Late last month a jury awarded Schnitzer Steel all of the damages that it sought — over $8 million — in a coverage dispute with its liability carriers that centered on the rate being paid the environmental lawyers defending Schnitzer at the Portland Harbor Superfund Site. This is a very unusual case, but it is likely to have a ripple effect on the insurer-insured dynamic when it comes to selection of defense counsel. At the heart of the dispute was whether Schnitzer’s defending carriers had the right to choose defense counsel, even if the insured believed those lawyers did not have the experience or ability to properly handle the case. Schnitzer’s insurers, like most insurers, asserted that they had a nearly unfettered right to choose counsel, and took the position that if the insured insisted on another lawyer the carrier did not need to pay any more than the “panel counsel” rate. The jury in Schnitzer rejected that argument. The company recovered the difference between what it has been paying its California-based counsel (at rates nearing $900 per hour) and what its carriers had agreed to pay (roughly $250 per hour) for several years worth of intensive work.
As is usually the case one of the biggest fights was over the jury instructions, which embody the judge’s conclusions about the governing law. I have posted the jury instructions here. Although the court ruled before trial that the recent amendments to the Oregon Environmental Cleanup Assistance Act (OECAA) relating to standards for “independent counsel” did not apply, the court nevertheless gave the jury an instruction on an insurer’s obligations regarding defense counsel that is nearly identical to the statutory standard. This instruction will give insured’s ammunition to use with carriers attempting to foist “panel counsel” on the insured. In most cases appointed panel counsel are excellent specialists in their fields, but on occasion a carrier will attempt to appoint someone who does not have the requisite experience, or has a particular conflict of interest (such as having represented the carrier on coverage matters).
More generally, the verdict should make carriers particularly leery about going in front of a jury in state or federal court. The simple fact is that although Schnitzer had very excellent representation, many did not believe that they could convince a jury that a lawyer is worth $900 an hour, under any circumstances. The fact that they were able to do so certainly speaks to their skill as advocates, but probably also speaks volumes about how juries view insurance companies that try to skirt their coverage obligations.