Insurance Coverage & Bad Faith Newsletter - Winter 2022

Cell-Crete Corp. v. Fed. Ins. Co.

(December 2022) - In Cell-Crete Corp. v. Fed. Ins. Co., 82 Cal. App. 5th 1090, 1090, 299 Cal. Rptr. 3d 251 (2022), the Fourth District Court of Appeal reversed the Riverside superior court’s order denying prevailing-party statutory attorneys’ fees and costs to surety Federal Insurance Company (“Federal”), rejecting the lower court’s finding that a contractual indemnitor’s payment of Federal’s fees excused the plaintiff from paying them.

Granite Construction (“Granite”) agreed to perform construction services for the County of Riverside and subcontracted installation of lightweight concrete to Cell-Crete Corp. (“Cell-Crete”). Through this arrangement, Granite, as principal, executed a payment bond under Civil Code section 9554 with Federal as surety for the project. As a condition of acting as surety, Federal required Granite to agree to defend, indemnify, and hold Federal harmless against any loss, cost, damage, or expense, “including court costs and attorneys’ fees, which it shall at any time incur by reason of its execution and/or delivery of said bond or bonds or its payment of any claim or liability thereunder.”

Disputes arose between Granite and Cell-Crete resulting in an arbitration. At the same time, Cell-Crete filed suit against Granite in California Superior Court and added Federal for payment on the bond. Federal tendered to Granite and hired the same attorney it hired for itself to represent Federal, paying all the fees and costs. The trial court confirmed the arbitration award, after which Federal filed a motion for attorneys’ fees and costs. The trial judge held that while Federal did qualify as the prevailing party, it was not entitled to an award because Granite had paid all its fees and costs. Federal appealed.

Concerning costs, the Court of Appeal held that Code of Civil Procedure section 1033.5(c)(1) means what it says: costs are “allowable if incurred, whether or not paid.”

With regard to attorneys’ fees, while Civil Code section 9564(c) does not contain the express language that section 1033.5(c)(1) does, nowhere does the statute state that the prevailing party incurs fees, “much less that they are ultimately on the hook to pay such fees.” The court quoted Lolley v. Campbell (2002) 28 Cal.4th 367 [121 Cal. Rptr. 2d 571, 48 P.3d 1128], for the proposition that “awards of attorneys’ fees where otherwise authorized are not obviated by the fact that individual plaintiffs are not obligated to compensate their counsel” and “California courts have routinely awarded fees to compensate for legal work performed on behalf of a party pursuant to an attorney-client relationship, although the party did not have a personal obligation to pay for such services out of his or her own assets.” Id. at 373.

Accordingly, the court reversed the order denying Federal’s motion for attorneys’ fees and granting Cell-Crete’s motion to tax costs and remanded for a determination whether the fees and costs requested were reasonable.

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