A recent Law 360 by Ganesh Setty, “11th Circ. Says No Attorney Fees for Cos. In Tossed Insurance Suit,” reports that a home builder and contractor accused of faulty stucco work can't seek attorney fees from their insurance company after a Florida federal court found the insurer lacked standing to litigate whether it had a duty to defend the companies, the Eleventh Circuit ruled.  Under the circuit's 1984 decision in Certain British Underwriters at Lloyds of London v. Jet Charter Serv. Inc. , statutory attorney fees are an element of damages and are therefore part of the merits of a case itself, U.S. Circuit Judge Elizabeth L. Branch wrote in the court's unpublished opinion.

Thus, when U.S. District Judge Timothy J. Corrigan tossed Southern-Owners Insurance Co.'s suit because it failed to meet the federal $75,000 amount-in-controversy threshold, the court lacked the subject-matter jurisdiction to hear any ensuing dispute over attorney fees, Judge Branch found. U.S. Circuit Judge Gerald Bard Tjoflat penned a separate concurrence, while U.S. Circuit Judge Britt C. Grant issued a dissent.

According to the decision, the dispute began in August 2013, when the home builder, Maronda Homes Inc. of Florida, sold a house to a couple who later complained of various construction defects related to the home's stucco installation. Maronda had hired JROD Plastering LLC to perform the installation, which held a commercial general liability policy with Southern-Owners that listed Maronda as an additional insured.

The insurer subsequently sued Maronda and JROD in Florida federal court seeking a declaration it had no coverage obligations over the alleged construction defects.  But Judge Corrigan dismissed the suit for lack of subject-matter jurisdiction, finding that the insurer failed to meet the $75,000 amount-in-controversy threshold for federal litigation.

Maronda and JROD sought attorney fees under the now-repealed Florida statute § 627.428, which allowed a court to award attorney fees to insureds who prevailed in coverage litigation against their insurer.  The district court further dismissed those motions, citing in part the Jet Charter decision.  In that case, the Eleventh Circuit ruled that "attorney's fees recovera[bl]e by statute are to be regarded as 'costs' only when made so by statute," and are otherwise "treated as an element of damages," according to excerpts included in Friday's decision.

Though the Eleventh Circuit in Prime Insurance Syndicate Inc. v. Soil Tech Distributors Inc. ruled the opposite way in 2008, finding that attorney fees are "collateral issues" within the court's purview even if the underlying case isn't, that decision was not published, Judge Branch noted.  And even if it were, circuit precedent holds that in the case of conflicting published panel decisions, the oldest one controls, she said.

"All in all, while some Florida courts have reached a different result than we did in Jet Charter, these decisions are too varied to constitute a definitive change in law," Judge Branch added in a footnote.  "As such, we decline to exercise our discretionary power to rewrite our circuit's precedent which means that we are bound to follow Jet Charter."

A recent Business Insurance by Judy Greenwald, “Insureds Can’t Recover Attorney Fees for Work on Their Own Behalf,” reports that, under California law, insureds may not recover attorneys fees for work they performed on their own behalf, a federal appeals court ruled in affirming a lower court decision in Travelers Cos. Inc. units’ favor.

Kathleen March and Patrick Bright, a married couple who are both attorneys and owners of Walking U Ranch LLC  in New Cuyama, California, were involved in an underlying property dispute with a neighbor for which Travelers Cos. units had a duty to defend under the insureds’ primary and excess agribusiness policies, according to court papers in The Travelers Indemnity Co. of Connecticut; Travelers Casualty Insurance Co. of America v. Walking U Ranch LLC, Katheen P. March; Patrick Bright.

The U.S. District Court in Pasadena ruled in Travelers’ favor on the couple’s bad faith breach claim and request for attorneys fees.  A three-judge panel of the 9th U.S. Circuit Court of Appeals in San Francisco affirmed the lower court ruling, saying, “Under California law … attorneys may not recover for work performed on behalf of themselves and another party with identical interests.”

Because Ms. March and Mr. Bright are married and Walking U Ranch’s sole owners, they “therefore all shared the same interest in the outcome of the underlying action.  “There is also no indication that March or Bright spent any extra time in the underlying action representing Walking U Ranch LLC rather than themselves,” the panel said in affirming the lower court’s summary judgment rejecting the bad faith claim.

A recent Law 360 story by Celeste Bott, “USAG Keeps Fee Award in Nassar Coverage Suit” reports that Liberty Underwriters Insurance Inc. must pony up the remainder of a roughly $2.1 million judgment for USA Gymnastics, a Seventh Circuit panel ruled, saying the insurer failed to show that any portion of the fees incurred during investigations into sexual abuse by former team doctor Larry Nassar were not reasonable and necessary.

At issue are legal costs incurred when USA Gymnastics responded to investigations by both houses of Congress, the Indiana Attorney General's Office, and the U.S. Olympic and Paralympic Committee into Nassar's conduct.  During oral arguments in the case, a three-judge Seventh Circuit panel pushed the Liberty Mutual unit to address why it paid more than $1.4 million toward those defense costs if it believed it owed no reimbursement.  In the court's opinion, written by Chief Circuit Judge Diane Sykes, the court noted that in light of that payment, all that remains up for discussion is the remaining $458,472.26 of the lower court's judgment.

Liberty argued that a district court and a bankruptcy court wrongly applied a presumption established in Thomson Inc. v. Insurance Company of North America, an Indiana case, that an insured's defense costs are reasonable and necessary if the insured has secured, supervised and paid for a defense.

Liberty said the Thomson presumption does not apply because USAG failed to adequately supervise the outside counsel it engaged and did not pay the full amount of legal fees it incurred.  Liberty cited a Seventh Circuit ruling in Metavante Corp. v. Emigrant Savings Bank, in which the appellate court observed that a "prevailing party's general counsel, or similar corporate officer, has a duty, imposed by various provisions of federal and state law, to scrutinize the bills before paying them,"

The panel was unpersuaded by those arguments. It clarified Tuesday that that duty does not require a party to request write-offs from outside attorneys or ask them questions about invoices.  "We hold that a litigant may supervise its outside counsel without refusing to pay portions of legal bills or engaging in hairsplitting about those bills.  Nothing in the case law provides otherwise," the Seventh Circuit said.  Also, no Seventh Circuit case law mentions a requirement that the party seeking fees must have paid its fees in full for the presumption of reasonableness to apply, the panel said.

The insurer also argued on appeal that USA Gymnastics's damages expert had a flawed methodology and that its chief legal officer, C.J. Schneider, was effectively a "rubber stamp" for defense counsel.  It also said his review of the work of his own law firm, Miller Johnson, constituted a conflict of interest.  But an apparent conflict of interest does not negate the presumption under governing case law and "an insurer's objections to a policyholder's selection of defense counsel lose force when the insurer disclaims its duty to defend and turns out to be wrong on the law," the panel said.

Liberty could have reserved its defense that it had no duty to defend and assumed USAG's defense, choosing and supervising the lawyers defending USAG and seeking reimbursement later, the court said.  "Liberty chose not to do so, instead electing to gamble by not defending USAG. With the benefit of hindsight, Liberty now identifies a purported conflict of interest," the panel said.  "The case law does not reward such a choice, and Liberty cannot use the purported conflict to render the presumption inapplicable."

Further, Schneider was not the only one engaging in an internal review of USAG's legal bills, as its CEO and chief financial officer also checked the bills and approved them for payment, the court said.  And, while Liberty asserts that the nearly $8 million in grant funds USAG received from the National Gymnastics Foundation removed the incentive for USAG to drive down costs, the very basis for the Thomson presumption, it does not cite evidence to back that up, the panel held.

A recent Law 360 story by Josh Liberatore, “11th Circ. Tosses Insurer’s Bid For Atty Fees After Reversal” reports that an insurer can't seek attorney fees on a $1.6 million judgment it previously won against a Liberty Mutual unit, the Eleventh Circuit confirmed, which comes after the court recently vacated the insurer's win on claims that the Liberty unit breached its contract while defending a fatal accident suit.  In an unpublished opinion, the appellate panel denied Endurance American Specialty Insurance Co.'s bid for attorney fees as moot. 

In May, the Eleventh Circuit reversed Endurance's $1.6 million win, finding that it couldn't show how Safeco Insurance Co. breached an indemnity agreement it had with Comegys Insurance Agency Inc., which was insured by Endurance.  "Safeco did win its appeal," the panel noted, "so, Endurance may not seek attorneys' fees."  Endurance had asked the Eleventh Circuit to overturn a lower court judge's ruling that its claims for attorney fees stemming from the judgment against Safeco were time-barred because Endurance failed to seek the fees within 14 days of the judgment.

The coverage dispute stems from an accident between driver Robert Smith and a motorcyclist, who died.  Safeco insured Smith, who bought his policies through Comegys.  Smith faced a wrongful death suit for which Safeco assigned an attorney who defended the case, and eventually a $7.3 million consent judgment was entered against Smith, according to court documents.  The consent judgment included Safeco paying the motorcyclist's estate the limits of Smith's auto policy, $1.25 million, and assigning the estate Safeco's claim against Comegys for negligent procurement, based on the theory that Comegys failed to find Smith a more robust policy after he had inquired about raising his policy limits.

Endurance insures Comegys under an errors and omissions policy, according to its suit.  The motorcyclist's estate pursued Endurance and Comegys "for the limit of Comegys's policy with Endurance," according to court documents.  The companies eventually paid just over $1.5 million to end the claims, court records show.

Endurance then sought to recoup the money from Safeco, arguing Safeco had breached its contract with Comegys by refusing to indemnify it for the alleged negligence.  Endurance's argument hinged on Safeco assigning an attorney to defend Smith, who allegedly mentioned to the motorcyclist's estate the possibility of a negligent procurement claim against Comegys and recommended an insurance lawyer to the estate.  In July 2019, a jury found in Endurance's favor, and the lower court entered a $1.6 million judgment against Safeco.

While Safeco appealed that decision to the Eleventh Circuit, Endurance launched an appeal of its own, arguing it should be awarded attorney fees for the judgment.  However, the Eleventh Circuit reversed the judgment last month, finding that Endurance couldn't show how Safeco had breached its contract with Comegys.  Safeco had acted entirely within the terms of that agreement by providing an insurance policy to Comegys's customers, tendering the policy on time after the accident and providing an attorney to Smith to defend the suit, the Eleventh Circuit panel presiding over that case found.  Safeco can't be held liable for what Smith's attorney decided to do after that, the panel said.