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Insurers got another reason Thursday to be on their best behavior when working with clients. In a unanimous ruling, the California Supreme Court held that so-called Brandt fees can be assigned to third parties, in this case a dye company that already had burned an insurer for $1.6 million in damages. Brandt fees are attorneys fees incurred by individuals while trying to force their insurance company to provide policy benefits that were denied in bad faith. Brandt fees came into being from 1985′s Brandt v. Superior Court, 37 Cal.3d 813. In Thursday’s case, Essex Insurance Co., based in Glen Allen, Va., had insisted that Brandt fees couldn’t be assigned to a third party on the theory that they are personal damages, along the lines of punitive damages, and not economic. The high court couldn’t have disagreed more. “Disallowing recovery of Brandt fees in cases such as this,” Justice Joyce Kennard wrote, “would result in a windfall for the insurer, whose liability for tortious conduct would be significantly reduced because of the fortuitous circumstance of the assignment of the bad-faith claim.” She also said that preventing recovery of Brandt fees by third parties would “tend to discourage assignment of bad-faith claims against insurance companies, contrary to the public policy favoring transferability of causes of action.” The opinion affirms Los Angeles’ Second District Court of Appeal, which ruled last year that Luis Sanchez, who was insured by Essex, could assign his rights to Brandt fees to Five Star Dye House Inc. Five Star, which dyes and stone-washes jeans for major manufacturers, had sued Sanchez after his company, L.A. Machinery Moving, damaged two large commercial dryers while transporting them in June 1994. Sanchez wound up being hit with a $1.35 million judgment after Essex refused to defend him in court. In exchange for deferring collection, Five Star got Sanchez to sign over his Brandt fee rights, then sued Essex. Los Angeles County Superior Court Judge Kenneth Freeman found that Essex acted in bad faith in not defending Sanchez, and awarded Five Star $1.6 million in damages. But Freeman denied Five Star’s request for Brandt fees. The Second District reversed on the fee denial, however, ruling that when third parties are assigned a bad-faith cause of action against an insurer they are entitled to all the policy benefits, including Brandt fees. That ruling clashed with Xebec Development Partners Ltd. v. National Union Fire Insurance Co., a 1993 Sixth District ruling that held the contrary. On Thursday, the Supreme Court disapproved Xebec, saying that the Second District got it right in ruling that Brandt fees are economic damages that can be assigned to others. “Had Sanchez brought the bad-faith action against Essex, his right to recover Brandt fees would be unquestioned,” Kennard wrote. “As the assignee of Sanchez’s claim against Essex, Five Star stands in his shoes, and so may assert his right to recover any Brandt fees incurred in prosecuting the assigned claim.” Edmund Farrell III, a senior partner at L.A.’s Murchison & Cumming who represents Essex, couldn’t be reached for comment Thursday. Neither could Five Star’s attorney, Herbert Dodell of Los Angeles’ Dodell Law Corp. The ruling is Essex Insurance Co. v. Five Star Dye House Inc., 06 C.D.O.S. 5990.

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