California, like most states, follows the general American rule holding that parties in litigation are responsible for paying their own attorney’s fees, even if they prevail. (Cal. Code Civ. Pro. § 1021). However, there is an exception to this rule for insurance bad faith cases. "Bad faith" happens when an insurer denies a claim unreasonably.
In Brandt v. Superior Court, 37 Cal. 3d 813 (1985), the California Supreme Court held that attorney’s fees incurred in pursuing policy benefits are recoverable when the claim was denied in bad faith. The logic goes that if the insurer had not unreasonably denied the claim, the policyholder would not have needed to sue just to recover their benefits. The Court made clear, however, that attorney fees incurred in pursuing the bad faith claim, and anything else other than breach of contract, are not recoverable.
Not all attorney fee agreements are created equal, and Brandt fees can thus differ substantially depending on the agreement type even when the attorney puts in the exact same amount of work. For example, a client may pay an attorney by the hour, or a fraction of the amount recovered, and the difference can be significant. Changing fee arrangements after a court or jury finds bad faith may be tempting because it can increase the litigant's overall recovery, but doing so is not advised and was recently shunned by a California appellate court. (Pulte Home Corp. v. American Safety Indemnity Co., 14 Cal. App. 4th 1086 (2017)). While the court found that typically policyholder’s and their attorneys should be free to modify their agreements, a court may reject a fee agreement if it appears designed to manipulate the amount of fees the insurer will be on the hook for.