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Category: Fees & Insurance Policy

Eleventh Circuit Tosses Insurer’s Request for Attorney Fees

June 2, 2022

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  In an unpublished opinion, the appellate panel denied Endurance American Specialty Insurance Co.'s bid for attorney fees as moot.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.

Mass. Justices Told Attorney Fee Award Must Be Covered

April 4, 2022

A recent Law 360 story by Ganesh Setty, “Mass. Justices Told Atty Fee Award Must Be Covered” reports that the Massachusetts Supreme Judicial Court heard oral arguments on whether an attorney fee award constitutes damages "because of" bodily injury, with the dispute appearing to hinge on whether a reasonable policyholder would interpret their policy that way in light of a narrow, inapplicable exclusion exception for such payments.

Vermont Mutual Insurance Co. argued the attorney fee award against its insureds falls outside its "because of" causation standard with respect to bodily injury claims.  The recipient of the yet-to-be-paid award, Phyllis Maston, meanwhile highlighted how the policy did not specifically define the term "damages."  The Massachusetts high court appeared hesitant to side with Maston, given the award originated from a state consumer protection statute, and Vermont Mutual's policy is a standard form insurance contract used nationwide.

According to court documents, Vermont Mutual insured Paul and Jane Poirier, franchisees of damage restoration chain Servpro, under a business owners policy between December 1998 and December 2001.  Phyllis Maston and her late husband, Douglas, hired Servpro to clean out their basement, and Phyllis Maston later suffered a nasal infection she attributed to the cleaning solution Servpro used.  The Mastons sued Servpro, and a trial court ultimately found in 2009 that Servpro violated Massachusetts' consumer protection law, Chapter 93A, through its breach of warranty.

As part of Chapter 93A, which empowers consumers to sue businesses for unfair or deceptive practices, a successful petitioner can recover their own attorney fees.  The law treats attorney fee awards as separate from awards for damages.  Vermont Mutual paid nearly $700,000 to Maston, but refused to cover her award of more than $215,000 in attorney fees, along with another $21,600 in attorney fees following Servpro's unsuccessful appeal of the original judgment, according to court documents.

The insurer subsequently filed a lawsuit against the Poiriers and Maston seeking a court declaration that the total attorney fee award is not covered since it does not constitute insured damages "because of" bodily injury as required by its policy.  A lower court sided with Maston in July 2016, noting there are no other cases in Massachusetts directly addressing a coverage dispute like Vermont Mutual's.  The court instead pointed to the 2010 Ohio Supreme Court decision in Neal-Pettit v. Lahman, which involved language similar to Vermont Mutual's policy, and found that attorney fees do qualify as damages because of bodily injury.

Vermont Mutual maintained in its high court briefs that since the policy used "because of," rather than a broader term like "arising out of," the attorney fee award is not covered, especially since Chapter 93A treats damages and attorney fee awards as separate remedies.  The insurer further argued that an exception to a contractual liability exclusion in the policy explicitly treats an attorney fee award as damages because of bodily injury only when there's an insurance contract between its insured and another party, and the parties can be jointly represented in a civil dispute.

While a policyholder reading the policy may initially think an attorney fee award constitutes covered damages, "you can't find ambiguity just because you stopped reading," Peter E. Heppner, counsel for the insurer, told the high court's seven justices.  Although inapplicable, the exclusion exception illustrates that the policy did not intend to broadly treat attorney fees as damages because of bodily injury, he said.  Justice Scott L. Kafker asked Heppner, with respect to Maston's attorney fee award: "I understand that it's two or three steps removed, but it all arises out of the fact that there's an injury, doesn't it?"

"'Arises out of' is an interesting choice of words," Heppner responded. "When the policy has 'arising out of' in several exclusions, and then 'because of' here — and we know that the Supreme Court has said 'because of' is 'but for' — there has to be a distinction between those words."

When asked by Justice Dalila Argaez Wendlandt why the exclusion exception didn't put a reasonable insured on notice that the attorney fees may not otherwise be covered, Timothy P. Wickstrom, an attorney representing Maston, said the exclusion exception was inapplicable to the case to begin with.  It only concerns defense costs for the insured and the other party it contracts with, not attorney fee awards adverse to an insured, he argued.  If Vermont Mutual wanted to broadly bar coverage for attorney fees, one sentence stating so would have sufficed, he added.  The insurance policy at issue is a standard form insurance policy, Justice Kafker further noted. "That's where it gets me nervous."

"Here [in] Massachusetts, we've got this particular 93A attorney fee provision that's idiosyncratic, and we're applying it to these nationwide forms, right?" he asked.  The coverage dispute is not about Chapter 93A's separate treatment of damages and attorney fees, but whether attorney fees are covered under the policy, Wickstrom responded. Wickstrom further highlighted that part of the total attorney fee award under Chapter 93A includes Servpro's unsuccessful appeal of the judgment in the underlying case.

"In a situation where Vermont Mutual had a duty to defend, had a duty to indemnify — the defendants, their insureds, were on the hook for the appeals court fees," he said.  "How unfair is that?"  "Just create all the complexities of 93A attorneys fees, which probably no one ever thought about when they created this sort of extra remedy for everybody," Justice Kafker quipped.

Insurer Can’t Recoup Defense Costs in Discrimination Suit, Say Firms

March 30, 2022

A recent Law 360 story by Eli Flesch, “Property Cos. Says Insurer Blew Notice to Recoup Suit Costs” reports that a Markel unit can't recoup costs it spent defending a property owner and manager in a discrimination suit because the insurer failed to properly reserve their right for reimbursement, the real estate companies told a California federal court.  In a trial brief, Winstar Properties LLC and Manhattan Manor LLC said Evanston Insurance Co. sent its first explicit reservation of rights letter on the eve of a trial over coverage for the discrimination suit, which alleged the companies increased rents only for immigrant-headed households in Southern California.  That lack of timeliness should bar Evanston from being able to recoup its defense costs, Winstar and Manhattan said.

"Had Winstar and Manhattan knew that Evanston was going to deny coverage, they would have had the opportunity to seek independent counsel, or made other settlement decisions," the real estate companies wrote in their four-page brief to the court.  Evanston sued the companies in September 2018, stating it had no duty to defend them in the underlying suit because the discrimination occurred before the policy's effective date.  The discrimination suit was filed two days before the start of the policy, which ran from June 30, 2016, to June 30, 2017, according to court records.  The insurer said it received notice of the suit from the companies on July 17, 2017, and sent a letter three days later acknowledging receipt and reserving its rights to recoup defense costs.

The insurer won a summary judgment in October 2019, which the Ninth Circuit upheld in May 2021, ruling Evanston was not required to defend the companies. However, the appellate court noted there was insufficient evidence that the July 2017 letter had been sent, which would affect the insurer's ability to recoup costs it paid before Feb. 16, 2018 — the date on which the companies claim they received the first letter from Evanston.

In their brief, Winstar and Manhattan said there was an abundance of evidence showing Evanston never sent a letter on July 20, 2017.  It was months later, on February 16, 2018, that the insurer first attempted to reserve its rights for a reimbursement of costs, the real estate companies argued, noting Winstar didn't even receive that letter until two days after it was signed, on February 18, 2018.

In December, U.S. District Court Judge R. Gary Klausner sanctioned the law firm representing the two property companies, the Wilshire Law Firm, when he decided that the firm's own motion for sanctions against the insurer was unfounded.  To deter the firm from future frivolous sanctions requests and to compensate Evanston for time spent combating the unwarranted motion, the judge ordered the defendants to pay the insurer's attorney fees associated with their cross-motion for sanctions.

GA Judge Rules Fee Agreement Must Be Disclosed After $200M Verdict

March 4, 2022

A recent Law 360 story by Emily Sides, “Ga. Judge Finds Atty Fees Must Be Public After $200M Verdict” reports that a Georgia state judge has rejected arguments that a Florida couple could keep their attorney fee agreement secret as he ruled that the deal was a matter of public interest as part of their efforts to add millions of dollars in legal fees to the $200 million verdict over their son's boating death.  Stone Mountain Judicial Circuit Judge B. Chan Caudell of Rabun County's Superior Court ruled that Stephen and Margaret Batchelder must file the agreement in connection with their motion requesting to amend the judgment to add almost $8 million in pre-judgment interest and attorney fees ranging from $31 million to $62 million.

The jury found in August that Malibu was responsible for $140 million of the total verdict, including $20 million in compensatory damages and $120 million in punitive damages.  Judge Caudell rejected the couple's argument that their fee agreement should be filed with the court under seal because it includes "details of the attorney-client relationship."

Earlier in February, Tennessee company Malibu Boats LLC, which made the boat at issue in the case, opposed the Batchelders' attempt to keep the attorney fee arrangement secret.  In a Feb. 9 email obtained by Law360 Pulse, Laurie Webb Daniel — an attorney for Malibu Boats — said sealing the fee agreement would be "particularly inappropriate where a party is relying on the document to claim more than $50 million in fees."  "Indeed, [the Batchelders] have asserted that their fee agreement with counsel is customary, which makes this motion quite odd," Daniel said. "There simply is no justifiable reason to seal this document."

Malibu Boats said the plaintiffs were not entitled to pre-judgment interest or attorney fees, calling the request exorbitant "on top of an already enormous verdict," while noting that their calculations include time spent working on dismissed claims and are based on a "discredited 'value added' methodology."

Representing the Batchelders, Donald R. Fountain — a partner at Clark Fountain La Vista Prather & Littky-Rubin — told Law360 Pulse that they accepted the judge's decision, and although they would have preferred a different ruling, they don't plan to appeal it.  Fountain said the fee agreement is privileged information that could be submitted under seal if the case was in Florida.  The Batchelders argued Feb. 10 that Malibu Boats should be responsible for prejudgment interest and attorney fees because the company unreasonably objected to a pretrial settlement offer of $16.9 million despite having an insurance policy that covered up to $26 million, Fountain said.

Insurer Doesn’t Need to Cover Legal Fees in Dish Copyright Suits

December 22, 2021

A recent Reuters story by Barbara Grzincic, “Insurer Off the Hook for Legal Tab in Dish’s Copyright Battles,” reports that Dish Network Corp is stuck with the legal bills it ran up defending its Hopper and commercial-skipping “AutoHop” features in a four-year copyright battle with networks ABC, CBS, Fox and NBC, a federal appeals court held in a win for Ace American Insurance Co.  The 2nd U.S. Circuit Court of Appeals said Ace had no duty to defend Dish in the litigation because its policy clearly excluded coverage for copyright violations “committed by an insured whose business is ... broadcasting,” and under the “plain and ordinary meaning” of the term, broadcasting “is precisely the nature of Dish’s business.”

Dish’s legal team at Orrick, Herrington & Sutcliffe argued that regulatory and industry sources, including the Federal Communications Commission and the Federal Communications Act, do not consider it a “broadcaster” because users must buy a subscription and use special equipment to access its content.  However, “[i]f the parties had intended ‘broadcasting’ to take on a definition assigned by the FCC or the FCA, they could have easily pointed to those sources,” Circuit Judge Denny Chin wrote, joined by Circuit Judges John Walker Jr and Pierre Leval.

Adam Stein of Cozen O'Connor, who represented Ace along with Johnathan Hacker and others at O'Melveny & Myers, praised the court for its “straightforward” opinion.  The last of the suits settled in 2016.  Although none of the settlements required Dish to pay any money, the company then sued Ace in federal court in Manhattan to recover its legal fees.  The lower court ruled for Ace in 2019, adopting the reasoning of the 10th Circuit – the only other appeals court to have considered the question. Dish said the 10th Circuit had gotten it wrong.

Harvard Sues Insurer Over Attorney Fees

September 20, 2021

A recent Law 360 story by Eli Flesch, “Harvard Sues Insurer For Legal Fees in Affirmative Action Suit,” reports that Harvard University sued Zurich American Insurance Co. for excess coverage of...

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