— Engage a different lawyer of his choosing.

The letter did not offer Forthuber the option of continuing with the Latham firm.

Forthuber signed and returned the letter to the Latham firm, indicating his intent to continue with Woodward as his attorney.

After Forthuber and First Liberty settled their dispute, First Liberty agreed that Forthuber was entitled to a reasonable fee. It contended, however, that the trial court should disregard the 247.2 hours logged by Woodward while he was employed by the Latham firm because as a matter of law that firm had forfeited or waived its entitlement to a fee by withdrawing from Forthuber's representation before the occurrence of the contingency — a successful outcome of the claim against First Liberty — in its fee agreement with Forthuber.

The trial court agreed. Accordingly, it refused to consider whether all or any portion of those 247.2 hours had been reasonably incurred and could be included in its determination of a reasonable fee payable to Forthuber under Florida law.

Forthuber appealed.

Related: Can an insurer recover before the policyholder is paid?

The appellate court's decision

The Florida appellate court reversed.

In its decision, the appellate court explained that the law didn't specify the method of calculating the fees to which the insured was entitled, but that courts typically determined the amount by multiplying the reasonable number of hours expended by a reasonable hourly rate.

The appellate court stated that the fee agreement between a lawyer and client, “no matter how reasonable,” did not control the amount of fees assessed against a third-party under a fee-shifting statute, such as the one in this case.

For example, it continued, even though a lawyer and client might appropriately agree to a percentage-based fee agreement, when the contractual fee resulted in an effective hourly fee that greatly exceeded a customary and reasonable hourly rate, a third party could not be assessed a fee based on the percentage formula.

However, the appellate court said, the converse also was true: When a party was “not contractually obligated” to pay the lawyer or was obligated to pay the lawyer less than market rate, “the party may still recover a reasonable fee” under a fee-shifting statute.

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It depends on the fee agreement

Moreover, the appellate court said, although there were circumstances in which the contractual relationship between a lawyer and client “might cap the fees that may be recovered under a fee-shifting statute,” the fee agreements signed by Forthuber did not establish a cap because they contained “alternative fee recovery clauses” under which Forthuber agreed to pay the greater of a percentage of the recovery or the statutory fee. Under this fee arrangement, the appellate court ruled, the contractual agreement did not operate as a cap on statutory fees.

The appellate court then held that the trial court should have considered all of the hours reasonably expended by all of Forthuber's attorneys in its calculation of a fee to be awarded to him.

The entitlement to a reasonable fee was Forthuber's right, not his attorney's, the appellate court said. His legal obligation to his attorneys “had no bearing on the methodology for calculating a reasonable fee.”

The appellate court rejected First Liberty's argument that the statute only permitted a court to “reimburse” Forthuber for the attorney's fees he had incurred, stating that that argument “ignore[d] the plain language of the statute and distort[ed] its objective.”

According to the appellate court, indemnity was “not the objective of this statute.” Rather, the appellate court concluded, the statute was calculated “to level the playing field so that aggrieved insureds can find competent counsel to represent them,” especially in “small cases” such as Forthuber's, “where a percentage formula alone would not provide the incentive for a lawyer to undertake a case involving the potential commitment of many hours and substantial costs.”

The case is Forthuber v. First Liberty Ins. Corp.

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Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at [email protected].