Confidential Recovery Distribution Agreement

MODEL CONTRACT

CONFIDENTIAL RECOVERY DISTRIBUTION AGREEMENT

USE NOTES: This model agreement is for use by a policyholder and a plaintiff who have agreed to cooperate with each other and have either litigated their liability dispute to verdict or have entered into a reasonable, non-collusive settlement. Adapt the contract below by using the Legend. Before sending the text below, delete everything above this line.

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CONFIDENTIAL RECOVERY DISTRIBUTION AGREEMENT

RECITALS

1.    Parties

This Confidential Recovery Distribution Agreement (Agreement) is among &Client& (&Client&), &Plaintiff& (&Plaintiff&, &IndependentCounsel& (&IndependentCounsel&), &PlaintiffCounsel& (&PlaintiffCounsel&), and &CoverageCounsel& (&CoverageCounsel&).&Plaintiff&

2.    Liability Action

&Plaintiff& sued the &Client& in an action entitled &Plaintiff& v. &Client& (Liability Action). The &Client& was represented by &IndependentCounsel&. &Plaintiff& was represented by &PlaintiffCounsel&. The Liability Action has been resolved as set forth in Exhibit 1 attached hereto.

3.    Liability Insurance Coverage

A.   &InsCo& (&InsCo&1) issued a policy of liability insurance bearing Policy no. __ to &Client& with limits of liability of $__ by which it agreed to pay those sums that &Client& becomes legally obligated to pay as damages because of physical injury to tangible property, including all resulting loss of use of that property and loss of use of tangible property that is not physically injured and agreed that it has the duty to defend the &Client& against any lawsuit seeking those damages.

Alt.   B.    &InsCo& (&InsCo&2) issued a policy of liability insurance bearing Policy no. &Blank& to the &Client& with limits of liability of $__ by which &InsCo& agreed to pay on behalf of the &Client& amounts that the &Client& becomes legally obligated to pay as the result of claims made against it for any error, act, omission, neglect, or breach of duty by the &Client&. &InsCo&1 and &InsCo&2 are sometimes referred to as the Insurers.

4.    Notice of Suit

On &Date&, &Client& notified the Insurers of the Liability Action and requested that it defend and indemnify &Client&. The Insurers agreed to defend &Client&, but then withdrew its defense. Thereafter, a Second Amended Complaint was filed in the Liability Action. On &Date&, &Client& notified the Insurers of the amended pleading and requested that it defend and indemnify &Client&. On &Date&, &Client& notified of Liability Action and requested that it defend and indemnify &Client&. On &Date&, &Client& notified of Liability Action and requested that it defend and indemnify &Client&.

5.    Failure to Investigate

After notice, the Insurers did not conduct a thorough investigation. The Insurers did not contact or interview &Client&, &IndependentCounsel&, &Plaintiff&, &PlaintiffCounsel&, or any witnesses.

6.    Coverage Denial

The Insurers denied coverage and failed to faithfully defend or indemnify &Client& in the Liability Action.

Alt.   6.    Agreement to Defend

The Insurers agreed to defend &Client& in the Liability Action, but failed to faithfully defend or indemnify &Client& in the Liability Action.

7.    Failure to Pay for Defense

&Client& retained &IndependentCounsel& to defend &Client& in the Liability Action. &Client& transmitted to the Insurers &IndependentCounsel&’s invoices for defense fees and costs. Each invoice constituted a first party claim. The Insurers failed to timely pay invoices in the amounts required by law.

8.         Settlement Opportunity

On &Date&, &Plaintiff& offered to settle the Liability Action with &Client& on terms set forth in Exhibit 2 attached hereto, for a sum that is less than the Insurers’ policy limits. &Client& notified the Insurers of this settlement offer and requested that the Insurers accept the offer of settlement on terms set forth in Exhibit 3 attached hereto. The parties believe and notified the Insurers that this offer was fair and reasonable when made because &Client& was faced with a substantial likelihood of a recovery by &Plaintiff& in excess of the applicable limits of the Insurers’ insurance policy based on the damage claimed by &Plaintiff& and the evidence regarding &Client&’s legal responsibility for causing such damage. “The law favors settlements.” (Potter v. Pacific Coast Lumber Co. (1951) 37 Cal.2d 592, 602.)

9.         The Insurers’ Refusal to Settle

The Insurers rejected &Plaintiff&’s settlement offer because they denied coverage under the policy.

10.       &Client&’s Inability to Pay Settlement

&Client& was not financially capable of accepting &Plaintiff&’s settlement offer in part because &Client& had incurred or paid &IndependentCounsel&’s defense invoices which the Insurers failed to reimburse. Also, certain provisions of the Insurers’ policies seem to require &Client& to adjudicate liability and damages.

11.       Procedural Agreements

Because of budget cuts in the judicial system, &Client& and &Plaintiff& agreed to try the Liability Action by a general reference and further agreed to certain procedural efficiencies. &Client& notified the Insurers of the Parties’ stipulation. on terms set forth in Exhibit 4 attached hereto.

12.       Coverage Action

&Client& sued the Insurers in an action entitled &Client& vs. Insurers. (Coverage Action).

13.       &Client&’s Liability and &Plaintiff&’s Damages

&Client& was concerned that &Client& may be found to be legally obligated to pay damages to &Plaintiff& because of breach of duties it owes to &Plaintiff& and because of physical injury to tangible property and loss of use thereof caused by an accident and exposure to harmful conditions in a substantial sum.

Alt.      14.       Settlement

&Client& agreed to enter into a settlement agreement with &Plaintiff& rather than incur additional expense and risk a judgment in excess of the settlement amount. (Not recommended)

Alt.      14A.    Arbitration

&Client& agreed to enter into a settlement agreement with &Plaintiff& to arbitrate the Liability Action.

Alt.      14B.    Trial by General Reference

&Client& agreed to enter into a settlement agreement with &Plaintiff& to resolve the Liability Action by a trial by general reference.

15.       Notice of Resolution

&Client& notified the Insurers of the resolution of the Liability Action and requested that the Insurers pay the (settlement or judgment). The Insurers refused to pay the (settlement or judgment).

16.       Assignment and Covenant

&Client& and &Plaintiff& have agreed to cooperate with each other to protect their mutual interests and to assign certain rights and to assume certain obligations to each other. &Client& “need not indulge in financial masochism. . . . [h]aving executed an assignment . . . may relax into neutrality or even smile benevolently upon the [&Plaintiff&’s] efforts to collect from the Insurers. (Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 801.). The Parties intend to make the Assignment and Covenant available to others, thereby waiving the attorney-client privilege and work product doctrine as to that document.

17.       Definitions

Except as superceded by terms defined in this Agreement, defined terms in the Assignment are adopted in this Agreement.

18.       Notification to the Insurers

&Client& notified the Insurers that: 1) &Plaintiff& sued &Client& in the Liability Action; 2) &Plaintiff& offered to settle the Liability Action with &Client&; 3) &Client& was concerned about &Client&’s exposure to to pay damages to &Plaintiff& in a substantial amount; 4) &Plaintiff& and &Client& intended to resolve their liability dispute; and 5) &Client& incurred defense fees and costs through &IndependentCounsel& and transmitted invoices to the Insurers. “[I]f an insurer denies coverage to the insured, the insured’s contractual obligation to notify the insurer ceases.” (Samson v. Transamerica Ins. Co. (1981) 30 Cal.3d 220, 238.)

19.  Potential Conflicts of Interest

&Client& and &Plaintiff& understand and acknowledge that: 1) their interests conflict in the Liability Action and that they share some common interests in the Coverage Action and the Malpractice Action; 2) their relationships with other Parties to this Agreement will change upon execution of this Agreement; 3) each has had the opportunity to consult with independent counsel who are not a Party to this Agreement; 4) potential conflicts of interest that may divide &Client& and &Plaintiff& regarding the joint retention of &CoverageCounsel& and the execution of the Agreement; 5) each must give informed written consent to jointly retain &CoverageCounsel&; and 6) each must give informed written consent to execute this Agreement. &Client& and &Plaintiff& desire to: 1) resolve disputes between them by executing this Agreement; 2) waive potential conflicts of interest between them; and 3) to jointly retain &CoverageCounsel& to represent them and their interests in the Coverage Action and the Malpractice Action.

20.  Counsel

Separately &Plaintiff& has retained &PlaintiffCounsel& and &Client& has retained &IndependentCounsel&. Jointly, &Plaintiff& and &Client& have waived potential conflicts of interest and have jointly retained &CoverageCounsel& to represent the common interests in the Coverage Action and the Malpractice Action. The Parties desire to modify the terms of their retainer agreements so as to fairly and equitably share any sums that may be collected from the Coverage Action, and the Malpractice Action.

21.  Confidentiality

The Parties do not intend to waive the attorney client privilege, the work product doctrine, the common interest doctrine, or their rights of privacy with respect to this Agreement.

22.  Prior Attorney’s Fees and Costs

&Plaintiff& owes attorneys fees and costs to &PlaintiffCounsel& as of this date for representation in the Liability Action. &Client& owes attorneys fees and costs to &IndependentCounsel& for representation the Liability Action. &Client& and &Plaintiff& owe attorneys fees and costs to &CoverageCounsel& for representation the Coverage Action, and the Malpractice Action.

23.  Dilution

The Parties recognize that they have engaged in a liability dispute that resulted in a judgment that has not been fully satisfied so that they must now engage in a second Coverage Action and Malpractice Action to resolve the coverage dispute. The Parties have retained their respective counsel on a contingent fee basis and granted to their attorneys liens upon any Net Recovery in the Liability Action, Coverage Action, and the Malpractice Action (sometimes referred to separately as Lawsuit or collectively as Lawsuits) that will erode the recovery by &Plaintiff& and &Client&. “Net Recovery” means all things of value received by any Party arising out of the Coverage Action and/or the Malpractice Action after satisfaction of liens as set forth below.

AGREEMENT

1.    Defense Fees and Costs

Any sums paid by &InsCo& for defense fees and costs incurred by &IndependentCounsel& for the defense of the Liability Action shall be paid to &IndependentCounsel&.

2.    Priority of Payment

Notwithstanding anything to the contrary in the assignment and grant of liens stated in the Assignment and Covenant, upon receipt, any Net Recovery shall be paid as follows:

A.    Reimbursement of Costs

First, costs advanced by any Party in any Lawsuit in proportion to the total costs advanced by each Party until all costs advanced have been reimbursed in full.

B.    Prior Attorneys Fees

Next, &PlaintiffCounsel& shall be paid the sum of $___ for past services and &IndependentCounsel& shall be paid the sum of $___ for past services in proportion to the total sums here stated until these sums have been paid in full.

C.    Remainder

Next, notwithstanding anything to the contrary in each attorney’s retainer agreement, each Party shall be paid a percentage of any Net Recovery as set forth in the following grid. Column A applies to any Net Recovery paid prior to the filing of a complaint in either the Coverage Action of the Malpractice Action. Column B applies to any Net Recovery paid after either complaint is filed and before a date that is ninety (90) days prior to the first date set for any trial or arbitration of that Action. Column C applies to any Net Recovery paid after a date that is ninety (90) days prior to the first date set for any trial or arbitration of that Action.

A                     B                     C

&Plaintiff&                                  54%                48%                42%

&PlaintiffCounsel&                     36%                32%                28%

&IndependentCounsel&                  9%                19%                28%

&Client&                                         1%                   1%                   2%

100%               100%               100%

3.    Control of Litigation

&CoverageCounsel& shall have primary responsibility to prosecute the Coverage Action and the Malpractice Action. &PlaintiffCounsel& may, but shall not be required to, fully participate as attorneys of record in the Coverage Action.

4.    Discretion to Settle

Because &Plaintiff& has a larger interest in any Net Recovery than &Client&, the Parties agree that &Plaintiff& has the sole discretion to settle the Coverage Action and the Malpractice Action. &Client& agrees to settle the Malpractice Action on terms determined by &Plaintiff&.

5.    Signatures on Additional Documents

The Parties agree to execute any additional documentation reasonably deemed necessary or desirable by any other Party to evidence, establish or enforce the claims and causes of action set forth herein. The Parties agree to immediately, but in no event more than five (5) days endorse all negotiable instruments received pursuant to the settlement all of any portion of the Coverage Action and/or the Malpractice Action. Any Party who fails to do so shall pay all costs, expenses, reasonable attorney fees actually and reasonably incurred plus interest at the rate of ten percent (10%) per annum in connection with negotiating said instruments (Enforcement Costs). Such failing Party agrees that [his/her/its] share of any distribution to be made pursuant to this Agreement shall be reduced by the amount of all such reasonbly claimed Enforcement Costs. If any Party’s failure to sign additional documents results in a settlement falling through, then that Party shall pay the difference between the amount of the failed settlement and the amount of any subsequent resolution in a lesser sum.

6.    Satisfaction of Judgment

&Plaintiff& delivers &IndependentCounsel& herewith in trust a fully executed Satisfaction of Judgment in favor of &Client& that &IndependentCounsel& agrees to deliver to &Client& upon final resolution of the Lawsuits.

7.    Conflict of Interest Waiver

&Client& and &Plaintiff& have read and understand Rules of Professional Conduct, Rule 3-310 and acknowledge that &CoverageCounsel& has made written disclosure to them of the relevant circumstances and of the actual and reasonably foreseeable adverse consequences to each regarding this Agreement. &Client& has been advised by &IndependentCounsel& and &Plaintiff& has been advised by &PlaintiffCounsel& regarding Rule 3-310, the Coverage Action, the Malpractice Action and this Agreement. &Client& and &Plaintiff& acknowledge that each has had the opportunity to consult with independent counsel who have no interest in this Agreement regarding the subject matter of the Coverage Action, the Malpractice Action and this Agreement. &Client& and &Plaintiff& give their informed written consent and agree to waive potential conflicts of interest that may divide &Client& and &Plaintiff& regarding the execution of the Agreement to which &IndependentCounsel&, &PlaintiffCounsel&, and &CoverageCounsel& are also Parties.

8.    Miscellaneous

A.    Truthful Testimony

The Parties agree to give truthful testimony upon reasonable notice without the necessity of service of legal process, e.g., a subpoena in deposition, at trial, upon any court hearing or legal proceeding in each Action.

B.    Additional Documents

The Parties agree to sign all papers and to execute and deliver such other additional documents as may be required to effectuate each of the terms of this Agreement. This Agreement is not the only agreement among these Parties.

C.    Costs

Except as otherwise provided, each Party shall bear his or its own respective costs and attorneys’ fees incurred in connection with preparation and execution of this Agreement.

D.   Binding Effect

This Agreement and all the terms, conditions and obligations contained herein are binding upon and inure to the benefit of the heirs, executors, administrators, personal representatives, successors in interest and assigns of each Party.

E.    Warranty of Authority

Each Party executing this agreement directly or in a representative capacity represents and warrants that he or it has the authority and is empowered to do so.

F.    Attorneys Fees and Costs

The Parties agree to pay their own costs, expenses, and attorneys’ fees incurred in connection with negotiation and execution of this Agreement. Should any Party hereto institute any legal action or proceeding to enforce any provision of this agreement or for damages by reason of any alleged breach of any provision of this agreement, the prevailing Party shall be entitled to receive from the losing Party all of its costs and expenses, including, without limitation, reasonable attorney fees, court costs, and disbursements actually and reasonably incurred in connection with said proceeding.

G.   Time Is of the Essence – Condition

Time is of the essence in this Agreement. This Agreement is conditioned upon acceptance of these terms by all parties in writing no later than &Date& and completion of all obligations by the dates specified in this Agreement and Related Documents. The signatures of each Party to this Agreement shall constitute his or its signature, where required, to each of the Related Documents.

H.   Construction

This Agreement shall be construed without regard to who drafted same, and shall be construed as though all hereto participated equally in the drafting of the Agreement. The Parties agree that any rule pertaining to the construction of contracts to the effect that ambiguities are to be resolved against the drafting party shall not apply to the interpretation of this Agreement.

I.     California Law

This Agreement, including matters of construction, validity and performance, shall be interpreted, governed by and construed in accordance with the laws of the State of California. If any provision of this agreement is invalid or contravenes California law, such provision shall be deemed not to be a part of this Agreement and shall not affect the validity or enforceability of the remaining provisions. Any action arising out of this Agreement shall be brought in the Superior Court for the State of California, County of Los Angeles.

J.    Counterparts

This agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which together shall constitute one document. A facsimile, scan or PDF copy of an originally executed counterpart signature shall be afforded the same validity as the originally executed counterpart.

K.    Headings

The paragraph headings contained in this Agreement are for convenience only and shall not be considered for any purpose in construing this Agreement.

L.    Number and Gender

As used in this Agreement, the singular shall include the plural, and the masculine shall include the feminine and neuter gender.

M.   Amendment

This Agreement may not be modified, amended, supplemented, or terminated, and no provision of this Agreement shall be waived, except by a writing executed by all of the Parties to this Agreement.

N.    Notices and Demands

Any notice or demand hereunder shall be made in writing mailed by certified mail, return receipt requested, or hand delivered, to the Parties addressed as follows:

&Client&

care of

&IndependentCounsel&

&Plaintiff&

care of

&PlaintiffCounsel&