An Employee Who Insists On His Own Defense Attorney Can Lose Reimbursement Rights

Carter v. Entercom Sacramento, LLC
(Cal. Ct. of App., 3d Dist.), filed September 3, 2013, published September 3, 2013

KEY FACTS

Entercom Sacramento employed Matt Carter. Entercom owned a radio station which sponsored a contest. Contestants were to drink water and the winner was the contestant who could go the longest without urinating. Carter was responsible for periodically providing bottles of water to the contestants.

As the result of drinking too much water in an ill-conceived radio contest, a woman died. Her heirs, plus other contestants, sued Entercom, Carter and others.

Entercom told Carter it would provide legal counsel for him. It did so through its liability insurer, which agreed to defend without reservation of rights. The applicable policy limits were $50,000,000.

Nonetheless, Carter refused the attorney appointed by the insurer, insisting on his own attorney.

Entercom’s insurer refused to pay for the attorney Carter chose. As a result, Carter filed a cross-complaint against Entercom seeking indemnity under Labor Code Section 2802 for the fees and costs he incurred. Section 2802 requires an employer to indemnify its employee “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.”

Carter sought indemnity for $807,421.22 in fees and costs.

The trial court found that none of the fees and costs Carter incurred after the insurer appointed an attorney to represent him were necessary expenditures and therefore Carter was not entitled to indemnity for those fees and costs under section 2802.

HOLDING & REASONING

The Court of Appeal affirmed.

Carter had an absolute right to choose his own attorney, which he did. However, he did not have an absolute right to choose his own attorney to represent him at the expense of his employer or its insurer under Section 2802. The fact that he faced potential liability for punitive damages or possible criminal charges did not give him the right to insist that his employer or its insurer pay for the attorney he chose.

Whether particular expenditures are necessary, and thereby subject to the duty of indemnity under section 2802, is a factual question, and Carter did not show that selecting his own attorney was necessary. He did not show a conflict of interest, that appointed counsel was unqualified, or that the insurer delayed in appointing counsel.

ANALYSIS

It is worth noting that Carter sought indemnity for $807,421.22 in fees and costs, yet the claims against the eight individual defendants were settled for $220,000 — with those against Carter being settled for $27,500.