FAIRHOPE, Ala. - Based on questions raised by an auditor for the city’s insurance company, the Alabama Municipal Insurance Corp. (AMIC) refused to pay or reimburse legal fees of $255,000 in defense of the city and Mayor Tim Kant in the “Dyas triangle” litigation, according to court documents filed last month.

“(The company) claimed some of the fees from the law firm were not justified,” said Kant, regarding AMIC’s questioning of the amount of attorney’s fees charged by the Mobile-based Hand Arendall law firm. “I’m not an attorney, so I told them they needed to work out their differences.”

On July 7, AMIC filed suit against the city and Kant, alleging the company was not obligated to defend in the case, and that the city’s liability insurance policy did not cover the claims made by the plaintiffs in the federal lawsuit scheduled for a February jury trial in Mobile. The insurance company’s Montgomery lawyer would not comment on the lawsuit.

The Dyas case was filed in April 2008 by members of the Dyas family, claiming the city and Kant thwarted their efforts to develop property at the intersection of U.S. Highway 98 and Veterans Drive, while allowing a similar mixed-use project nearby.

The dispute over attorney’s fees began with the filing of the lawsuit and ran through July this year, when AMIC sued and also gave notice it had pulled out of defense of the case, stating it would no longer pay legal fees, according to the city’s answer to the AMIC lawsuit.

“During this period, AMIC, through its own conduct and the conduct of its third-party audit service, engaged in a pattern and practice of demonstrating greater concern for its own monetary interests than concern for the financial risks facing the (city) in the (Dyas case),” according to the Aug. 27 court document filed by J. Mark Hart of the Hand Arendall firm. “AMIC arbitrarily and improperly utilized its case-handling procedures and unilaterally refused to pay for legitimate legal services in a manner designed to restrict the independent judgment of the (city’s) attorneys in their representation of the (city).”

The city’s answer stated that between April 2008 and January 2009 the city had incurred legal fees of approximately $215,000, which AMIC “had failed to pay and refuses to reimburse.” Between February 2009 and July this year, AMIC paid a portion of legal fees but “refused to pay in excess of $40,000” in defense costs, according to the city’s response.

Kant said AMIC and Hand Arendall attorneys “were going back and forth” over the issue of legal fees, and that they had been trying to set up a meeting with AMIC when the lawsuit was filed in July.

“A lot of (the lawsuit) has to do with payment of services and what the insurance owes the law firm,” said Kant, regarding why he decided to hire the Hand Arendall firm to defend against the AMIC lawsuit and because it was familiar with the facts of the Dyas case. “They’d been writing letters back and forth for about three months before this lawsuit was filed.”

In addition to filing an answer, the city and Kant countersued AMIC, claiming its conduct in refusing to pay fees constituted bad faith.

Kant said the insurance company, in addition to stating that some of the fees weren’t justified, also stated it didn’t have enough information about the fees.

In a July 18, 2008 letter, AMIC agreed to defend the city under a reservation of rights, according to the city’s answer.

“I don’t quite understand how they can change in midstream,” Kant said. “They wrote us an engagement letter and were going to honor the lawsuit. Then all of a sudden it gets down to the end, and now they decide they’re not going to honor it.”

Kant said the city and its attorneys are still trying to set up a meeting with AMIC regarding the lawsuit, and what the city claims is the company’s obligation to defend the case and pay past, current and future legal fees and costs in the Dyas case.

“I understand there was a case adjudicated not long ago that states once you receive an engagement letter the insurance company is responsible,” Kant said. “So I don’t know how they’re going to say they’re not.”