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Columbia Lloyds Insurance Co. v. Liberty Insurance Underwriters, Inc.

United States District Court, S.D. Texas, Galveston Division

May 30, 2019




         Before 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.


         This 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").

         This 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.

         The 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.

         The Court will discuss each category of damages in turn.


         Summary 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 citation omitted).


         As 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.[1]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.

         Although 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 arguments.

         "Texas 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.

         Liberty's 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.

         Liberty's 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").

         Liberty's 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.

         In sum, 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.


         Insured 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.

         A. Harris County Lawsuit

         In its 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 recommendation.

         During the oral argument held on May 2, 2019, by way of hypothetical, the Court explored Liberty's ...

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