm to represent it in the Texas action. According to the complaint, Liberty Mutual contends that, under its policy, Liberty Mutual is only obligated to pay the fees charged by one law firm. Upper Deck disputes this contention, as neither the policy nor applicable law provides that the insurer may limit its payment of defense costs to those charged by a single law firm.
This lawsuit illustrates an issue that is increasingly arising in the duty to defend context. With increasing frequency, insurers refuse to pay the fees of multiple law firms or attempt to limit the rates paid to independent counsel, even where a policyholder reasonably believes it is strategically necessary to retain multiple law firms, or specifically qualified attorneys, to adequately defend the insured. Accordingly, policyholders should carefully analyze the law applicable to the insurer’s duty to defend, as well as pay close attention to insurance policy provisions concerning the insurer’s defense obligations, the parties’ rights regarding control of the defense, and similar provisions. In many jurisdictions, an insurer is required to pay reasonable attorney rates consistent with the prevailing market rates for similarly skilled and experienced attorneys working on similarly complex matters in the jurisdiction at issue. If the matter warrants, the insured should be permitted to rely on the assistance of multiple law firms and the insurer should be required to pay the related fees.