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ULTRA COACHBUILDERS v. GENERAL SECURITY INSURANCE CO.

October 28, 2002

ULTRA COACHBUILDERS, INC., PLAINTIFF,
V.
GENERAL SECURITY INSURANCE COMPANY, DEFENDANT.



The opinion of the court was delivered by: Louis L. Stanton, United States District Judge

Opinion and Order

In an opinion issued July 15, 2002, this Court found that defendant General Security Insurance Company ("General Security") owed plaintiff Ultra Coachbuilders, Inc. ("Ultra"), the duty of defending Ultra in an action brought by the Ford Motor Company in a federal district court in California ("the Ford action").*fn1 Ultra now moves for partial summary judgment against General Security, awarding Ultra $149,658.07 in attorneys' fees and other costs it had incurred defending the Ford action, with pre-judgment interest thereon at the annual rate of 10 percent, from the date of each invoice until the date of judgment.

The relevant facts are not disputed. Ultra tendered the defense of the Ford action to General Security in April or early May 2000, and General Security declined the tender by letter dated July 24, 2000. (West Decl. ¶¶ 8, 9.)

On or about May 16, 2000, Ultra retained the California law firm of Knobbe, Martens, Olson & Bear, LLP ("Knobbe") to defend it in the Ford action. (Def.'s Statement of Material Facts ("DSOMF") ¶ 7.) The Ford action was stayed at the end of December 2000 when Ultra filed a petition in bankruptcy. (DSOMF ¶¶ 8, 9.) Knobbe's invoices total $149,658.07, toward which Ultra made three payments totaling $60,662.68. (DSOMF ¶¶ 10, 18.)

On June 15, 2001, as part of its bankruptcy proceedings, Ultra entered into a stipulation with Knobbe, assigning to Knobbe its "right, title and interest in and to the Insurance Policies, including but not limited to, any and all rights to recoveries for defense fees and costs incurred." (Somoza Aff., Ex. 1, ¶ G.) The assignment provides that any recovery under the General Security policy on claims asserted by Knobbe would be applied:

a. First, to all fees and costs incurred by Knobbe in pursuing such claim which shall include cost of coverage counsel as well as cost of bankruptcy counsel to effect this assignment;
b. Second, to Knobbe on account of fees and costs incurred by the debtor which remain due and owing;
c. Third, any excess shall be paid to the debtor care of its counsel of record herein for distribution to creditors consistent with the plan and as approved by this [bankruptcy] court.

Id.

As assignee of Ultra, Knobbe retained the law firm of Gauntlett & Associates for the purpose of securing and obtaining from General Security the policy benefits of defense of the Ford action. (Decl. Tarzi ¶ 2.)

In opposition to the instant motion, General Security argues that Ultra is not entitled to recover pre-judgment interest on still-unpaid defense costs, because Ultra has enjoyed the use of the money it would have paid for those costs. For the costs that Ultra has paid, General Security argues that pre-judgment interest should run from the date of payment, rather than from the date of invoice.

General Security also claims certain defense costs should not be recoverable because they were unreasonable or unnecessary. It objects to paying for late fees assessed for unpaid defense costs, for the assertion of counterclaims on Ultra's behalf, and for paralegal work and computer research. It also claims that Knobbe's excessive billing rates and duplicative work warrant a 50% reduction in attorneys' fees.

Discussion

Generally, the insured, as the party seeking relief, carries the burden of proving the amount of costs incurred in defense of the action. By contrast, in the exceptional case, wherein the insurer has breached its duty to defend, it is the insured that must carry the burden of proof on the existence and amount of the . . . expenses, which are then presumed to be necessary as defense costs, and it is the insurer that must carry the burden of proof that they are in fact unreasonable or unnecessary.

State of California v. Pacific Indemnity Co., 63 Cal.App.4th 1535, 1548-49 (1998) (internal quotations and citation omitted, ellipsis in the original). Here, General Security has not carried its burden of proving that the claimed attorneys' fees and costs were unreasonable or unnecessary for Ultra's defense. Ultra is entitled to recover its defense costs, as well as pre-judgment interest on ...


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