United States District Court, S.D. Texas, Galveston Division
MEMORANDUM AND RECOMMENDATION
M. EDISON, UNITED STATES MAGISTRATE JUDGE.
the Court is Insured Plaintiffs' Motion for Summary
Judgment ("Motion for Summary Judgment"). Dkt. 127.
Having considered the motion, response, and applicable law,
the Court RECOMMENDS that the Motion for
Summary Judgment be GRANTED in part and
DENIED in part.
insurance coverage suit between Plaintiffs Columbia Lloyds
Insurance Company, MDOW Insurance Company, John Dunn and
Milby Dunn, II (collectively, "Insured Plaintiffs")
and Defendant Liberty Insurance Underwriters, Inc.
("Liberty") concerns the damages associated with
Liberty's failure to defend two underlying matters:
John Dunn and Milby Dunn, II v. FarmAssure, LLC, No.
2016-13393 (295th Dist. Ct, Harris County, Tex. Apr. 11,
2016). ("Harris County Lawsuit") and
FarmAssure, LLC v. MDOW Insurance Company and Columbia
Lloyds Insurance Company, No. 01-16-00001-1237, American
Arbitration Association ("AAA Arbitration").
Court previously held "that Insured Plaintiffs [were]
entitled to a defense by Liberty against all claims asserted
against Insured Plaintiffs in the Harris County Lawsuit, and
all claims asserted against Insured Plaintiffs in the AAA
Arbitration[, and]... Liberty breached its contract with
Insured Plaintiffs by wrongfully denying coverage under the
Policy and refusing to provide a defense." Columbia
Lloyds Ins. Co. v. Liberty Ins. Underwriters, Inc., No.
3:17-CV-005, 2018 WL 1569718, at *ll (S.D. Tex. Mar. 14,
2018). Concerning damages, the Court found that "[t]he
quantum of Insured Plaintiffs' recovery against Liberty
for defense costs, fees and expenses" would be
determined at a later date. Id. Later, the Court
determined that: (1) as a result of the application of a
policy exclusion (the "Fraud Exclusion"), Insured
Plaintiffs were not "entitle[d] to any legal fees,
costs, damages, and expenses related to the AAA
Arbitration"; (2) Insured Plaintiffs were entitled to
summary judgment on their Texas Prompt Payment of Claims Act
("TPPCA") claims; and (3) the specific damage
amounts associated with the TPPCA claims would be resolved at
a later date. Dkt. 120 at 20-21.
dispute at issue in the Motion for Summary Judgment concerns
the quantification of the three categories of damages left
unresolved by the Court's previous rulings: (1) breach of
contract damages stemming from the Harris County Lawsuit; (2)
TPPCA damages stemming from the Harris County Lawsuit and AAA
Arbitration; and (3) prejudgment interest stemming from the
Harris County Lawsuit and AAA Arbitration.
Court will discuss each category of damages in turn.
judgment is appropriate when "there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law." Fed.R.Civ.P. 56(a). A
genuine dispute of material fact does not exist unless
"the evidence is such that a reasonable jury could
return a verdict for the nonmoving party." Burell v.
Prudential Ins. Co. of Am., 820 F.3d 132, 136 (5th Cir.
2016) (citation omitted). "The moving party . . . bears
the initial responsibility of informing the district court of
the basis for its motion." Brandon v. Sage
Corp., 808 F.3d 266, 269-70 (5th Cir. 2015) (citation
omitted). If the burden of production at trial
"ultimately rests on the nonmovant, the movant must
merely demonstrate an absence of evidentiary support in the
record for the nonmovant's case." Lyles v.
Medtronic Sofamor Danek, USA, Inc., 871 F.3d 305, 311
(5th Cir. 2017) (internal quotation marks and citation
omitted). Once a party "meets the initial burden of
demonstrating that there exists no genuine issue of material
fact for trial, the burden shifts to the non-movant to
produce evidence of the existence of such an issue for
trial." Brandon, 808 F.3d at 270 (internal
quotation marks and citation omitted). The party opposing
summary judgment "must do more than simply show that
there is some metaphysical doubt as to the material facts.
[It] must go beyond the pleadings and come forward with
specific facts indicating a genuine issue for trial to avoid
summary judgment." Id. (internal quotation
marks and citations omitted). "In deciding whether a
fact issue exists, courts must view the facts and draw
reasonable inferences in the light most favorable to the
nonmoving party." Rayborn v. Bossier Par. Sch.
Bd, 881 F.3d 409, 414 (5th Cir. 2018) (internal
quotation marks and citation omitted). "On cross-motions
for summary judgment, [the court] review[s] each party's
motion independently, viewing the evidence and inferences in
the light most favorable to the nonmoving party."
Ford Motor Co. v. Tex. Dep't of Transp., 264
F.3d 493, 498 (5th Cir. 2001) (internal quotation marks and
OF CONTRACT DAMAGES: HARRIS COUNTY LAWSUIT
explained above, this Court previously determined that
Liberty failed to uphold its duty to defend Insured
Plaintiffs in the Harris County Lawsuit. At the time of the
Court's ruling, Insured Plaintiffs were fully funding
their own defense in the Harris County Lawsuit. After the
Court's determination against Liberty, Liberty made
partial payments totaling $108, 041.82 towards the defense
costs Insured Plaintiffs had incurred and paid. Despite this
substantial partial payment, Insured Plaintiffs contend that
Liberty remains liable for $42, 906.94.Based on this
discrepancy, Insured Plaintiffs move to recover the
outstanding balance. In support of their motion, Insured
Plaintiffs have submitted invoices with some attendant
itemized billing entries, along with the sworn declaration of
attorney James E. Rogers. In his sworn declaration, Rogers
attests to the facts surrounding the litigation work done in
the Harris County Lawsuit, explains that all fees and costs
incurred were defense-related, and confirms that the fees and
costs Insured Plaintiffs incurred and paid were both
reasonable and necessary.
Insured Plaintiffs seek to recover $42, 906.94, Liberty only
challenges their recovery related to certain invoices
totaling $36, 359.69. In other words, Insured Plaintiffs'
entitlement to $6, 547.25 of the $42, 906.94 outstanding
balance is not in dispute-Liberty conceded as much at oral
argument. Regarding the monies that are in dispute, Liberty
makes three arguments. First, Liberty contests the
reasonableness of a billing attorney's qualifications and
hourly rate as reflected in Skadden, Arps, Slate, Meagher
& Flom LLP's ("Skadden Arps") invoice no.
1703619 ($13, 621.44). Second, Liberty challenges Skadden
Arps's invoice no. 1689584 ($15, 000.00), arguing the
associated itemized billing entries are not attached to the
invoice. And, lastly, Liberty contests whether the accounting
services reflected in Matson, Driscoll & Damico LLP's
("Matson Driscoll") invoice no. 17201600204 ($7,
738.25) relate to Insured Plaintiffs' defense in the
Harris County Lawsuit, as opposed to their pursuit of
affirmative claims. Importantly, Liberty has not presented
any competing summary judgment evidence in support of its
law recognizes that attorneys' fees and expenses incurred
by an insured in an underlying lawsuit are damages produced
by the insurer's breach of its duty to defend."
Lyda Swinerton Builders, Inc. v. Okla. Sur. Co., 903
F.3d 435, 453 (5th Cir. 2018) (internal quotation marks and
citation omitted). See also Primrose Operating Co. v.
Nat'l Am. Ins. Co., 382 F.3d 546, 559-60 (5th Cir.
2004) ("A breach of the duty to defend entitles the
insured to the expenses it incurred in defending the suit,
including reasonable attorney's fees and court
costs.") (citations omitted). "It is well settled
that once an insurer has breached its duty to defend, the
insured is free to proceed as he sees fit; he may engage his
own counsel and either settle or litigate, at his
option." Lyda Swinerton Builders, Inc., 903
F.3d at 454 (internal quotation marks omitted) (collecting
cases). When this occurs, the breaching insurer "is in
no position to object to defense-related expenditures that
are supported by the record and that are not patently
unreasonable." Id. Thus, a breaching insurer
"may not directly challenge the reasonableness and
necessity of [an insured's] attorney's fees";
however, they "may contest the admissibility or
sufficiency of [the insureds'] evidence or make relevant
legal argument as [the insured] undertake[s the] burden of
proving .. . damages." Shore Chan Bragalone Depumpo
LLP v. Greenwich Ins. Co., 904 F.Supp.2d 592, 604 (N.D.
Tex. 2012). With this legal framework in mind, the Court
turns to Liberty's arguments.
first argument challenging the reasonableness of the billing
entries reflected in Skadden Arps's invoice no. 1703619
($13, 621.44) falls flat. As explained in Shore
Chan, as a breaching insurer, Liberty cannot directly
challenge the reasonableness and necessity of Insured
Plaintiffs' attorney's fees. See Id. Insured
Plaintiffs have submitted itemized billing entries detailing
the work performed and memorialized in Skadden Arps's
invoice no. 1703619, including the identity of the attorneys,
their respective hourly rates, and the time expended on
various tasks. In addition, Insured Plaintiffs also provided
the declaration of James E. Rogers, who, after reviewing the
itemized bills, opined that: "the amount of
attorney's fees and costs reflected in . . . the Harris
County Lawsuit... are reasonable and necessary for the work
performed and costs incurred in connection with the defense
of the Harris County Lawsuit" and "that the hours
expended, were reasonable and necessary for the proper
representation of Insured Plaintiffs." Dkt. 127-1 at
5-6. In sum, the evidence submitted by Insured Plaintiffs to
support invoice no. 1703619 is sufficient because it
"includes, at a minimum, documentation of the services
performed, who performed them and at what hourly rate, when
they were performed, and how much time the work
required." El Apple I, Ltd. v. Olivas, 370
S.W.3d 757, 764 (Tex. 2012). See also Venture v. UTSWDVA
Healthcare, LLP, - S.W.3d -, 2019 WL 1873428, at *2O
(Tex. Apr. 26, 2019) ("We reaffirm today that the fact
finder's starting point for calculating an attorney's
fee award is determining the reasonable hours worked
multiplied by a reasonable hourly rate, and the fee claimant
bears the burden of providing sufficient evidence on both
counts. Sufficient evidence includes, at a minimum, evidence
of (1) particular services performed, (2) who performed those
services, (3) approximately when the services were performed,
(4) the reasonable amount of time required to perform the
services, and (5) the reasonable hourly rate for each person
performing such services.") (citations omitted). Liberty
blithely asserts the hourly rate charged by Skadden Arps is
unreasonable but presents no competent summary judgment
creating an issue of material fact. Thus, Insured Plaintiffs
are entitled to summary judgment as to the $13, 621.44
reflected in Skadden Arps's invoice no. 1703619.
second argument avers that Skadden Arps's invoice no.
1689584 ($15, 000.00) is insufficient to permit recovery on
summary judgment because it contains no itemized billing
entries. The Court agrees with Liberty. This invoice does not
include any itemized billing entries-i.e., no attorney names,
no time entries, no billing rates, and no description of the
work performed; rather, the invoice merely reflects that $15,
000.00 is due "FOR PROFESSIONAL SERVICES rendered
through September 30, 2017 with respect to the FarmAssure
matter." Dkt. 57-2 at 307. Without such supporting
documentation, the Court cannot grant summary judgment as to
the requested $15, 000.00. See El Apple I, Ltd., 370
S.W.3d at 763 (remanding case after explaining that an
attorney's affidavit supporting a fee application was
deficient because he did not "present time records or
other documentary evidence" and did not provide any
"of the specificity needed for the trial court to make a
meaningful [fee] determination").
third argument is that the nature of the forensic accounting
work underlying Matson Driscoll's invoice no. 17201600204
($7, 738.25) relates to Insured Plaintiffs' pursuit of
affirmative claims. Insured Plaintiffs have submitted a sworn
declaration attesting that the forensic accounting undertaken
in the Harris County Lawsuit related to Insured
Plaintiffs' defense. In the face of this summary judgment
evidence, Liberty has offered only speculation and conjecture
that the forensic accounting may really have related to
Insured Plaintiffs' affirmative claim. Neither
speculation nor conjecture is evidence. See Fieldtech
Avionics & Instruments, Inc. v. Component Control.Com,
Inc., 262 S.W.3d 813, 833 (Tex. App.-Fort Worth 2008, no
writ) (citing Joe v. Two Thirty Nine Joint Venture,
145 S.W.3d 150, 164 (Tex. 2004)) ("Speculation is not
evidence."); Drennan v. Cmty. Health Inv.
Corp., 905 S.W.2d 811, 821 (Tex. App.-Amarillo 1995,
writ denied) ("conjecture is not evidence").
Because Insured Plaintiffs' summary judgment evidence
adequately supports its entitlement to relief and has not
been controverted by competent summary judgment evidence, the
Court finds that Insured Plaintiffs are entitled to summary
judgment as to the $7, 738.25 reflected in Matson
Driscoll's invoice no. 17201600204.
Insured Plaintiffs are entitled to $6, 547.25 $13, 621.44
$7, 738.25 = $27, 906.94 in breach of contract damages. The
$15, 000.00 reflected in Skadden Arps's invoice no.
1689584 is not recoverable at this time, however, because
Insured Plaintiffs have failed to meet their summary judgment
burden as to those funds.
Plaintiffs move to recover TPPCA damages flowing from
Liberty's breach of its duty to defend the Harris County
Lawsuit and AAA Arbitration. As explained by one court,
"[i]t is under Section 542.060(a) [of the TPPCA] that
'the insurer is liable to pay the holder of the policy or
the beneficiary making the claim under the policy, in
addition to the amount of the claim, interest on the amount
of the claim at the rate of 18 percent a year as damages'
if the insurer is liable for a claim under an insurance
policy and fails to comply with the TPPCA." Cox
Operating, L.L.C. v. St. Paul Surplus Lines Ins. Co.,
No. H-07-2724, 2014 WL 109397, at *2 (S.D. Tex. Jan. 10,
2014) (quoting Tex. Ins. Code § 542.060(a)). Based on
this provision, "Insured Plaintiffs [argue they] are
entitled to [18 percent] penalty interest on the amounts
incurred in the Harris County Lawsuit totaling $13, 682.79
[from September 12, 2016, the date they paid their deductible
to Liberty] through March 8, 2OI9[, the date the motion for
summary judgment was filed], plus $21.78 per day thereafter
on the current amount owed." Dkt. 131 at 17. With
respect to the AAA Arbitration, Insured Plaintiffs contend
they are entitled to 18 percent interest on each recoverable
invoice from the date of payment through June 23, 2017 (the
date the state court entered a Final Judgment and Dismissal
with Prejudice after receiving the arbitrator's Final
Award), totaling $59, 662.23 in TPPCA damages. Liberty
disputes Insured Plaintiffs' entitlement to TPPCA damages
related to both the Harris County Lawsuit and the AAA
Arbitration. The Court discusses each proceeding and
Liberty's arguments below.
Harris County Lawsuit
response brief, Liberty does not contest Insured
Plaintiffs' entitlement to TPPCA penalty interest in the
Harris County Lawsuit. However, at oral argument, citing
Republic Underwriters Ins. Co. v. Mex-Tex, Inc., 150
S.W.3d 423 (Tex. 2004), Liberty argued that any TPPCA penalty
interest should be calculated based on the amount of fees
"still owed" at the time of this Court's
damages determination, as opposed to the amount of fees owed
at the time that Liberty breached its duty to defend.
Specifically, Liberty contends that the statutory penalty
should be applied only to the difference between the amount
of Insured Plaintiffs' underlying claim (i.e., the total
defense costs and fees Insured Plaintiffs' paid) and any
partial payments it tendered prior to the instant
the oral argument held on May 2, 2019, by way of
hypothetical, the Court explored Liberty's ...