After Breaching Its Duty to Defend, Insurer Must Pay Market Rates for Defense Counsel

    After breaching its duty to defend, the insurer could not take advantage of a California statute allowing insurers to establish rates for defense counsel. S. Cal. Edison Co. v. Greenwich Ins. Co., 2023 U.S. Dist. LEXIS 151695 (C.D. Cal. July 28, 2023). 

    Edison was an additional insured under a policy issued by Greenwich Insurance Company to Utility Tree Service, Inc. (UTS). UTS contracted with Edison to provide vegetation management services near Edison's transmission lines. The Greenwich policy provided additional insured coverage to third parties to the extent of UTS's obligations under the contract. 

    Edison was sued in numerous lawsuits for property damage caused by the Bobcat wildfire in the Angeles National Forest (Bobcat Wildfire lawsuits). Edison tendered the defense in each lawsuit to Greenwich. Coverage was denied, however, based on a lack of underlying allegations or extrinsic evidence that Edison's liability resulted from UTS's negligent actions. 

    Edison retained its own defense counsel, Hoeston Hennigan, and negotiated marketplace rates. Edison then sued Greenwich for breach of the duty to defend and bad faith. In January 2023, the court granted Edison's motion for partial judgment on the pleadings, concluding that Greenwich had breached its duty to defend. The court ordered Greenwich to defend Edison in the underlying lawsuits and to begin reimbursing Edison for its defense fees and costs.

    Greewhich accepted the defense, but advised Edison it would only pay Edison's defense fees and costs subject to California Civil Code section 2860 (c). This statute said the insurer's obligation to pay independent counsel selected by the insured was limited to the rates paid by the insurer in similar actions. Therefore, Greenwich planned to pay much less than Edison had negotiated to pay Hoeston Hennigan for its defense. Edison informed Greenwich it had forfeited its rights under section 2860 by breaching its duty to defend. Edison filed a motion for partial summary judgment regarding defendant's forfeiture of rights under section 2860. 

    The court held that where an insurer, like Greenwich, breached its duty to defend, it forfeited its right to control defense of the action, including the ability to take advantage of the protections and limitations provided by section 2860. Therefore, Greenwich forfeited the right to take advantage of the rate limitation under section 2860 for future defense fees, even though it now accepted the defense of the Bobcat Waildfire lawsuits.