Nothing Personal: Right to Recover "Brandt" Attorney Fees May Be Assignable

When an insured prevails against an insurer on a claim for “bad faith,” the attorneys’ fees that the insured incurred in recovering the unpaid insurance benefits can be awarded as an element of the insured’s damages under the so-called Brandt Rule.  [Brandt fees have been discussed previously here and  here.]   Now a panel of the Second District Court of Appeal has ruled that an insured is permitted to assign the right to recover Brandt fees.

L.A. Machinery Moving was transporting a commercial dryer for Five Star Dye House, and dropped the machine while loading it.  When L.A. Machinery did not fix the equipment quickly enough, Five Star sued for damages.   L.A. Machinery’s liability insurance company, Essex, declined to cover the claim.   Eventually L.A. Machinery settled with Five Star, and assigned to Five Star any and all rights that L.A. Machinery possessed against Essex.   After two trials, Five Star obtained a judgment against Essex, holding that the insurer had denied L.A. Machinery coverage erroneously and in bad faith.   Five Star sought and obtained an order awarding it its Brandt fees; Essex appealed, arguing that the right to Brandt fees is “personal” to the insured, and therefore could not have been assigned from L.A. Machinery to Five Star.

In the published portion of a longer opinion, the Second District disagreed.  The Court found that the policy and purposes of the Brandt rule require that attorneys’ fees be recoverable when anyone -- either the insured directly or the insured’s assignee -- is obliged to bring suit to recover insurance benefits that have been unreasonably denied.  In doing so, the Court disagreed with the earlier decision of the Sixth District Court of Appeal in Xebec Development Partners, Ltd. v. National Union Fire Ins. Co. (1993) 12 Cal.App.4th 501:

The case the Xebec court cites in support of its statement that Brandt fees may not be assignable stands for the proposition that damages arising from ‘the personal tort aspect of the bad faith cause of action’ -- such as emotional distress damages and punitive damages -- are not assignable.  [Citation.]  But Brandt fees are not founded upon a wrong of a purely personal nature . . . .  Instead, they are ‘an economic loss’ caused by an insurer’s bad faith denial of coverage under an insurance policy.  [Citation.]  The purpose of allowing an insured to recover Brandt fees -- i.e., the attorney fees incurred to vindicate the insured’s rights under the insurance policy -- is to make the insured whole by allowing the insured to recover the policy benefits in full, undiminished by the costs involved in bringing an action to enforce the contract.  [Citation.]

In the present case, L.A. Machinery assigned to Five Star its claims against Essex -- including its claims for breach of the insurance contract and breach of the implied covenant of good faith and fair dealing.  Thus, L.A. Machinery assigned its right to recover the policy benefits in full, undiminished by the attorney fees incurred in bringing the action to recover those benefits.  The identity of the party incurring attorney fees to vindicate the insured’s rights under the insurance policy is irrelevant -- the right that is assigned is the right to recover the policy benefits in full.  This right to recover the policy benefits in full is not the kind of personal right that is not assignable.  Therefore, the trial court erred when it found that Five Star was not entitled to Brandt fees.

Note: Given the Court’s rejection of the Xebec rule in this case, there now exists a conflict within the districts of the Court of Appeal, which will have to be resolved by the California Supreme Court.

The decision in Essex Insurance Co. v. Five Star Dye House, Inc.(Jan. 27, 2005), Case No. B167295, can be accessed at these links in PDF and Word formats.
[Note: The links will expire in approximately 120 days; the opinion should still be accessible thereafter by substituting "archive" for "documents" in the URL.]