Summary
applying Luthi to grant attorney fees incurred by insured in defending a declaratory judgment action regarding duty to defend brought by the insurer
Summary of this case from Nat'l Union Fire Ins. Co. of Pittsburgh v. Donaldson Co.Opinion
Civil No. 03-1128 ADM/RLE.
July 28, 2004
John M. Anderson, Esq., Bassford Remele, P.A., Minneapolis, MN, appeared for and on behalf of Plaintiff.
Kurtis A. Greenley, Esq., Lindquist Vennum, P.L.L.P., Minneapolis, MN, appeared for and on behalf of Defendant Aircraft Maintenance Services, Inc.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
Defendant Aircraft Maintenance Services, Inc.'s ("AMS") Motion for Summary Judgment on its Counterclaim for Attorney Fees [Docket No. 59] was argued before the undersigned United States District Judge on June 25, 2004. AMS asserts that it is entitled to payment of attorney fees incurred in defending a declaratory judgment action brought by its insurer, Plaintiff XL Specialty Insurance Company ("XL Specialty"). For the reasons set forth below, AMS's Motion for Summary Judgment is granted.
II. BACKGROUND
AMS purchased an airport liability insurance policy ("the Policy") from XL Specialty covering the period of September 30, 2000 to September 30, 2001. See Policy No. NAF3003391 at 1 (Ahmann Aff. Ex. A). The Policy provides liability coverage of $1,000,000 for each "occurrence," and explains that XL will defend AMS in lawsuits that seek covered damages. Id. at 11, 18. The Policy also contains a "Supplementary Payments" provision that states the following:
The company will pay, in addition to the applicable limit of liability:
(d) reasonable expenses incurred by the insured at the company's request, including actual loss of wages or salary (but not loss of other income) not to exceed $25 per day because of his attendance at hearings or trials at such request.See id. at 3.
On September 19, 2001, a Cirrus SR-20 aircraft crashed, injuring the plane's occupants and damaging the airplane. See Compl. ¶ 14. Various parties filed lawsuits arising out of the incident in Hennepin County District Court. See id. ¶¶ 15-19. AMS was named as one of several defendants in these lawsuits because it allegedly serviced the Cirrus plane before it crashed.Id. ¶ 15.
XL Specialty initially defended AMS in the Hennepin County lawsuits. However, on February 22, 2003, XL Specialty commenced this lawsuit for interpleader and declaratory relief. Specifically, XL Speciality sought to deposit the full $1,000,000 Policy limit with the Court, and asked the Court to issue a declaratory judgment relieving XL Specialty of its duty to defend AMS under the Policy. Id. ¶¶ 13, 23, Prayer for Relief ¶¶ 1-2. XL Specialty based its request on policy language in form number NAC-02-0799, which allows it to cease defending the insured once the liability limit has been "tendered into [a] Court of Law." See Airport Liability Ins. Policy at 3 (Compl. Ex. A). AMS counterclaimed, and sought attorney fees incurred from defending the declaratory judgment action. See Ans. and Counterclaim of AMS at 5. XL Specialty was granted permission to deposit $1,000,000 with the Court, but continued to defend AMS in the Hennepin County lawsuits while resolution of the federal lawsuit was pending. See Order of 09/08/03 [Docket No. 25].
During discovery, XL Specialty determined that it had erroneously concluded that form number NAC-02-0799 had been included as part of AMS's Policy. See Letter from Anderson to Greenley of 12/03/03 at 1 (Greenley Aff. Ex. G). Because AMS's Policy did not include the form, XL Specialty could not cease defending AMS absent a settlement or payment of judgment, and depositing $1,000,000 with the Court would not fully meet its obligation to defend. See Letter from Anderson to Counsel of 12/23/03 (Greenley Aff. Ex. H). Consequently, XL Specialty amended its Complaint and dropped the language concerning its duty to defend AMS. See Second Am. Compl. at 5 (Greenley Aff. Ex. I). XL Specialty also moved for and was granted permission to withdraw funds from the Court. See Order of 04/21/04 at 6 [Docket No. 57]. Thus, the sole issue before the Court is whether AMS should be awarded reasonable attorney fees it incurred contesting XL Specialty's declaratory judgment action. Id. at 5.
III. DISCUSSION
AMS moves for summary judgment on the attorney fees issue. Federal Rule of Civil Procedure 56(c) provides that summary judgment shall issue "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On a motion for summary judgment, the Court views the evidence in the light most favorable to the nonmoving party. Ludwig v. Anderson, 54 F.3d 465, 470 (8th Cir. 1995). The nonmoving party may not "rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial." Krenik v. County of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995).
Whether AMS is entitled to attorney fees depends on the Policy's language. In Minnesota, parties are normally responsible for their own attorney fees absent a statutory or contractual provision to the contrary. See Lanoue v. Fireman's Fund Am. Ins. Cos., 278 N.W.2d 49, 54 (Minn. 1979), overruled on other grounds by Am. Standard Ins. Co. v. Le, 551 N.W.2d 923, 927-28 (Minn. 1996). Because insurance policies are contracts, insurance companies who seek declaratory judgment to minimize their liability may be required to pay the insured's attorney fees in defending such actions, based on policy language. See Sec. Mut. Cas. Co. v. Luthi, 226 N.W.2d 878, 883-84 (Minn. 1975);Proprietors Ins. Co. v. NW Nat'l Bank, 374 N.W.2d 772, 777 (Minn.App. 1985).
For example, in Luthi, the Minnesota Supreme Court awarded the insured attorney fees after the insured successfully defended a declaratory judgment action brought by Security Mutual.Luthi, 226 N.W.2d at 883-84. The Luthi court based the award on a supplementary payments clause which stated that the insurance company would "pay all expenses incurred by the [Insurance] Company for investigation, adjustment and defense, and reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred at the Company's request." Id. at 881 (emphasis added). The Luthi court held that the insured's attorney fees from defending the declaratory judgment action were "expenses incurred at the Company's request." Id. at 883-84. Further, concerned about equity and fairness, the court reasoned that "substantial hardship" would result in many instances if the insured paid the fees in situations where she "contracted in order to avoid just such an expense." Id.
The language of the Policy's "Supplementary Payments" clause compels the same result in this case. AMS incurred legal fees defending its rights, after XL Speciality initiated a declaratory judgment action where it sought to minimize its liability based on the mistaken belief that form number NAC-02-0799 was part of AMS's Policy. Thus, AMS's attorney fees constitute "reasonable expenses incurred by the insured at the company's request" (emphasis added). See Policy at 3; see also Luthi, 226 N.W.2d at 883-84.
XL Specialty's arguments to the contrary are unavailing. First, XL Specialty argues that the language of the policy in Luthi was broader than the Policy here, and emphasizes its use of the word "all." However, the determinative factor in the Luthi court's reasoning was that the insured incurred expenses as a result of the insurance company's actions. See Luthi, 226 N.W.2d at 883-84. The same scenario exists here, because but for XL Specialty's declaratory judgment action and its error about the Policy, AMS would not have to pay attorney fees.
Second, despite XL Specialty's argument otherwise, the Supplementary Payments clause in AMS's Policy does not explicitly limit repayment to incidental expenses. Rather, the provision provides that XL Specialty will pay "reasonable expenses incurred by the insured at the company's request." Policy at 3. Though XL Specialty may have intended that this clause cover minor costs only, the language does not convey this limitation, and any ambiguity must be construed against XL Specialty. See Wanzek Constr., Inc. v. Employers Ins. of Wausau, 679 N.W.2d 322, 325 (Minn. 2004). Therefore, XL Specialty must pay AMS for reasonable attorney fees it incurred in defending the declaratory judgment action.
The remaining issue is the reasonableness of AMS's requested fees. AMS seeks $18,585.25 in fees generated from April 2003 through April 2004, and any additional fees from May and June 2004. See Greenley Aff. Exs. L, M. XL Specialty, in apparent hope that the issue would not be reached, did not address the reasonableness of AMS's proposed fees in its brief. Since XL Specialty does not challenge the reasonableness of the fees sought, AMS's Motion for Summary Judgment on its Counterclaim for Attorney Fees is granted.
IV. CONCLUSION
Based upon the foregoing, and all of the files, records, and proceedings herein, IT IS HEREBY ORDERED that AMS's Motion for Summary Judgment on Attorney Fees [Docket No. 59] is GRANTED. XL Specialty is ordered to pay $18,585.25 in fees generated from April 2003 through April 2004, and must pay any additional fees, charged at the same or a similar rate, incurred in May and June 2004.