Portland sues former insurance carrier to recover nearly $1.5 million in legal costs, in part for the James Chasse Jr. case

From The Oregonian, March 5, 2012

The city of Portland is suing its former insurance carrier to recover nearly $1.5 million in legal defense costs for the James P. Chasse Jr. case and eight other city employment-related claims.

The city spent a total of $1.97 million to defend the Chasse federal wrongful death lawsuit. Chasse, 42, who suffered from paranoid schizophrenia, died in Portland police custody in September 2006.

The city argues that the insurer’s share kicks in once the city’s “retained limit” of $1 million has been exhausted in defense costs.

But the insurer has refused to pay the excess amount of $970,749, arguing that the use of deputy city attorneys to defend the Chasse federal lawsuit isn’t considered “retained” but part of city overhead costs. Therefore, the insurer argues, the city attorneys’ costs don’t eat into that $1 million reserve and are not reimbursable.

The city counters that the policy language is ambiguous, because “defense costs” are not defined in the policy, and is suing the company for “breach of contract.”

“ICSP refused to assume the defense of the Chasse claim and has refused to pay for defense costs incurred by the City of Portland in excess of the retained limit,” says the city’s lawsuit, filed Friday in Multnomah County Circuit Court against the Insurance Company of the State of Pennsylvania (ICSP).

Chartis Insurance, which administered the Chasse claim and eight others named in the suit, is a sister company to ICSP. Marie Ali, Chartis’ vice president of media relations, declined comment Monday. The city has not contracted with Chartis Insurance since November 2010.

In the lawsuit, outside attorneys James McDermott and Kevin Mapes argue on behalf of the city that Portland saved its insurer money by keeping its legal defense in-house, and not retaining outside firms in the Chasse case, which would have cost significantly more. For example, they say city attorneys charge about $100 per hour, while outside counsel would have charged hourly rates of $200 to $295.

“ICSP thus received a multi-million dollar financial benefit stemming from the City of Portland’s decision to retain the Office of the City Attorney to defense the Chasse Claim,” the suit says.

In May 2010, the city settled the Chasse case for $1.6 million, the largest settlement in the city’s history. The insurer covered $833,333 of the settlement; the city paid the rest, $766,667, the suit says.

During roughly the same time frame, between 2003 and 2010, the city argues that it incurred “reasonable defense costs” in eight employment-related claims totaling $514,179, using “experienced employment attorneys” within the city attorney’s office.

For the defense of such Employment Practice Liability claims, the city contends the insurer was obligated to reimburse the city 50 percent of defense costs, up to a maximum of $250,000 per claim.

“ICSP has failed and refused to reimburse the city of Portland for any portion of the defense costs incurred in any of the Employment Practice Liability Claims,” the suit says.

Among the employment claims in dispute are: the city’s $122,054 defense costs to fight a lawsuit by Portland Officer Bert Nederhiser, who was demoted after shooting at a suspect and nearly striking officers; $94,731 to fight a wrongful termination case by former parks employee Mary Ann Huff; $76,848 to challenge a wrongful discharge claim by former fire deputy chief Scott G. Edwards; $63,457 to challenge a discrimination case filed by a Pakistan native who repeatedly applied for city engineering jobs and alleged he was passed over in favor of white applicants; and $22,341 to challenge an arbitrator’s award to firefighter Tom Hurley, who recently returned to work after collecting disability payments while working as a chef.