Opinion
Civil Action No. 16-cv-02760-RM
2021-08-06
ROCKHILL INSURANCE COMPANY, Plaintiff, v. CFI-GLOBAL FISHERIES MANAGEMENT a/k/a Colorado Fisheries, Inc., Defendant
John Arnold Husmann, BatesCarey LLP, Chicago, IL, Adam H. Fleischer, David Michael Alt, Justin Keith Seigler, Mark Andrew Deptula, Bates Carey LLP, Chicago, IL, Jon F. Sands, Marilyn S. Chappell, Sweetbaum Sands Ramming PC, Denver, CO, for Plaintiff. Christopher M. Glauser, Alan C. Bradshaw, Manning Curtis Bradshaw & Bednar PLLC, Salt Lake City, UT, for Defendant.
John Arnold Husmann, BatesCarey LLP, Chicago, IL, Adam H. Fleischer, David Michael Alt, Justin Keith Seigler, Mark Andrew Deptula, Bates Carey LLP, Chicago, IL, Jon F. Sands, Marilyn S. Chappell, Sweetbaum Sands Ramming PC, Denver, CO, for Plaintiff.
Christopher M. Glauser, Alan C. Bradshaw, Manning Curtis Bradshaw & Bednar PLLC, Salt Lake City, UT, for Defendant.
ORDER
RAYMOND P. MOORE, United States District Judge
This insurance case was tried to a jury solely on Defendant's statutory bad faith claim. The jury returned special verdicts finding Plaintiff unreasonably delayed or denied payment to former Defendant Heirloom 1, LLC ("Heirloom") of insurance benefits owed to or on behalf of Defendant. See Colo. Rev. Stat. § 10-3-1115. As a result, Defendant is entitled to "reasonable attorney fees and court costs and two times the covered benefit." Colo. Rev. Stat. § 10-3-1116(1). Defendant's Motion for Final Judgment (ECF No. 306), which has been fully briefed, seeks determinations of three amounts: (1) the "covered benefit," (2) reasonable attorney fees, and (3) court costs.
A. "Covered Benefit"
Determining the "covered benefit" requires construing both the applicable statutes and the insurance policy. Sections 10-3-1115 and - 1116 create a statutory right of action to compensate insureds for the unreasonable delay or denial of a claim for insurance benefits, using the "covered benefit" as a metric by which the insurer's penalty is calculated. See Etherton v. Owners Ins. Co. , 829 F.3d 1209, 1229 (10th Cir. 2016). In construing Colorado statutes, the Court aims to ascertain and give effect to the intent of the state's General Assembly. Dubois v. People , 211 P.3d 41, 43 (Colo. 2009). Because § 10-3-1116 is a penalty statute, "the fact that calculation of the ‘covered benefit’ may be divorced from actual damages is not inconsistent with the legislative scheme." Toy v. Am. Family Mut. Ins. Co. , No. 12-cv-01683-PAB-MJW, 2014 WL 321213, at *4 (D. Colo. Jan. 29, 2014) (unpublished). "The action authorized in this section is in addition to, and does not limit or affect, other actions available by statute or common law, now or in the future. Damages awarded pursuant to this section shall not be recoverable in any other action or claim." § 10-3-1116(4). Thus, although damages recovered under the statute are not also recoverable by other means (i.e., "double recovery" is not allowed), the damages an insured might get on a statutory bad faith claim are additional to and different from any recovery an insured might obtain on a breach of contract claim or some other cause of action, such as a common law bad faith claim, that requires proof of actual damages. See Toy , 2014 WL 321213, at *4. The Court finds that part of the intent behind this statute was to create a simplified remedy that is easier to determine than the actual damages needed to establish a breach of contract or common law bad faith claim. See Kisselman v. Am. Family Mut. Ins. Co. , 292 P.3d 964, 973-74 (Colo. App. 2011).
Moreover, unlike a common law bad faith claim, a statutory claim does not require proving knowledge or recklessness on the part of the insurer. See id. at 973. The Court further finds that part of the intent behind these statutes was to create a lower standard of liability, at least compared to the standard for establishing a common law bad faith claim. See Toy , 2014 WL 321213, at *4.
To interpret an insurance policy, the Court construes its terms to give effect to the intent and reasonable expectations of the parties. See Thompson v. Md. Cas. Co. , 84 P.3d 496, 501 (Colo. 2004). Because the policy limits constitute a strong indication of such intent, the Court finds that they provide a suitable starting point for determining the "covered benefit" in this case.
1. Policy limits
Plaintiff's policy with Defendant provided both commercial general liability ("CGL") and professional liability ("PL") coverage, with a $1 million limit on each type of liability. The parties disagree on the relevance of the policy limits in this case, but the following facts are not disputed: (1) Heirloom won an arbitration award that totaled $894,671.97, (2) Plaintiff's duty to indemnify Defendant for that award arose under the policy's PL coverage, (3) Plaintiff paid Heirloom $1,017,000 to satisfy the judgment against it, and (4) the actual value of the award, including interest, was $1,148,884.20 on the date the judgment was satisfied.
No Colorado case law that the parties have cited or the Court is aware of directly addresses how policy limits are to be considered, if at all, in determining the "covered benefit" for purposes of calculating the statutory penalty under § 10-3-1116(1). Courts evaluating such claims have sometimes applied the policy limit without analysis or explanation. For example, in Toy , 2014 WL 321213, at *5, the court applied an endorsement that limited the insured's recovery to the policy limit less amounts paid to the insured by another insurance company. And in Locke v. American Family Mutual Insurance Co. , No. 13-cv-01184-MSK-MJW, 2014 WL 4627236, at *3 (D. Colo. Sept. 16, 2014) (unpublished), the court concluded on a motion for partial summary judgment that the maximum award of damages the insured could recover under § 10-3-1116 would be twice the policy limit, plus attorney fees and costs. In Etherton , 829 F.3d at 1231, after the jury found damages that exceeded the insured's policy limit, the district court entered judgment calculated to include twice the amount of the remainder of the policy limit. Although the propriety of those calculations was not raised on appeal, the United States Court of Appeals for the Tenth Circuit discussed them in its decision and affirmed the judgment in its entirety. Id.
Defendant cites no authority, and the Court is aware of none, for the proposition that the "covered benefit" for purposes of establishing § 10-3-1116 damages can exceed the policy's liability limits. In the absence of such authority, the Court is disinclined to deviate from the examples cited above and to adopt and apply a novel interpretation of the statute. Further, the Court finds that doing so here would undermine the General Assembly's legislative objective of providing a simplified remedy that does not require an insured to prove actual damages. As discussed above, §§ 10-3-1115 and - 1116 impose a statutory duty on insurers not to act unreasonably, while leaving in place causes of action that apply to more egregious conduct. Because a statutory bad faith claim does not require the insured to prove knowledge or recklessness on the part of the insurer, the rationale for assessing prejudgment interest against an insurer that engages in wrongdoing is inapt in this case. Cf. Old Republic Ins. Co., v. Ross , 180 P.3d 427, 437 (Colo. 2008) (en banc) (stating that in a breach of contract action against an insurer, an award of prejudgment interest may be appropriate to prevent the insurer from using the policy to shield itself from liability for its own wrongdoing). Instead, Colorado's legislative scheme provides a statutory remedy for an insurer's unreasonable conduct, without regard to whether that conduct was wrongful.
For these reasons, the Court concludes that the $1 million policy limit provides the appropriate starting point for determining the "covered benefit" in this case.
2. Defense costs
The Court turns now to Plaintiff's argument that it is entitled to deduct from the policy limit the defense costs it incurred defending Defendant in the underlying arbitration against Heirloom. The policy imposes duties to defend and indemnify against certain liability claims for damages under both the CGL and PL coverages. Defendant does not dispute Plaintiff's assertion that defense costs paid to defend against a PL claim are "claims expenses" that count toward the policy limit under the terms of the PL coverage. And Plaintiff does not dispute that such costs paid to defend against a CGL claim do not erode policy limits. Nor has Defendant challenged Plaintiff's assertion that it provided Defendant a defense in the underlying arbitration at a cost of $204,813.27. (See ECF No. 312 at 3.) What is disputed is whether those defense costs must be deducted from the policy limit in calculating the "covered benefit."
Defendant contends it is undisputed that Plaintiff provided a defense under its CGL coverage (ECF No. 315 at 4), but the evidence Defendant cites does not show that the defense was not provided under the PL coverage, either solely or in part. Defendant relies on two "reservation of rights" letters it received from Plaintiff opining that indemnity coverage might not be available but affirming Defendant's entitlement to a defense. The first letter states that the CGL coverage does not apply to the allegations against Defendant but that the policy "may ... provide coverage for certain damages arising out of [Defendant's] professional services" under the PL coverage. (ECF No. 6-6 at 8.) The second letter also discusses both types of coverage in the context of proposing a settlement offer to be funded mostly by Defendant. (See ECF No. 81-16 at 4.) Both letters affirm Plaintiff's commitment to providing Defendant with a defense in the arbitration, but neither establishes that such defense was being provided under the CGL coverage exclusively.
In addition, Defendant has identified some passing references to the CGL coverage in Plaintiff's case file as well as some testimony by one of its claims analysts to argue that the arbitration defense was provided solely under the CGL coverage. (See ECF No. 315 at 4.) But this case has never been solely about CGL coverage. Indeed, the PL coverage has been a significant part—if not the primary focus—of this case since before the Court granted summary judgment in Plaintiff's favor in April 2018 based on an exclusion under that coverage, and it is the PL coverage which ultimately provided the basis for Plaintiff's indemnification liability. See Rockhill Ins. Co. v. CFI-Global Fisheries Mgmt. , 782 F. App'x 667, 669 (10th Cir. 2019) (unpublished) (reversing this Court's "rulings on coverage under the professional liability policy"). Accordingly, the Court rejects Defendant's contention that the defense was provided solely under the CGL coverage.
Under the PL coverage, "claim expenses" are defined as "fees and expenses that are incurred by [Plaintiff], or by an attorney retained by [Plaintiff], in the investigation, settlement, defense or appeal of a ‘claim’ or ‘suit.’ " The Court finds that excluding the defense costs incurred in the arbitration proceeding from the above definition would be contrary to the intent and reasonable expectations of the parties to this insurance policy.
Defendant's argument that Plaintiff waived its entitlement to a credit for its defense costs when it withdrew its recoupment claim is also unavailing. (See ECF No. 315 at 4-5.) Plaintiff withdrew that claim due to Defendant's "precarious financial circumstances." (ECF No. 80 at 21 n.9.) But although that claim pertained to the same defense costs that are at issue here, it does not follow that Plaintiff is estopped from arguing its entitlement to deduct them as "claims expenses" for purposes of calculating the statutory penalty under § 10-3-1116(1).
Therefore, the Court finds that the "covered benefit" is the $1 million policy limit reduced by the "claims expenses" of $204,813.27, which comes to $795,186.73. Defendant's statutory penalty is twice that amount: $1,590,373.46. B. Attorney Fees
As the prevailing party on its claim, Defendant is entitled to an award of reasonable attorney fees. See § 10-3-1116(1). "The most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate." Hensley v. Eckerhart , 461 U.S. 424, 433, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983). Factors relevant to whether time was reasonably expended include
(1) whether the tasks being billed would normally be billed to a paying client, (2) the number of hours spent on each task, (3) the complexity of the case, (4) the number of reasonable strategies pursued, (5) the responses necessitated by the maneuvering of the other side, and (6) potential duplication of services by multiple lawyers.
Robinson v. City of Edmond , 160 F.3d 1275, 1281 (10th Cir. 1998) (quotation omitted). A party seeking an award of attorney fees must establish the reasonableness of each dollar and each hour for which the award is sought and prove that its counsel exercised proper billing judgment. Etherton v. Owners Ins. Co. , 82 F. Supp. 3d 1190, 1197-99 (D. Colo. 2015). Moreover, counsel requesting fees as a prevailing party "should make a good faith effort to exclude from a fee request hours that are excessive, redundant, or otherwise unnecessary." Hensley , 461 U.S. at 434, 103 S.Ct. 1933. The Court must then assess whether counsel seeking fees exercised billing judgment, which "consists of winnowing the hours actually expended to the hours reasonably expended." Case v. Unified Sch. Dist. No. 233 , 157 F.3d 1243, 1250 (10th Cir. 1998). In other words, the Court "must determine not just the actual hours expended by counsel, but which of those hours were reasonably expended in the litigation." Joseph A. v. N.M. Dep't of Human Servs. , 28 F.3d 1056, 1061 (10th Cir. 1994) (quotation omitted).
As the parties and the Court are aware, there has been extensive motions practice in this case, multiple written orders by the Court, a remand by the Tenth Circuit, Rockhill Ins. Co. , 782 F. App'x 667, and a five-day jury trial. Defendant requests $1,048,034.75 in attorney fees and has submitted in support of that request three declarations and a supplemental declaration of its counsel as well as more than two hundred pages of invoices documenting the nearly five-year lifespan of this litigation.
Plaintiff does not challenge the hourly rates charged by Defendant's counsel but nevertheless raises several generalized and minimally developed arguments with respect to the requested amount. The Court finds them unpersuasive.
First, Plaintiff argues that Defendant made improper use of block billing, which precluded Plaintiff from being able to evaluate the reasonableness of the time spent for the tasks for which fees are claimed. (ECF No. 312 at 10-11.) But block billing presents a problem only when some of the tasks in a billing entry are compensable and others are not. See San Luis Ecosys. Counsel v. U.S. Forest Serv. , No. 04-cv-01071-MSK, 2009 WL 792257, at *7 (D. Colo. Mar. 23, 2009). Plaintiff has not identified any unbillable tasks on the invoices, and the Court finds the fee summaries and invoices adequately convey the work performed on this case. Accordingly, the Court finds there is no basis for a reduction due to block billing.
Second, Plaintiff argues that Defendant failed to separately allocate fees for the work performed on its statutory bad faith claim from other work performed in this case. (ECF No. 312 at 11-14.) Defendant did bring another three counterclaims in this case for breach of contract, declaratory judgment, and common law bad faith, but the Court finds these claims, for the most part, "involve a common core of facts" and are "based on related legal theories." Hensley , 461 U.S. at 435, 103 S.Ct. 1933. One notable exception is work performed in connection with ascertaining Defendant's lost profit damages, which were relevant to only its common law bad faith claim. However, Defendant asserts that its counsel eliminated 123.75 invoice hours attributable to this work (ECF No. 315 at 10), and Plaintiff has not shown that any additional hours should have been eliminated. The Court discerns no need for further allocation as to the work performed in this case.
Third, Plaintiff argues that no fees related to the common law bad faith claim should be awarded because it prevailed on that claim. See Rockhill Ins. Co. , 782 F. App'x at 673 (affirming dismissal of this claim). But the fact that Plaintiff prevailed on this claim does not negate Defendant's entitlement to fees on its statutory claim merely because the two claims partially overlap. Plaintiff cites no authority to the contrary.
Fourth, Plaintiff contends that 96.75 hours should be deducted from Defendant's invoices due to redactions. But Plaintiff has not shown or argued how the redactions could have resulted in the inclusion of nonrecoverable fees.
Fifth, Plaintiff contends that time should be deducted for internal conferences, which "often mean there has been duplication of efforts." (ECF No. 312 at 15.) But Plaintiff offers no evidence or specific examples of such duplication, and the Court declines to make a reduction to an otherwise reasonable fee request based on speculation.
In its Response to Defendant's Motion, Plaintiff requests that Defendant be ordered to produce the contingent fee agreement between it and its counsel. (Id. ) The Court notes that Defendant has now done so without intervention by the Court. (See ECF No. 316-8.)
Finally, Plaintiff argues that no enhancement is warranted, as the statutory remedy constitutes an enhancement in itself. (ECF No. 312 at 15-16.) In its Reply, Defendant does not persist in its request for an enhancement of fifteen-to-twenty percent. The Court agrees with Plaintiff that no enhancement is warranted. Although this case is somewhat remarkable for its volume of pleadings and duration, it does not strike the Court as the type of exceptional case where the need and justification for such enhancement are readily apparent. See Homeward Bound Inc. v. Hissom Mem'l Ctr. , 963 F.2d 1352, 1357 (10th Cir. 1992).
In sum, the Court finds that Defendant's fee request, updated to include work on this Motion, is reasonable in terms of the hours expended and rates charged, given the amount of the statutory penalty, the duration of the representation, and the value of the legal services to Defendant. Therefore, Defendant is entitled to the full amount of attorney fees it requested: $1,048,034.75.
C. Court Costs
As the prevailing party on its statutory bad faith claim, Defendant is also entitled to its court costs. See § 10-3-1116(1). However, the Court denies without prejudice its request to include those costs in this Order and instead directs the parties to comply with D.C.COLO.LCivR 54.1. See Reich v. Am. Family Mut. Ins. Co. , No. 14-cv-1258589-KLM, 2016 WL 1258589, at *5 (D. Colo. Mar. 31 2016) (unpublished); Spokas v. Am. Family Mut. Ins. Co. , No. 12-cv-00380-WYD-KLM, 2015 WL 3948098, at *5 (D. Colo. June 26, 2015) (unpublished).
D. Conclusion
Therefore, Defendant's Motion is GRANTED IN PART, DENIED IN PART, and DENIED WITHOUT PREJUDICE IN PART, and it is ORDERED that:
(1) Defendant is awarded the statutory penalty in the amount of $1,590,373.46 and attorney fees in the amount of $1,048,034.75, and
(2) Judgment shall enter in favor of Defendant and against Plaintiff in the amount of $2,638,408.21, plus costs to be taxed in accordance with D.C.COLO.LCivR 54.1.