Advisories & Insights

The California Supreme Court has concluded that an award of "Brandt fees" in an insurance bad faith case should be based on the proportion of the policyholder attorney's contingency fee attributable to the prosecution of the claim for contractual benefits, not the entire compensatory damages award. This decision is the first significant analysis of "Brandt fees" by the California Supreme Court since Brandt v. Superior Court in 1985, where the California Supreme Court permitted policyholders to recover as bad faith damages their attorney's fees for obtaining policy benefits.

Cassim v. Allstate Insurance Company, 2004 WL 1687866, arose from a partial denial of a homeowner 's fire insurance claim. In the bad faith suit, the jury awarded the insureds $3,594,600 in compensatory damages, all but $41,000 of which were "bad faith" compensatory damages, and $5 million in punitive damages. After trial, the court awarded the successful policyholder $1,193,533 in attorney's fees – approximately one-third of the compensatory damages award. The insureds' contingency fee agreement with their attorneys fixed the fee at 40% of any recovery and did not distinguish between contract or tort recovery, or compensatory or punitive damages.

Although the California Supreme Court agreed with the insurer that calculation of the fee award on the basis of the entire compensatory damages award was improper, it also refused to base the award only on a percentage of the $41,000 in contractual benefits recovered.

The court held that a proper calculation of Brandt fees in contingency fee cases required the trier of fact to determine the percentage of all fees attributable to obtaining the contract recovery based on the percentage of the attorney's overall efforts devoted to the contractual recovery portion of the case. It did so by dividing the hours spent on the case into three categories: contract claim only; bad faith claim only, and both claims. It then established a formula under which the fee award would equal the ratio of the contract hours plus the hours allocable to both contract and bad faith claims over all the hours devoted to the prosecution of the case.

The court emphasized that it was the insureds' burden to prove the existence and amount of such damages by a preponderance of the evidence, and cautioned future trial courts to exercise their discretion to disregard contingency fee agreements designed to manipulate the calculation of Brandt fees to an insured's benefit.

Although Cassim's formula certainly offers clarity as to how Brandt fees should be calculated, it remains to be seen whether, as the dissenting opinion predicted, it "all but guarantees increasingly complicated and protracted litigation." What it should mean, however, is an end to the practice of some policyholder attorneys of attempting to collect "Brandt fees" on an hourly basis, even when working on a contingency fee.