Opinion
No. C 00-3413 SI
March 28, 2002
JUDGMENT
Judgment is hereby entered for plaintiffs Legacy Partners, Inc. and C. Preston Butcher, and against Defendant Travelers Indemnity Company of Illinois, in the following amounts: $290,916.12 for the defense of the underlying action, $66,923.78 for the statutory penalty of 18% interest per annum, and $490,197.42 for the prosecution of this insurance coverage action, for a total amount of $848,037.32.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This action came on regularly for trial without a jury on August 27 and 28, 2001. After considering the pleadings, the evidence, the arguments, and briefs from counsel, and in view of this Court's prior Orders in this case, which are incorporated herein by reference, the Court makes the following findings of fact and conclusions of law.
A. FINDINGS OF FACT
1. On March 12, 1999, Mack Pogue initiated an action known as Pogue, et al. v. LCAC, Inc., et al., No. 99-779 ("the Pogue action") in the 101st Judicial District Court in Dallas County, Texas. C. Preston Butcher, a plaintiff in this action, was a defendant in the Pogue action, as were several subsidiaries of Legacy Partners, Inc., the other plaintiff in this action.
2. Upon the filing of that action, the Texas court issued a temporary restraining order on March 12, 1999 which had significant detrimental effects upon the business operations of plaintiffs Legacy Partners, Inc. and C. Preston Butcher.
3. Plaintiffs did not tender the Pogue action to defendant Travelers Indemnity Company of Illinois ("Travelers") until March 26, 1999, when plaintiffs' counsel sent a copy of the Pogue complaint to Merle Flakes of Travelers. Travelers did not receive the tender until March 29, 1999.
4. Before tendering the defense to Travelers, plaintiffs hired lawyers from five law firms to assist in their defense in the Pogue action.
5. The temporary restraining order was issued on March 12, 1999 and was in effect through and including April 16, 1999, when the Pogue entities and plaintiffs entered into a settlement agreement known pursuant to the Texas Rules of Civil Procedure as a "Rule 11 Agreement."
6. The Rule 11 Agreement contemplated the finalization of the terms identified in the Rule 11 Agreement in a formal settlement agreement by April 30, 1999.
7. On April 30, 1999, the Pogue action was dismissed.
8. During the period between March 29, 1999, through and including April 30, 1999, plaintiffs incurred and paid attorneys' fees and expenses in the amount of $290,916.12 in the defense of the Texas lawsuit brought by the Pogue entities. Under Texas law, the amount of fees incurred by plaintiffs in the underlying action must have been reasonable and necessary to be recoverable. See United States Auto. Ass'n v. Pennington, 810 S.W.2d 777, 785 (Tex.App.-San Antonio 1991). The determination of reasonable attorneys' fees is a question for the trier of fact. See Gonzalez v. Nielson, 770 S.W.2d 99, 102 (Tex.App. — Corpus Christi 1989). Based on the evidence at trial, the Court is satisfied that the fees incurred were reasonable and necessary to the defense of the Pogue action. Plaintiffs in the Pogue action obtained a broad TRO against plaintiffs in this suit. It was necessary to muster a significant number of attorneys to react to the TRO and defend the action. The Court is not convinced that hiring one firm alone would have resulted in lower fees in the underlying action. Instead, more lawyers from McKool Smith would have been involved, and plaintiffs would have been denied the assistance of lawyers chosen for their unique skills and knowledge. All attorneys' fees and expenses during this period were reasonable and necessary. Accordingly, it is the responsibility of defendant to reimburse plaintiffs for the payment of attorneys' fees and expenses incurred between March 29, 1999 and April 30, 1999, in the amount of $290,916.12.
9. On June 30, 2000, plaintiffs commenced this action in the Superior Court of California for the City and County of San Francisco by filing a complaint for breach of contract and insurance bad faith. On August 4, 2000, plaintiffs filed a first amended complaint for breach of contract and insurance bad faith. Defendants removed the action to this Court on September 15, 2000.
10. Plaintiffs first provided invoices to Travelers for the attorneys' fees and costs incurred in the Pogue action when they made their initial disclosures in the present action, which were served on Travelers' counsel on November 3, 2000.
11. At the trial of this action, plaintiffs presented documentary evidence of the reasonableness and necessity of the fees and expenses incurred in the prosecution of this action, including statements for attorneys' fees. In addition, plaintiffs presented the oral testimony of Mr. Cox and Mr. Andersen, which established that plaintiffs' legal expenses were reasonable and necessary.
12. Based on this evidence, the Court determines that plaintiffs reasonably incurred the amount of $490,197.42 in attorneys' fees before the date of trial. Pursuant to Travelers' responsibilities under Texas law, which this Court has previously determined governs the issue of attorneys' fees, Travelers is obligated to reimburse plaintiffs the amount of these attorneys' fees, totaling $490,197.42. Plaintiffs also seek attorneys' fees for work performed during final trial preparation, trial, and post-trial proceedings. Plaintiffs estimate that they have incurred and will incur $45,000 for this work, but have not submitted any billing records. The Court is unwilling to estimate attorneys' fees owed to plaintiffs for this period in the absence of any documentation to show the amount of work actually performed. Likewise, the Court will not now estimate the amount of fees owed to plaintiffs if an appeal is taken.
B. CONCLUSIONS OF LAW
1. Plaintiffs are Not Entitled to Pre-Tender Fees in the Underlying Action
Although plaintiffs were sued in the Pogue action on March 12, 1999, defendant was not notified of the suit until March 29, 1999. In the interim, plaintiffs retained a number of law firms to render services in connection with the Pogue action. Defendant now argues that plaintiffs are not entitled to recovery of attorneys' fees incurred prior to the March 29, 1999 tender of defense. Having closely analyzed applicable Texas authority on the issue, the Court agrees.
Plaintiffs contend that because the policy in the case at bar is an "occurrence" policy, it is governed by the "notice-prejudice" rule. Under that rule, "[t]he insured's failure to notify the insurer of a suit against her does not relieve the insurer from liability for the underlying judgment unless the lack of notice prejudices the insurer."Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170, 174 (Tex. 1995). The Travelers policy at issue includes the following provision: "If a claim is made or `suit' is brought against any insured, you must: . . . (2) Notify us as soon as practicable." Pls.' Post-Trial Memo, 5:21-25. Plaintiffs explain that this type of language has been interpreted by Texas courts to require "only that notice be given within a reasonable time in light of the circumstances involved." American States Ins. Co v. Hanson Indus., 873 F. Supp. 17, 27 (S.D. Tex. 1995). Plaintiffs maintain that they tendered the defense as quickly as possible, and that defendant has failed to show prejudice as a result of the delay.
The cases cited by plaintiffs address the question of whether insurance companies can be relieved of all obligations under the policy as a result of delay by the insured — not simply pre-tender costs. Defendant is not at this time disputing liability under the policy — defendant's position is that it should not be forced to pay costs incurred prior to tender. Texas courts have held repeatedly that the duty to defend does not arise until the defense has been tendered. See, e.g., Harwell, 896 S.W.2d at 174 ("Until State Farm received notice of the suit, it had no duty to undertake Hubbard's defense."); Members Ins. Co. v. Branscum, 803 S.W.2d 462, 466-67 (Tex.App.-Dallas 1991) ("No duty is imposed on an insurer until its insured is served . . .").
Defendant's position is supported by the existence of a "no voluntary payment" clause in the Travelers policy. That clause reads: "No insured will, except at that insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent." Pls.' Post-Trial Memo, 8:6-8. Texas courts have refused to hold insurance companies liable for pre-tender costs in cases such as this one, where the policy at issue contains a no voluntary payments provision. See, e.g., Nagel v. Kentucky Central Ins. Co., 894 S.W.2d 19, 21-22 (Tex.App.-Austin 1995) (holding that a voluntary payments provision almost identical to the one in the instant case "prohibit[s] the insureds from incurring such expenses, except at their own cost").
The notice-prejudice rule is inapplicable under these circumstances.See, e.g., Lafarge Corp., 61 F.3d at 399-400 ("prejudice is only a factor when the insurer is seeking to avoid all coverage for failure to comply with the notice provisions of the policy"). The Court of Appeals of Texas has rejected the argument that an insurer is required to show prejudice in order to rely on a voluntary payments clause. See E L Chipping Co., Inc. v. The Hanover Ins. Co., 962 S.W.2d 272, 278 (Tex.App. — Beaumont 1998).
Plaintiffs cite Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 692 (Tex. 1994), for the proposition that the Texas Supreme Court would find that pre-tender costs are recoverable here. In Hernandez, the Texas Supreme Court held that even when an insured settles an action without the insurer's consent in violation of a "settlement without consent" exclusion clause, the insurer is bound by the settlement unless it can demonstrate actual prejudice. Id. at 692. Hernandez is inapposite, as evidenced by the fact that none of the Texas appellate decisions addressing pre-tender attorneys' fees discuss the case. Hernandez involved a first-party uninsured motorist policy. In that case, the insured settled a claim against an uninsured/underinsured motorist without the consent of the insurer despite a "settlement without consent" exclusion clause in the insurance contract. The case at bar involves third-party coverage and a "voluntary payments" clause. The question for our purposes is whether pre-tender attorneys' fees are recoverable — not whether the insurer may avoid liability for the entire amount sought pursuant to the applicable coverage. This Court already held in its July 25, 2001 Order that defendant has no duty to indemnify plaintiffs for the settlement.
In sum, plaintiffs have not presented any Texas case law for the proposition that they should be entitled to pre-tender attorneys' fees. They rely primarily on law review articles and decisions from other states. On the other hand, a number of Texas appellate court decisions, taken together, lead this Court to conclude that pre-tender attorneys' fees are not recoverable under these circumstances. "Where there is no convincing evidence that the state supreme court would decide differently, a federal court is obligated to follow the decisions of the state's intermediate appellate courts." In re Bartoni-Corsi Produce, Inc., 130 F.3d 857, 861 (9th Cir. 1997). Accordingly, any defense costs incurred by plaintiffs prior to March 29, 1999 were incurred before Travelers received notice of the Pogue action and were "voluntary payments" under the terms of the insurance contract. Accordingly, Travelers is not obligated to reimburse plaintiffs for such costs.
2. Defendant is Obliged to Pay for the Defense of all Claims in the Underlying Action
Texas law governs the issue of Travelers' duty to defend. Under Texas law, attorneys' fees and expenses may not be segregated with respect to any particular claim made in the underlying action. "Once coverage has been found for any portion of a suit, an insurer must defend the entire suit." St. Paul Ins. Co. v. Texas Dep't of Transp., 999 S.W.2d 881, 884 (Tex.App.-Austin 1999). See also Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 393, 395 (5th Cir. 1995) disapproved on other grounds, Grapevine Excavation, Inc. v. Maryland Lloyds, 35 S.W.3d 1 (Tex. 2000). Accordingly, defendant is obliged to pay for the defense of all claims, both covered and non-covered, in the underlying suit.
3. Plaintiffs are Entitled to Recover Fees in the Underlying Case Incurred April 30, 2000
A settlement agreement in the underlying case, referred to as the "Rule 11 Agreement," was executed on April 16, 1999. Based on the contention that this was the final settlement agreement, defendant maintains that plaintiffs are not entitled to recover legal fees incurred after that date. According to defendant, the duty to defend was extinguished at the time of settlement since at that point plaintiffs no longer faced potential liability for defamation. For this argument, they cite Reser v. State Farm Fire Cas. Co., 981 S.W.2d 260, 263-64 (Tex.App. — San Antonio 1998), a case holding that an insurance company had no duty to defend after the only covered claim in a lawsuit involving several other uncovered claims was withdrawn by the plaintiff while the case was still pending. Reser is easily distinguishable. In this case, the covered claim was still part of the case when the initial Rule 11 Agreement occurred. As long as a covered claim remained part of the lawsuit, the duty to defend was not extinguished until the litigation of the lawsuit came to a complete halt, including finalizing the settlement agreement. Once a duty to defend has been established, an insurance company must provide a complete defense — not one that is abruptly cut off before litigation comes to a complete close.
At trial, it was established that plaintiffs' counsel was required to do additional work after the date of the Rule 11 Agreement in order to complete the settlement agreement and to obtain dismissal of the underlying action. Defendant's argument that work performed after April 16, 2000 was nothing more than clearing up the details of their business transactions ignores evidence to the contrary adduced at trial. Plaintiff is entitled to all fees claimed for the period between April 16 and April 30, 2000.
4. Allocation of Attorneys' Fees in this Case
Under Texas law, an insurer who has breached the duty to defend is liable for damages including the attorneys' fees incurred in pursuing an insurance coverage action such as this one. See Grapevine Excavation, 35 S.W.3d 1. As a general rule, a party asserting two or more causes of action must allocate time spent between claims which allow recovery of fees and those which do not. However, the Texas Supreme Court has recognized an exception to this duty to segregate:
A recognized exception to this duty to segregate arises when the attorney's fees rendered are in connection with claims arising out of the same transaction and are so interrelated that their "prosecution or defense entails proof or denial of essentially the same facts." Flint Assoc. v. Intercontinental Pipe Steel, Inc., 739 S.W.2d 622, 624-25 (Tex.App.-Dallas 1987, writ denied). Therefore, when the causes of action involved in the suit are dependent upon the same set of facts or circumstances and thus are "intertwined to the point of being inseparable," the party suing for attorney's fees may recover the entire amount covering all claims. Gill Sav. Ass'n v. Chair King, Inc., 783 S.W.2d 674, 680 (Tex.App.-Houston 1989), modified, 797 S.W.2d 31 (Tex. 1990).Stewart Title Guaranty Co. v. Sterling, 822 S.W.2d 1, 11-12 (Tex. 1992). The determination of whether attorneys' fees can be segregated between various claims or defenses is a matter of law for the court. Id.
Plaintiffs are not seeking costs and expenses incurred in the prosecution of this action.
In this case, plaintiffs sued defendant for breach of contract and breach of the implied covenant of good faith and fair dealing based on the insurance company's handling and denial of the request to defend and indemnify plaintiffs in the Pogue lawsuit. The breach of contract claim involved two contractual duties — the duty to defend and the duty to indemnify. This Court ruled on July 25, 2001 that defendant breached the duty to defend in the underlying case, that defendant owed no duty of indemnification to plaintiffs, and granted summary judgment in favor of defendant on the bad faith breach claim. This means that plaintiffs' only successful claim in this suit was the breach of the duty to defend claim. The issue, then, is whether the duty to indemnify and bad faith breach claims "arise out of the same transaction" as the successful duty to defend claim, "and are so interrelated that their `prosecution or defense entails proof or denial of essentially the same facts.'" Id.
Defendant argues that the bad faith claim was based on the facts concerning Travelers' handling of the request for defense and indemnity, the duty to defend claim was based on a comparison between the allegations in the underlying petition and the contractual language, and the duty to indemnify claim was based on the actual basis for the underlying settlement and the fact that the settlement was a voluntary payment for which plaintiffs were responsible. Def.'s Post-Trial Memo, 3:4-9. Accordingly, defendant maintains that none of the claims are interrelated and that plaintiffs are obliged to segregate their fees among those claims.
First, with respect to the question of whether the duty to indemnify is intertwined with the duty to defend, it is true that the two issues involved analysis of some different facts. Determination of whether or not there was a duty to defend turned on a facial evaluation of whether the claim in question was covered under the policy. Evaluation of the duty to indemnify issue, on the other hand, required analysis of facts arising after the insurance contract was signed and the underlying suit was filed. However, the duty to indemnify and the duty to defend are both elements of what can be considered a single breach of contract cause of action. Defendant has not cited any Texas cases requiring segregation of fees for specific aspects of a breach of contract cause of action under these circumstances. A prerequisite to a finding that there was a duty to indemnify plaintiffs was proof that there was a duty to defend in this case. In other words, if plaintiffs had failed to prove that the insurance contract required defendant to defend them in the underlying suit, the issue of indemnification would have been moot. The claim for defense costs and the claim for indemnification were both premised on defendant's failure to comply with its contractual obligations. Much of the attention of the parties, particularly at summary judgment, was devoted to debating whether plaintiffs were, in fact, covered by the insurance policy based on the complaint in the underlying suit.
With respect to the bad faith claim, Texas courts have found that claims need not be segregated in analogous cases in which plaintiffs stated breach of contract and related tort claims. In a case arising out of a dispute over a commercial lease in which plaintiffs asserted fraud, breach of contract, and other tort claims, another Texas court ruled that costs need not be segregated because even though attorneys' fees were not permissible for the tort claim, the tort and contract claims were dependent upon the same set of facts or circumstances. See Gill Savings Assoc. v. Chair King, 783 S.W.2d 674, 680 (Tex.App.-Houston 1989) ("an award of attorney's fees is permissible since there was a claim for and a finding of breach of contract, and the tort complained of arose out of that breach." See also Wilson v. Ferguson, 747 S.W.2d 499, 504 (Tex.App.-Tyler 1988) ("an award of attorney fees is permissible since there was a claim for and a finding of breach of contract, and the tort complained of arose out of that breach."); Rocha v. Merritt, 734 S.W.2d 147 (Tex.App.-Houston 1987); Mid-Century Ins. Co. of Texas v. Boyte, 49 S.W.3d 408, 416 (Tx.App. — Fort Worth 2001) (recognizing that an insured will not prevail on a bad faith claim without first showing that the insurer breached the contract). But see Aetna Casualty and Surety v. Wild, 944 S.W.2d 37, 41 (Tx.App. Amarillo 1997) (requiring segregation between winning breach of insurance contract claim and losing duty of good faith and fair dealing and violation of Texas Deceptive Trade Practices Consumer Protection Act claims). In another case, segregation was not required between claims sounding in contract and the Texas Deceptive Trade Practices Act because they required proof of essentially the same facts. See Chilton Ins. Co. v. Pate Pate Enterprises, Inc., 930 S.W.2d 877, 896 (Tex.App. — San Antonio 1996).
The Texas Supreme Court has recognized that this outcome was appropriate. Gill Savings was cited with approval by the Texas Supreme Court in Stewart Title. Stewart Title, 822 S.W.2d at 12.
In this case, like the cases cited above, the bad faith cause of action and the breach of contract cause of action are based on the same set of facts and circumstances. Evaluation of the bad faith claim involved a determination of whether the decision to deny coverage was reasonable or patently incorrect. The claims were based on the same insurance policy and the same decision by Travelers to deny defense and indemnity costs. Bad faith liability would not have been available had plaintiffs not proven that a duty to defend existed here. For the foregoing reasons, the breach of contract and bad faith causes of action are intertwined to the point of being inseparable. Gill Sav. Ass'n, 783 S.W.2d at 680. Plaintiffs have no duty to segregate attorneys' fees in the instant case, and are entitled to recover attorneys' fees for the entire insurance coverage action.
Defendant points to trial testimony by plaintiffs' attorney in which he admitted that some of the entries in plaintiffs' billing records are allocable to specific claims. The Court has closely reviewed plaintiffs' billing records, and notes that there are a few entries that specifically relate to the bad faith claim. However, the fact that there are such a small number of entries specifically related to the bad faith claim in the countless pages of billing records only underscore the fact that segregation of the claims is not possible here. Indeed, even if the Court were to segregate the few billing records specifically attributable to the bad faith claim, the reduction of fees would be negligible in comparison to the overall award.
5. Plaintiffs are Entitled to Recover Fees for More than One Law Firm in this Case
Defendant argues that plaintiffs are not entitled to recover the fees of two law firms in the instant case. However, neither of the cases relied upon by defendant indicate that there is at present an unbending rule in Texas forbidding recovery for more than one law firm. Both cases are more than twenty years old and involve simple disputes with minimal possible contract relief. In the first case, Argonaut Ins. Co. v. ABC Steel Products Co., Inc., 582 S.W.2d 883, 889 (Tex.App.-Texarkana 1979), the court simply explained that "[t]he fee should be only that which would be reasonable for a litigant himself to pay his own attorney, and it is not intended that the litigant should have more than one firm of attorneys representing him." Moreover, Argonaut and the other case cited by defendant, Republic Nat. Life Ins. Co. v. Heyward, 568 S.W.2d 879, 887 (Tex.App.-Eastland 1978), both relied uponSouthland Life Ins. Co. v. Norton, 5 S.W.2d 767 (Tex.Com.App. 1928), which explained that Article 3.62 of the Texas Insurance Code "does not contemplate a fee for more than one attorney or firm of attorneys." Article 3.62 has since been repealed. In short, the Court is not convinced that there is an absolute bar against recovery of fees for more than one law firm in Texas. The central question for the Court is whether the fees sought are reasonable and necessary under the particular circumstances of the case. Pennington, 810 S.W.2d at 785. The Court finds that it was reasonable to retain two law firms given the complex nature of this suit. There is no evidence before the Court of duplication of efforts between the two law firms.
6. Plaintiffs are Entitled to 18% Interest
Lastly, plaintiffs argue that they are entitled to a statutory penalty of 18% under Tex. Ins. Code Ann. Art. 21.55 § 3(f). Art. 21.55 § 3(f) provides:
Except as otherwise provided, if an insurer delays payment of a claim following its receipt of all items, statements, and forms reasonably requested and required, as provided in Section 2 of this article, for a period exceeding the period specified in other applicable statutes or, in the absence of any other specified period, for more than 60 days, the insurer shall pay damages and other items as provided in Section 6 of this article.
Tex.Ins. Code Ann., art. 21.55, § 3(f) (Vernon Supp. 1999). Among the penalties provided in Section 6 of Article 21.55 for failing to comply with the above terms is a requirement that the insurer pay 18 percent per annum of the amount of the claim. Id. at § 6. Plaintiffs, then, are seeking payment of 18 percent per annum measured from 60 days after the date they first tendered the defense to defendant. Defendant contends that Art. 21.55 is not applicable in this case because the statute is not intended to cover third party liability policies such as the one at issue. In the alternative, defendant argues that if this court holds that Art. 21.55 applies here, interest should be measured not from the date of tender of the defense, but from the date plaintiffs submitted a demand for reimbursement with copies of the attorneys' fees and costs.
Only two courts, both of them federal, have squarely addressed the question of whether Art. 21.55 applies to cases in which the insured is seeking payment of legal costs incurred in defending a lawsuit brought by a third party. One of the opinions has since been vacated by the district court that issued it for unknown reasons. See Sentry Ins. Co. v. Greenleaf Software, Inc., 91 F. Supp.2d 920, 925 (N.D. Tex. 2000) (vacated) (holding that Art. 21.55 applies); Hartman v. St. Paul Fire Marine Ins. Co., 55 F. Supp.2d 600, 603 (N.D. Tex. 1998) (holding that Art. 21.55 does not apply). One other federal court in Texas applied Art. 21.55 to a liability policy without any discussion of the issue, basing its conclusion on the reasoning in Sentry. See E R Rubalcava Constr., Inc. v. Burlington Ins. Co., 148 F. Supp.2d 746, 750 (N.D. Tex. 2001). Aside from one Texas Supreme Court case in which the issue was addressed in dicta, there do not seem to be any Texas state court cases in which the applicability of Art. 21.55 to liability policies such as this one was discussed.
Art. 21.55 applies only to "claims," a word defined in the statute as "a first party claim made by an insured or a policyholder under an insurance policy . . . that must be paid by the insurer directly to the insured or beneficiary." For that reason, Article 21.55 applies most simply to garden variety first party insurance claims — for example, a claim on a property insurance policy that the insured's house was damaged, for which payment would be made directly to the insured. Because the definition specifically limits application of the statute to "first party" claims, defendant contends that it should not apply to a liability policy such as this one, which is usually invoked to require that the insurer indemnify a third-party claimant who was injured by the insured's conduct.
Section 5 of Article 21.55 lists specific types of insurance that are exempted from its applicability. Liability insurance is not among them. Furthermore, the legislature used language that made the statute applicable to "any insurer authorized to do business as an insurance company or to provide insurance in this state . . . ."
The Texas Supreme Court has indicated in dicta that article 21.55 may apply to third party, liability insurance. State Farm Fire Cas. Co. v. Gandy, 925 S.W.2d 696, 714 (Tex. 1996). As part of its analysis in that case, the court was discussing the possibility of an action for declaratory judgment when issues of coverage and the duty to defend arise stemming from a suit against the insured by a third party. The court stated that if the insured were successful, the insured may be entitled to recover attorneys' fees and penalties under article 21.55. Id. This case, along with E R Rubalcava, convinces the Court that the statutory penalty may be applied in this case.
Defendant relies almost entirely on Hartman. However, the Hartman court's analysis focused third party insurance that requires the insurer to indemnify a third party claimant injured by the insured's conduct. It is clear that this type of claim for indemnification of a third party is not covered by Art. 21.55 because it is not a first party claim being paid directly to the insured. However, plaintiffs' remaining claim in this suit is based on defendant's duty to defend — not the duty to indemnify for the settlement costs paid to third parties in the Pogue suit. The Hartman court, in the end, based its conclusion that Art. 21.55 did not apply on different grounds. It concluded that the fact that "what Hartman is presenting appears not to be a `claim' for acceptance or rejection as contemplated by the statute, but instead an action pursuant to his execution of an adjudicated right." Hartman, 55 F. Supp.2d at 604. Furthermore, the court noted that the insurance company had, in fact, tendered a defense as required by the statute.
It is, therefore, necessary to examine whether any of the acts by plaintiffs' in their efforts to invoke the coverage of the Travelers policy in the Pogue lawsuit constitute a "claim" under the definition set out in Art. 21.55. Plaintiffs' initial tender of the defense of the underlying lawsuit does not constitute a "claim." Plaintiffs were seeking payment of legal fees (not payment "directly to the insured or beneficiary") in order to defend them in an ongoing lawsuit filed against them by a third party. On the other hand, well after the lawsuit had been settled, plaintiffs submitted an invoice to defendant seeking reimbursement for their legal fees. By failing to pay for the insured's defense, Travelers was obligated to pay the cost of that defense directly to plaintiffs. As such, plaintiffs' claim is a first party claim falling under Article 21.55. When plaintiffs submitted the invoices to defendant, they were seeking payment of funds that were going directly to the beneficiary, as anticipated by Art. 21.55. As a result, Art. 21.55 applies stemming from that claim.
Under Art. 21.55, the 18 percent interest accrues beginning 60 days after insured provides "all items, statements, and forms reasonably requested and required" by insurer. According to defendant, plaintiffs submitted their underlying defense cost invoices to defendant on November 3, 2000. Applying Art. 21.55, defendant had 60 days from that point to make payment. Because they failed to do so, interest began to accrue on plaintiffs' claim for reimbursement of defense costs on January 2, 2001, 60 days after the invoices were submitted.
C. JUDGMENT
Judgment will be entered for plaintiffs Legacy Partners, Inc. and C. Preston Butcher, and against Defendant Travelers Indemnity Company of Illinois, in the following amounts: $290,916.12 for the defense of the underlying action, $66,923.78 for the statutory penalty of 18% interest per annum, and $490,197.42 for the prosecution of this insurance coverage action, for a total amount of $848,037.32.