Opinion
CAUSE NO. EV 00-175-C H/H
December 5, 2003
ENTRY ON PETITION FOR ATTORNEY FEES
The court's prior rulings in this case hold that plaintiff Utica Mutual Insurance Company: (a) is entitled to recover coal mine reclamation costs of $431,543.31, plus prejudgment interest, from defendants Atlas Minerals, Inc. and Walter J. and Susan S. Pieper ("the Atlas defendants"); and (b) is not entitled to recover coal mine reclamation costs from defendants Vigo Coal Company, Inc. and William L. and Betty L. Koester ("the Vigo Coal defendants"). The last issue for the court to decide is plaintiff Utica Mutual's petition for an award of attorney fees and costs against the Atlas defendants based on the fee provision of the parties' General Agreement of Indemnity.
Utica Mutual incurred attorney fees and expenses totaling $111,644 attributable to its enforcement of the reclamation bond indemnity against the Atlas defendants. The Atlas defendants do not dispute their liability for or the reasonableness of those fees.
The disputed issue here is whether Utica Mutual can require the Atlas defendants to pay Utica Mutual an additional $176,212.50 in fees and expenses. That is the additional sum that Utica Mutual has spent trying unsuccessfully to enforce the 1991 indemnity agreement against the Vigo Coal defendants.
Utica Mutual contends that the broad language of the 1991 indemnity agreement entitles it to force the Atlas defendants to pay for its unsuccessful litigation against the Vigo Coal defendants. The Atlas defendants say that such a result would be "unfair, unjust, unreasonable, unconscionable and beyond the intent and expectations of the parties to the General Agreement of Indemnity." The court agrees with the Atlas defendants. The court agrees because of the reason Utica Mutual lost against the Vigo Coal defendants: Long before Utica Mutual suffered any losses on the Buck Creek Coal Mine reclamation bonds, it intentionally released the Vigo Coal defendants from liability under the original 1991 General Agreement of Indemnity. See Utica Mutual Insurance Co. v. Vigo Coal Co., 2003 WL 21989994 (S.D. Ind. Aug. 6, 2003) (finding that Vigo Coal defendants proved defense of novation).
Indemnity agreements are governed by the same rules as other contracts. Beaver v. Grand Prix Karting Ass'n, Inc., 246 F.3d 905, 909 (7th Cir. 2001) (applying Indiana law), citing Plumlee v. Monroe Guar. Ins. Co., 655 N.E.2d 350, 359 (Ind.App. 1995) ("Where the terms of [an indemnity] contract are clear and unambiguous, the terms are conclusive and this court will not construe the contract or look at extrinsic evidence; rather we will merely apply the contractual provisions."); accord, Henthorne v. Legacy Healthcare, Inc., 764 N.E.2d 751, 756 (Ind.App. 2002); Buckeye Union Ins. Co. v. Boggs, 109 F.R.D. 420, 423-24 (S.D. W. Va. 1986) (enforcing terms of indemnity agreement on liability for coal mine reclamation bond).
Utica Mutual relies on the broad language of Paragraph 2 of the 1991 General Agreement of Indemnity, with the most relevant language highlighted:
The Indemnitors will indemnify and save the Company harmless from and against every claim, demand, liability, cost, charge, suit, judgment and expense which the Company may pay or incur in consequence of having executed, or procured the execution of, such bonds, or any renewals or continuations thereof of substitutes thereof, including fees of attorneys, whether on salary, retainer or otherwise, and the expense of procuring, or attempting to procure, release from liability, or in bringing suit to enforce the obligation of any of the Indemnitors under this Agreement In the event of payments by the Company, the Indemnitors agree to accept the voucher or other evidence of such payments as prima facie evidence of the propriety thereof, and of the Indemnitors' liability therefor to the Company.
The key phrase here is "in bringing suit to enforce the obligation of any of the Indemnitors under this Agreement." Under this language, one indemnitor may be required to pay for attorney fees incurred in suing another indemnitor who turns out to be insolvent, or who resists mightily (and expensively) admitting his ultimate liability to Utica Mutual.
But under the plain language of Paragraph 2, liability for attorney fees depends upon the target of the lawsuit actually having an "obligation . . . under this Agreement." Based on this court's findings of fact and conclusions of law, when Utica Mutual incurred the attorney fees in question, the Vigo Coal defendants no longer had "any obligation . . . under this Agreement." In 1992, long before suit was filed, Utica Mutual voluntarily released the Vigo Coal defendants from their original obligations under the 1991 indemnity agreement. See Utica Mutual, 2003 WL 21989994 at * 10. Utica Mutual's unsuccessful claims against the Vigo Coal defendants therefore fall outside the scope of Paragraph 2.
The same sentence in Paragraph 2 provides for indemnitor liability for attorney fees incurred by Utica Mutual in some unsuccessful efforts. The sentence refers to "the expense of procuring, or attempting to procure release from liability. . . ." This phrase refers to attempts by Utica Mutual to procure its own release from liability on the coal reclamation bonds. As a matter of grammar, the phrase "attempting to procure" does not apply to unsuccessful attempts to establish that some other person is obligated as an Indemnitor.
This result is consistent with the most basic principles of fairness and good conscience. As the court found, Utica Mutual intentionally released the Vigo Coal defendants from their obligations as indemnitors under the 1991 General Agreement of Indemnity in connection with their sale of their interests in the Buck Creek Coal Mine. That novation or release was the only way for Utica Mutual to keep the business of the Atlas defendants on the required reclamation bonds for the Buck Creek Coal Mine. If Utica Mutual had not agreed to release the Vigo Coal defendants, then all the defendants and their broker simply would have replaced Utica Mutual's bonds with bonds from another surety company. See Utica Mutual, 2003 WL 21989994 at * 10. Because Utica Mutual intentionally released the Vigo Coal defendants from the 1991 indemnity agreement for its own business reasons, it would be unjust and unconscionable to hold the Atlas defendants liable for the high costs of Utica Mutual's unsuccessful attempt to disavow the novation.
Utica Mutual also points to language in Paragraph 5 of the General Agreement of Indemnity giving it "the exclusive right to determine for itself and the Indemnitors whether any claim or suit brought . . . shall be settled or defended and its decision shall be binding and conclusive upon the Indemnitors." By its terms ("settled or defended"), this provision does not appear to apply to a claim that Utica Mutual might bring against someone else — Utica Mutual would not defend such a suit. The provision certainly does not apply to claims Utica Mutual chose to bring against parties it had already released from liability under the original General Agreement of Indemnity.
Utica Mutual makes much of the fact that the court dismissed the Vigo Coal defendants' counterclaim for bad faith. Utica Mutual Ins. Co. v. Vigo Coal Co., 2002 WL 826414, *9 (S.D. Ind. March 20, 2002). In general, under the General Agreement of Indemnity, an indemnitor is liable to pay for covered costs unless Utica Mutual acted fraudulently or in bad faith. See Engbrock v. Federal Ins. Co., 370 F.2d 784, 786 (5th Cir. 1967) (applying Texas law). This principle prevents an indemnitor from arguing that Utica Mutual spent too much money on attorneys or should have found a cheaper way to reclaim the coal mine. The principle does not, however, expand the universe of covered costs to include unsuccessful efforts to collect from parties who have been released by Utica Mutual and who no longer have any "obligation . . . under this Agreement."
The court has reviewed the cases cited by Utica Mutual, most of which enforce "prima facie" clauses like the one in Utica Mutual's contracts. Such clauses require the indemnitor to pay expenses the indemnitee has incurred in good faith and put the burden on the indemnitor to show that the expenses were not incurred in good faith before payment will be excused. E.g., Fallon Electric Co. v. Cincinnati Ins. Co., 121 F.3d 125, 128-29 (3d Cir. 1997); Curtis T. Bedwell Sons, Inc. v. International Fidelity Ins. Co., 1989 WL 55388, *3 (E.D. Pa. 1989); Buckeye Union Ins. Co. v. Boggs, 109 F.R.D. 420, 423-24 (S.D. W. Va. 1986). Utica Mutual has not cited, nor has the court found, any case requiring an indemnitor to pay legal fees that the indemnitee incurred in an unsuccessful effort to pursue a former indemnitor whom the indemnitee had earlier released from liability.
In light of this decision and the court's prior decisions in this action, the court is entering a final judgment to the following effect:
1. Utica Mutual shall recover from defendants Atlas Minerals, Inc., Walter J. Pieper, and Susan J. Pieper, jointly and severally, the sum of $431,543.31, plus prejudgment interest at the rate of eight percent, for its reclamation costs, and the additional sum of $111,644 as litigation costs and attorney fees.
2. Utica Mutual shall take nothing on its claims against defendants Vigo Coal Company, Inc., William L. Koester, and Betty L. Koester, and such claims are DISMISSED WITH PREJUDICE.
3. Defendants Vigo Coal Company, Inc., William L. Koester, Betty L. Koester, Atlas Minerals, Inc., Walter J. Pieper, and Susan J. Pieper shall take nothing on their counterclaims against Utica Mutual Insurance Company, and such counterclaims are DISMISSED WITH PREJUDICE.
4. All parties' claims and cross-claims against defendant Charles W. Schulties are DISMISSED WITHOUT PREJUDICE as a result of his bankruptcy, pursuant to the November 15, 2002 Entry on Final Pretrial Conference.
5. Defendants Vigo Coal Company, William L. Koester, and Betty L. Koester shall take nothing by their cross-claim against defendant Walter J. Pieper, and such cross-claim is DISMISSED WITHOUT PREJUDICE pursuant to the cross-claimants' filing of November 17, 2003.