Episode 37. Selection of Counsel

The LA Department of Water and Power is spending a pretty penny on a law firm to defend them against litigation resulting from the Palisades Fire. The price tag of the firm made Bob wonder: Was any insurance agency involved in selecting the firm? This week, he uses that framework to discuss selection of counsel and litigation management issues.

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Transcript

I see that the Los Angeles Department of Water and Power has retained a law firm

to defend litigation resulting from the Pacific Palisades fire. The firm's scope of

work as reported will be to investigate possible claims and defend the utility

against lawsuits resulting from damage to residents' homes. Not sure how much

litigation that's going to involve. The Palisades fire destroyed approximately 6 ,835

structures and damaged more than 970 others, but I don't have a breakdown of how

many of those 7 ,800 buildings were individual homes or homes of any kind.

In terms of the selection of the firm there's no indication that it was approved by

LADWP's insurers. The news report merely states that the three -year ten million

dollar contract with the law firm was approved by the DWP's board.

Considering that the contract set the firm's partner billing rates in the range of

$1 ,580 to $1 ,975 and the associates range rates in the range of $745 to $1 ,180.

All of which by the way someone convinced the DWP board is a discounted rate

structure. It's hard to imagine any insurance company was involved in the selection.

This news raises issues about selection of counsel, hourly rates,

and litigation management. I want to briefly address those issues under the standard

form liability insurance policy, but before doing so, I do want to note that DWP

may not have that kind of standard insurance policy.

It is more likely that DWP has catastrophic insurance written on a parametric basis.

So let me define what parametric basis is since it's a relatively new form of

insurance. Unlike traditional insurance that pays only after liability or loss is

assessed unadjusted, parametric insurance pays upon the occurrence of a covered event

that meets or exceeds a predefined intensity threshold. So parametric insurance pays a

set amount based on the magnitude of the event as opposed to the magnitude of the

losses in a traditional indemnity policy. Thus, it is possible that DWP will receive

funds from their insurer to use as the agency wishes, and the insurer may have no

stake in the cost of defense or indemnity. Under traditional liability policies,

insurers have an interest in reducing the cost of defense and indemnity and

therefore, by contract, retain the right to select defense counsel and the discretion

over whether to settle or litigate.

Occasionally, an influential policyholder wants to be defended by its preferred law

firm and insurer can accommodate that preference, but unless it is written into the

policy, does not have to under ordinary circumstances. Sometimes the insurer will

acquiesce and the insured's choice of counsel provided the law firm bills at a rate

acceptable to the insurer and follows the insurer's litigation management guidelines.

For other circumstances, the selection of defense counsel may shift from the insurer

to the insured. But even then, the insurer retains control over the rate the law

firm may charge and whether the matter is to be litigated or settled.

If as I suspect, the DWP is dealing with its own funds or funds paid by

catastrophe insurance on a parametric basis, the DWP can pay above market defense

council rates and deplete its resources that way. It also has a fund to pay claims

sooner without the inevitable delay of insurance company claims adjustment. There may

also be opportunities for more creative settlement agreements than customarily used in

liability litigation.

I understand that so far there are five suits against the city of Los Angeles and

the Los Angeles Department of Water and Power over the Palisades fire. These suits

are reportedly based on the city's failure to adequately provide water resources to

firefighters.

It appears, however, that Southern California Edison is currently a more popular

target defendant than DWP. More than 50 suits have been filed against SCE over the

Eaton fire, which destroyed about 10 ,000 structures.

In July 2023, SCE became self -insured. I understand its self -insurance continued into

2025, so there may be no insurance coverage issues,

defense firm selection issues, or issues related to settlement approval from the

private market. If DWP and FCE remain the target liability defendants for the

Palisades and Eaton Fires. Their defense and settlement resources may be used up

quickly, especially at attorney rates from $745 to nearly $2 ,000 per hour.

Homeowner insurers who may seek to subrogate against those utilities may be well

advised to resolve as many homeowner claims as possible, as quickly as possible,

and get in line for those limited several resources from DWP and FCE.