The United States Fifth Circuit Court of Appeals has rejected a claim by a mortgage company that it was entitled to cheat an attorney out of attorneys’ fees that he had won in an insurance dispute, according to a story on the Insurance Journal website.
The original insurance dispute arose over a disagreement between a woman and her homeowner’s insurance carrier over damage to her home caused by Hurricane Katrina. The homeowner could not work out a compromise with her company, so she hired a lawyer who handled the case on a contingency fee basis. The lawyer was successful in obtaining additional money from the insurance company, so his contract with the homeowner entitled him to be paid from the proceeds of the settlement.
However, before the lawyer could be paid, the mortgage company for the homeowner stepped in and claimed that it was entitled to 100% of the insurance monies — effectively seeking to take for itself the attorney’s hard-won fees.
Fortunately for the homeowner (and her lawyer) the federal trial court, and now the Fifth Circuit Court of Appeals, have affirmed that the mortgage company can not take the atttorney’s hard-earned fee under Louisiana law.
This story struck me for a couple of reasons. First, it seemed obvious to me what an injustice it would be for the mortgage company to take the entire settlement. After all, there is no denying that the lawyer played a critical role in securing additional insurance benefits. But instead of being happy or thanking the lawyer for getting the extra money, the mortgage company sought to shaft the attorney completely and pay him nothing. That just seems unjust (or worse) to me.
Second, I wondered what kind of chilling effect an opposite decision by the Court here might have. It seems clear that if a lawyer cannot rely upon his contract in order to get paid, and if a mortgage company would be allowed to unilaterally move into a case and decide to take away a hard-won fee or not pay a fee at all, that very few lawyers would devote time in their practices to fighting hard for consumers against insurance companies in insurance disputes.