Sifting for Coverage: Attorney Fee-Shifting Awards

Transcription

1 Sifting for Coverage: Attorney Fee-Shifting Awards March 2, 2017 ABA Insurance Coverage Litigation Committee Conference Jan A. Larson, Jenner & Block LLP Karen Toto, Wiley Rein LLP Michael S. Levine, Hunton & Williams LLP Daniel E. Tranen, Wilson Elser LLP

2 Sources of Attorney Fee-Shifting Awards Statutory Civil Rights: In any action or proceeding to enforce [certain provisions of this Title], the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs. 42 U.S.C Environmental: In Clean Air Act citizen suits, the court may award costs of litigation (including reasonable attorney and expert witness fees) to any party, whenever the court determines such award is appropriate. 42 U.S.C Product Liability: A seller is entitled to recover from the manufacturer court costs and other reasonable expenses, reasonable attorney fees, and any reasonable damages incurred by the seller to enforce the seller's right to indemnification under this section. Tex. Civ. Prac. & Rem. Code Ann Contractual In the event a party brings legal action to enforce rights under this Agreement, the prevailing party shall be reimbursed for all reasonable costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party in connection with such litigation.

3 Potentially Implicated Policy Types Directors and Officers Liability ( D&O ) Policies Employment Practices Liability ( EPL ) Policies Errors and Omissions Liability ( E&O ) Policies Comprehensive General Liability ( CGL ) Policies

4 Potentially Implicated Policy Provisions Damages Do attorney fee awards constitute damages, as defined or otherwise set forth in the Insuring Agreement? CGL Policies; D&O Policies; EPL Policies; E&O Policies Analytical Legal Frameworks: Ambiguity Reasonable Expectations of the Insured Public Policy Considerations Statutory Characterization Supplemental Payments Provision Do attorney fee awards constitute costs taxed against the insured, for purposes of the Supplemental Payments Provision? CGL Policies

5 No Typical Definition of Damages in a CGL Policy No specific definition included for the term damages CGL Policies instead insure policyholders against damages as part of the Insuring Agreement: We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply.

6 A Typical Definition of Loss in a D&O or EPL Policy Most do not define damages, and instead define loss due to the intended coverage of non-monetary relief: Loss" shall mean settlements and judgments, pre-judgment and/or post-judgment interest, compensatory damages, punitive or exemplary damages or the multiple portion of any multiplied damage award and Costs of Defense, provided, however, Loss shall not include: 1. criminal or civil fines or penalties imposed by law, or taxes; 2. any matter which may be deemed uninsurable under the law pursuant to which this Policy is construed.

7 A Typical Definition of Damages in an E&O Policy Damages means: Monetary judgment, award or settlement but does not include fines or penalties or damages for which insurance is prohibited by law applicable to the construction of this policy.

8 Ambiguity: Policyholder Perspective Fair Housing Advocates Ass n, Inc. v. Terrace Plaza Apt., 2006 WL (S.D. Ohio Aug. 10, 2006) Construing language of Insuring Agreement in CGL Policy (i.e., We will pay those sums that the insured becomes legally obligated to pay as damages.... ) An insurer is free to specify exactly what constitutes damages... but chose not to do so.... Nowhere in the Policy are attorneys fees mentioned, therefore, it leaves open the possibility that they could be construed as damages. The fact that the insurance Policy states that it will pay those sums the insured becomes legally obligated to pay as damages, suggests that the sums include all damages that arise due to the success of Plaintiffs lawsuit. Applied contra proferentem and construed ambiguity against the insurer as drafter.

9 Ambiguity: Insurer Perspective Alea London Ltd. v. Am. Home Servs., Inc., 638 F.3d 768 (11th Cir. 2011) Construing language of Insuring Agreement in CGL Policy (i.e., Insurer will pay those sums that the insured becomes legally obligated to pay as damages.... ) Court held that policy s silence on coverage for attorney fees was dispositive: That attorneys' fees would be subsumed within the Policy's reference to damages is not consistent with a plain, ordinary-meaning reading of the Policy. Furthermore, that attorneys' fees are part of the expenses of litigation under does not mean they become damages under the Policy. The Policy covers damages and costs but notably does not mention attorneys' fees.

10 Reasonable Expectations: Policyholder Perspective Ypsilanti v. Appalachian Ins. Co., 547 F.Supp. 823 (E.D. Mich. 1982), aff d mem., 725 F.2d 682 (6 th Cir. 1983) Law Enforcement Officers Professional Liability Insurance Policy Coverage C Comprehensive Liability Coverage: all sums which the Insured shall become legally obligated to pay as damages... Supplementary Payments Applicable to Coverage C: any costs ([meaning] all investigations, adjustments and legal expenses) incurred in the... defense of any claims [or] suits... Class action suit settled; consent judgment included $13, in costs and attorney fees. Held: The term costs is sketchily defined in Supp. Payment provision, but clear that intent was to include only expenses incurred in the defense of claims/suits. But, reasonable expectations are that the plain and ordinary meaning of the all sums language in Coverage C (including the undefined term damages ) should include all forms of civil liability, including attorney fees. Thus, It is reasonable to say that an attorney fee award in a civil rights suit is a form of damage which the [insurer] contracted to cover. Insurer could have excluded attorney fees it did not. Also created an ambiguity that had to resolve against the insurer.

11 Reasonable Expectations: Insurer Perspective Cutler-Orosi Unified School Dist. v. Tulare County School Dist. Liability/Property Self Ins. Auth., 31 Cal.App.4th 617 (5th Dist. Cal. 1995) A statutory characterization of attorneys fees as costs is not necessarily dispositive of the proper construction of an insurance policy. Holding that damages under the Insuring Agreement of a CGL Policy does not include the attorneys fees of the plaintiffs because: 1. an award of fees does not compensate the plaintiff for the injury that brought him into court, but instead reimburses him for his own costs and as a result it is inconsistent with the concept of damages as the term is used in its ordinary and popular sense, that is, compensation paid to a party for the loss or detriment suffered because of the wrongful act of another. 2. broadly interpreting the word damages to include all forms of civil monetary liability would render language in the policy meaningless with focus on the language as damages in the insuring clause.

12 Public Policy Considerations: Policyholder Perspective Shuette v. Beazer Homes Holding Corp., 124 P.3d 530 (Nev. 2005) Recovery of attorney fee awards may be specifically authorized as an item of damages by statute e.g., NRS governing construction defect cases. Where expressly authorized by statute [attorney fee awards] are intended to compensate the claimant for legal fees incurred when he or she is forced to institute a court action to resolve a valid constructional defect claim by shifting the fees to the defendant. Thomas D. Rowe, Jr., The Legal Theory of Attorney Fee Shifting: A Critical Overview, 1982 Duke L.J. 651, 657 Another argument for fee-shifting that has a strong intuitive appeal is that refusing to award fees denies a wronged party full compensation for his injury.

13 Public Policy Considerations: Insurer Perspective Indian Harbor Ins. Co. v. Bestcomp, Inc., 2010 WL (E.D. La. Nov. 12, 2010), aff'd, 452 F. App'x 560 (5th Cir. 2011) Construing definition of damages in E&O Policy, which included coverage for any compensatory sum and carved out from damages any punitive or exemplary amounts. No coverage for attorney fees awarded under Louisiana medical care provider statute. Such fees are penal in nature because they exist to discourage group purchasers from failing to provide notice of PPO discounts to health care providers. Although the Court recognizes that the attorneys' fees recoverable under section (G) are distinct from the damages imposed under section (G), it cannot be said that the attorneys' fees are compensatory in nature.

14 Statutory Characterization: Policyholder Perspective Sullivan County v. Home Indem. Co., 925 F.2d 152 (6 th Cir. 1991) Federal civil rights case resulted in an award of attorney s fees under 42 U.S.C QUESTION: Do those fees constitute damages under standard E&O policy s all sums language? District court said yes; Sixth Circuit said no. Appeals court seized on the distinction between statutes authorizing attorney s fees as costs and those authorizing the fees as part of the awarded damages. For example, 18 U.S.C (wiretapping) defines attorney s fees as recoverable damages. The congressional intent under 42 U.S.C is different, and must be honored. Purpose behind the distinction is clear the 11 th Amendment prohibits an award of damages against a state thus, the need to include attorney s fees as costs. Policy language supports distinction, too. Supplementary Payments provision speaks to costs. If damages was to include costs, then the Supp. Payment language would be superfluous. Importantly, by endorsement, the Supplemental Payments provision did not apply to the policy s E&O coverage.

15 Statutory Characterization: Insurer Perspective Mid-Continent Casualty Co. v. Petroleum Solutions, Inc., 2016 WL (S.D. Tex. September 29, 2016) Attorney fees awarded under Texas product liability fee shifting statute (involving claims of indemnification by distributers against manufacturers). Held that such fees were not covered while statute includes as damages, fees incurred by distributor to defend itself, the fee shifting portion of the statute was in addition to the damages permitted by statute.

16 A Typical Supplementary Payments Provision in a CGL Policy We will pay with respect to any claim we investigate or settle, or any suit against an insured we defend... all costs taxed against the insured in the suit. Inside/Outside Limit of Liability? E.g., These payments will not reduce the limits of insurance. Applicable Exclusions? E.g., However, these payments do not include attorneys fees or attorneys expenses taxed against the insured.

17 Other Supplementary Payments Provisions in CGL Policies We will pay with respect to any claim we investigate or settle, or any suit against an insured we defend... all fees for service of process and court costs and court expenses... attorneys fees... and any similar fee, cost or expense reasonably chargeable to the investigation, negotiation, settlement or defense of a loss or a claim or suit against you or any insured under the policy. Applicable Exclusions? E.g.,... shall not include your or our general overhead, the fees of any attorney who is our employee or under our permanent retainer; nor the fees of any attorney we retain to provide counsel to us about our obligations, if any, under any policy issued by us or our affiliated company(ies), with respect to a claim or suit against you.

18 Costs Taxed Against the Insured : Policyholder Perspective Ins. Co. of North America v. National American Ins. Co., 37 Cal.App.4th 195 (Cal. Ct. App. 1995) Costs awarded against the insured as a result of prevailing party attorney fee clauses applicable in the underlying litigation were part of the supplementary payments provision of the CGL policy. Pritchard v. Liberty Mut. Ins. Co., 84 Cal.App.4th 890 (Ca. Ct. App. 2000); Employers Mut. Cas. Co. v. Philadelphia Indem. Ins. Co., 169 Cal. App. 4th 340 (Cal. Ct. App. 2008) Prevailing party attorney fee awards can likewise be subject to coverage under the supplementary payments provision even in instances in which the case is resolved through settlement.

19 Costs Taxed Against the Insured : Policyholder Perspective Navigators Specialty Ins. Co. v. Moorefield Constr., Inc., 2016 WL , Cal.Rptr.3d (Dec. 27, 2016) GL insurer must cover amounts paid as attorneys fees in an underlying settlement, even where no duty to indemnify, because the Supplementary Payments provision includes attorney fees when they are or would be taxable as costs against the insured. Attorney s fees taxable as costs against insured pursuant to underlying construction contract. The court noted that Supplementary Payments are tied to an insurer s duty to defend, not the insurer s duty to indemnify. Thus, because the insurer had a duty to defend (based on the potentiality of coverage), the Supp. Payments provision was implicated.

20 Costs Taxed Against the Insured : Policyholder Perspective St. Paul Fire & Marine Ins. Co. v. Hebert Construction, Inc., 450 F.Supp.2d 1214 (W.D. Wash. 2006) Terms costs taxed are undefined. Court concluded that the plain, ordinary meaning of the costs taxed clause in the [insurer s] policies includes attorneys fees. Mutual of Enumclaw v. Harvey, 772 P.2d 216 (Idaho 1989) Though the word costs as a legal term of art may be ambiguous, it is not so from the perspective of the ordinary person unfamiliar with the jargon of the legal and insurance professions standing in the position of the insured. An insurance policy must be interpreted from that perspective.

21 Costs Taxed Against the Insured : Insurer Perspective Polygon NW Co. v. American National Fire Ins., 189 P.3d 777 (Wash. App. 2008) Noting that the Washington Revenue Code lists the costs that may be taxed in a suit in Washington, and this does not include an award of reasonable attorneys fees. Florida Patient s Compensation Fund v. Moxley, 557 So.2d 863 (Fla. 1990) Looking to Florida statute to determine if attorneys fees are taxed costs and finding no coverage under the liability policy at issue. Titeflex Corp. v. Liberty Mut. Fire Ins. Co., 84 Mass.App.Ct (2013) Holding that award of fees to class counsel was not costs taxed because [s]uch legal or taxable costs do not include attorney's fees, except in accordance with specific statutory provisions or court rules.

22 QUESTIONS?

23 Contact Information Jan A. Larson (202) Karen Toto (202) Michael S. Levine (202) Daniel E. Tranen (618)