Nationwide Mutual Fire Insurance Company v. D. R. Horton, Inc. - Birmingham
ORDER, DENYING Plaintiff's 81 motion to alter or amend the denial of its two motions to strike and motion to preclude evidence of contract-related damages; DENYING Plaintiff's 82 motion to alter or amend the denial of summary judgment ; COMPELLING DRHI-B, through counsel, to produce unredacted copies of it fee statements to Nationwide within 30 days of the issuance of this Order, and ORDERING said documents be placed under the Protective Order (Doc. 48 ) issued in this case. Signed by Senior Judge Callie V. S. Granade on 11/18/2016. (mab)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
NATIONWIDE MUTUAL FIRE
D.R. HORTON, INC.—
Civil Action No. 15-351-CG-N
Plaintiff Nationwide Mutual Fire Insurance Company (“Nationwide”)
has filed two motions (Docs. 81, 82) in reaction to this Court’s Order in
Document 80, seeking post-hoc relief for the following: (1) to alter or amend
the denial of its two motions to strike (Docs. 69, 74) as well as the Court’s
mooting its motion to preclude evidence of contract-related damages (Doc. 59)
and (2) to alter or amend the denial of summary judgment as to Defendant
D.R. Horton, Inc.—Birmingham’s (“DRHI-B”) counterclaim for bad faith. In
considering these two motions, the Court reviews the motions (Docs. 81, 82),
DRHI-B’s responses (Docs. 84, 85), and Nationwide’s replies thereto (Docs.
86, 87). For the reasons set forth herein, the Court deems it proper to DENY
Nationwide’s two motions (Docs. 81, 82).
The Court thoroughly documented the facts of this case in its Order
denying summary judgment (Doc. 80) (hereinafter the “Order” or “Summary
Judgment Order”) and will not repeat them here to avoid repetition and
squandering of judicial resources. In that Order, the Court denied
Nationwide’s motions to strike (Docs. 69, 74) attorney J. Burris (“Buzzy”)
Riis’s affidavit (the “Affidavit”) on the basis that its submission, although
untimely, did not harm Nationwide. (See Doc. 80, pp. 18–21). Namely, the
Court found the evidentiary record to be replete with timely discovery
requests, which include the submission of Riis’s name as one of DRHI-B’s
attorneys in the underlying Saddler action as well as plentiful information
regarding the damages DRHI-B is seeking. To effect, the Court contented
itself that DRHI-B had fully disclosed who had the knowledge to answer any
of Nationwide’s queries regarding damages, the existence of third-party
settlements and agreements covering certain expenditures, and how much
DRHI-B had accumulated, to date, in damages. Id. at 20–21. After making
these findings and determining Nationwide would suffer no harm, the Court
ruled its motion to preclude evidence of DRHI-B’s contract-related damages
to be moot. Id. at 21. The Court, however, did grant summary judgment as to
a portion of DRHI-B’s claimed damages because these damages were claimed
for fees and expenses that arose before the Saddler action was filed in
Alabama State Court in May 2014. Id. at 36. As such, the Court reduced the
damages by a total of $50,568.35. Id. at 37.
Further, the Court denied Nationwide’s motion for summary judgment
as to DRHI-B’s counterclaim for bad faith on the basis that “a reasonable fact
finder could interpret Nationwide’s refusal to acknowledge the certificates of
insurance and the attached endorsements that contradicted its internal
information as more than ‘mere negligence or mistake’ but as an attempt to
avoid coverage.” (Doc. 80, p. 35). In so finding, the Court relied on two
citations to the record but did not include an exhaustive list of the evidence
supporting its conclusion. Id.
II. Nationwide’s Claims and the Parties’ Arguments
In its first motion to alter or amend (Doc. 81) the Summary Judgment
Order, Nationwide asks this Court to strike Riis’s Affidavit on the basis of an
anonymously delivered spreadsheet (the “Spreadsheet”) that purports to
expose “global” falsehoods contained in both the Affidavit and in DRHI-B’s
evidence supporting its damages claim. (Doc. 81, pp. 1–2; see also Doc. 81-6).
Nationwide received the Spreadsheet on September 30, 2016, a full six days
before the Order issued on October 6, 2016.1 (See Doc. 81, p. 4; Doc. 80, p. 37).
According to Nationwide, the anonymous sender did not provide a return
address, and the envelope containing this information has no discernable
postage markings. (Doc. 81-3). This unclaimed Spreadsheet asserts DRHI-B,
For unexplained reasons, Nationwide did nothing with this newly gained
information until Wednesday, October 12 at 5:39 P.M. At that time,
Nationwide’s counsel sent an e-mail to DRHI-B’s counsel stating she had
“received evidence” showing the Affidavit to be false and “afford[ed]” DRHI-B
and its counsel “until noon on Friday, October 14, 2016 to withdraw” the
Affidavit (approximately 37 hours). (Doc. 81-1, p. 2). DRHI-B’s counsel
responded on Friday, October 14 denying that the Affidavit is false and
offering Nationwide access to “unredacted copies of the fee statements”
relating to the damages, subject to minimal conditions. (Doc. 81-2, p. 2).
Shortly after receiving this letter, Nationwide filed its motion.
through its counsel, is seeking $15,275.20 in damages that are categorized as
“improper time” spent in defending and generally working on the underlying
Saddler action. (See Doc. 81-6, p. 10). Nationwide failed to provide the Court
with any calculation of the numbers provided in this alleged Spreadsheet, but
the Court has determined the Spreadsheet claims DRHI-B’s counsel
improperly billed 64.8 hours from June 2014 through July 2016. (See
generally Doc. 81-6).
Using this uncredited source, Nationwide accuses Mr. Riis of
submitting a patently false Affidavit to this Court. In his Affidavit, Mr. Riis
stated he had personal knowledge of the law firm’s billing system and its
billing identification numbers and claimed “[t]his billing ID number reflects
work performed and expenses related only to the preparation of a defense” of
the Saddler action. (Doc. 69-1, p. 3). Mr. Riis further opined, “the time spent
and billed on this case by all of the professionals in our firm was reasonable
and necessary to properly defend the claims against [DRHI-B]” in the
Saddler action. Id. at 5. After receiving the Spreadsheet, Nationwide
contends Riis’s Affidavit evidences DRHI-B’s and its counsels’ bad faith
submissions to this Court as related to its damages claimed. Relying on
Federal Rule of Civil Procedure 56(h), Nationwide asks this Court to sanction
DRHI-B and its counsel by, “as a minimum,” striking the Affidavit or even
levying sanctions or issuing an order of civil contempt. (See Doc. 81, pp. 7–9).
Further, because the Affidavit was submitted in bad faith, Nationwide argues
the Court must reconsider its motion to preclude DRHI-B’s contract-related
damages (Doc. 59). Upon reconsideration, Nationwide urges the Court to
grant its motion and award summary judgment in its favor as to the damages
in this case. See id. at 11–14.
In response, DRHI-B posits Nationwide’s allegations of bad faith and
submitting a false affidavit turn on a disputed meaning of the term “defense
costs.” (See Doc. 84, p. 3). DRHI-B contends “defense costs” include
indemnification demands from third parties, pre-litigation efforts to obtain
coverage from Nationwide, and other efforts to minimize its damages with
third parties who will be providing coverage, such as Essex. Id. at 5. It argues
courts throughout this country have construed “defense costs” broadly and
that, as such, it did not include unnecessary or unrelated expenses and fees
in its claim for damages and did not submit a false Affidavit. See id. at 8–9.
In reply, Nationwide emphasizes the fact that DRHI-B has not attacked the
Spreadsheet or characterizations of its billing statements in any way; further,
it highlights certain entries on the Spreadsheet that bely DRHI-B’s argument
that the billing statements only contain work related to “defense costs” of the
Saddler action. (Doc. 86, pp. 3–4). Further, Nationwide argues an insurer’s
duty to defend does not generally encompass an insured’s claims for relief. Id.
at 5. Moreover, Nationwide contends Essex, the third party insurer who is
allegedly paying one-third of DRHI-B’s damages, has not actually paid a full
third; this evidence, Nationwide continues, is further proof of DRHI-B’s bad
faith. Id. at 7.
In its second motion to alter or amend the Order (Doc. 82), Nationwide
urges this Court to reconsider its rationale for denying summary judgment as
to DRHI-B’s counterclaim for bad faith. In particular, Nationwide focuses on
the two references the Court provided to its log notes and urges the Court to
see that these two points cannot support its conclusion. (See Doc. 82, pp. 1–2).
This motion also informs the Court that, in reaching its conclusion, the Court
must have considered improper evidence or relied on a mistaken
interpretation of the governing law. In doing so, Nationwide reasserts (as it
did in its submissions to the Court for its summary judgment motion) the
Court must only consider the evidence available to it before it denied
coverage to DRHI-B. See id. at 3–4. Nationwide maintains, as it did when
originally arguing this point, that the information it had before this action
commenced does not support a conclusion that it acted in bad faith. Id. at 4.
DRHI-B responds by highlighting the fact that Nationwide puts forth a
different interpretation than the Court (and DRHI-B’s own arguments) only
proves its counterclaim for bad faith presents a triable issue of fact. (See Doc.
85, pp. 1–2). DRHI-B bolsters its arguments to deny Nationwide’s motion by
pointing to other points in the record that cement the existence of facts
creating a triable issue. (See generally Doc. 85).
Having addressed the parties’ arguments in support of and opposition
to the motions, the Court turns to the standards governing its consideration
of the same.
III. The Standard Governing a Rule 59(e) Motion to Alter or Amend
In its zeal to criticize this Court’s Order, Nationwide utterly fails to
consider the propriety of litigating (and, mostly, relitigating) such issues in
federal district court pursuant to a motion to reconsider. Nationwide has not
satisfied the Federal Rule of Civil Procedure 59(e) standard—which it fails to
provide to the Court in its many submissions for these two motions—as the
vast majority of its arguments either rehash what has already been said or
otherwise fail to meet the “manifest error” threshold for relief. Nonetheless,
the undersigned writes to the motions in the interest of identifying certain
distortions of its Order to clarify the Order insofar as such clarification may
be beneficial in subsequent proceedings.
The decision whether to alter or amend a judgment pursuant to Rule
59(e) is “‘committed to the sound discretion of the district judge.’” Mincey v.
Head, 206 F.3d 1106, 1137 (11th Cir. 2000) (quoting Am. Home Assurance Co.
v. Glenn Estess & Assocs., 763 F.2d 1237, 1238–39 (11th Cir. 1985)). “In the
interests of finality and conservation of scare judicial resources,
reconsideration of an order is an extraordinary remedy and is employed
sparingly.” Gougler v. Sirius Prods, Inc., 370 F. Supp. 2d 1185, 1189 (S.D.
Ala. 2005). The extremely limited nature of the Rule 59(e) remedy cannot be
overstated. To prevail on a motion to reconsider, “[t]he losing party must do
more than show that a grant of the motion might have been warranted; [it]
must demonstrate a justification for relief so compelling that the court was
required to grant the motion.” Maradiaga v. United States, 679 F.3d 1286,
1291 (11th Cir. 2012) (citations and internal marks omitted). The Supreme
Court has confirmed motions to reconsider “may not be used to relitigate old
matters, or to raise arguments or present evidence that could have been
raised prior to the entry of judgment.” Exxon Shipping Co. v. Baker, 554 U.S.
471, 485 n. 5 (2008) (citation omitted). Motions to reconsider are not a vehicle
for affording a litigant “two bites at the apple.” American Home Assur. Co.,
763 F.2d at 1239. Nor are motions to reconsider properly filed as a kneejerk
reaction by a dissatisfied federal court loser.2 They are neither appeal
substitutes nor a “dry run” to test arguments in anticipation of a forthcoming
appeal. See generally Cavaliere v. Allstate Ins. Co., 996 F.2d 1111, 1115 (11th
Cir. 1993) (“the well-recognized rule . . . precludes the use of a Rule 60(b)
See, e.g., Garrett v. Stanton, 2010 WL 320492, *2 (S.D. Ala. Jan. 18, 2010)
(“Far too often, litigants operate under the flawed assumption that any
adverse ruling on a dispositive motion confers upon them license to move for
reconsideration . . . as a matter of course, and to utilize that motion as a
platform to criticize the judge’s reasoning, to relitigate issues that have
already been decided, to champion new arguments that could have been
made before, and otherwise attempt a ‘do-over’ to erase a disappointing
outcome. This is improper.”); Hughes v. Stryker Sales Corp., 2010 WL
2608957, *2 (S.D. Ala. June 28, 2010) (rejecting notion that motions to
reconsider “are appropriate whenever the losing party thinks the District
Court got it wrong”); Dyas v. City of Fairhope, 2009 WL 5062367, *3 (S.D.
Ala. Dec. 23, 2009) (motions to reconsider “do not exist to permit losing
parties to prop up arguments previously made or to inject new ones, nor to
provide evidence or authority previously omitted”).
motion as a substitute for a proper and timely appeal”) (citation omitted); In
re Howell, 242 B.R. 541, 542–42 (Bankr. N.D. Ga. 1999) (“Motions for
reconsideration should not be used . . . as a substitute for appeal.”). And of
course, motions to reconsider (like all other pleadings filed in federal court)
must not be filed for the purposes of delay or foot-dragging to prevent judicial
proceedings from moving forward to a prompt, efficient resolution. See
generally FED. R. CIV. PRO. 11(b)(1) (by filing a motion, filer certifies it is not
being presented for an improper purpose).
Generally, courts have recognized three grounds which justify the
reconsideration of an order: (1) an intervening change in controlling law; (2)
the availability of new evidence; and (3) the need to correct clear error or
manifest injustice. Summit Medical Center of Alabama, Inc. v. Riley, 284 F.
Supp. 2d 1350, 1355 (M.D. Ala. 2003). Here, plaintiff seeks reconsideration
based on the need to correct clear error. A motion to reconsider based upon
clear error is appropriate “when the Court has patently misunderstood a
party . . . or has made a mistake, not of reasoning, but of apprehension.”
Wendy's Int'l, Inc. v. Nu–Cape Constr., Inc., 169 F.R.D. 680, 684 (M.D. Fla.
1996). The opposite side of this coin is that “[a] motion to reconsider is not a
vehicle for rehashing arguments the Court has already rejected or for
attempting to refute the basis of the Court's earlier decision.” Lamar
Advertising of Mobile, Inc. v. City of Lakeland, Fla., 189 F.R.D. 480 (M.D. Fla.
Oct. 7, 1999). Nor does a motion for reconsideration provide an opportunity
to simply reargue—or argue for the first time—an issue the Court has once
determined. Arthur v. King, 500 F.3d 1335, 1343 (11th Cir. 2007). Court
opinions “are not intended as mere first drafts, subject to revision and
reconsideration at a litigant's pleasure.” Quaker Alloy Casting Co. v. Gulfco
Indus., Inc., 123 F.R.D. 282, 288 (N.D. Ill. 1988). Thus, “[t]he burden is upon
the movant to establish the extraordinary circumstances supporting
reconsideration.” Mannings v. Sch. Bd. of Hillsborough Cnty., 149 F.R.D. 235,
235 (M.D. Fla. 1993); see also Maradiaga, 679 F.3d at 1291 (the losing party
“‘must demonstrate a justification for relief so compelling that the district
court was required to grant [the] motion’” (internal citation omitted).
Notwithstanding Nationwide’s failure to conform its Motions to the foregoing
principles, they nonetheless govern the analysis herein.
IV. Analysis of Nationwide’s Motions to Alter or Amend
A. Motion to Alter or Amend Order Denying Motions to Strike
Affidavit and Motion to Preclude Evidence of Counterclaim
Plaintiff’s Contract-Related Damages
Federal Rule of Civil Procedure 56(h) penalizes the submission of an
affidavit or other declaration if it is found to be submitted in bad faith:
If satisfied that an affidavit or declaration under this rule
is submitted in bad faith or solely for delay, the court—
after notice and a reasonable time to respond—may order
the submitting party to pay the other party the
reasonable expenses, including attorney’s fees, it incurred
as a result. An offending party or attorney may also be
held in contempt or subjected to other appropriate
FED. R. CIV. P. 56(h). Rule 56(h) stems from the 2010 amendments of the
Rules and is a reclassification of Rule 56(g). Before the amendment, a
sanction was mandatory upon a finding of bad faith, and the only identified
sanctions were contempt and an award of expenses. FED. R. CIV. PRO. 56(h)
advisory committee’s note to 2010 amendment. Now, “[s]anctions are made
discretionary, not mandatory, reflecting the experience that courts seldom
invoke the independent Rule 56 authority to impose sanctions.” Id. Moreover,
the Court “has wide discretion in deciding what constitutes ‘bad faith.’” 10B
Charles A. Wright, Arthur R. Miller, & Mary K. Kane, Federal Practice and
Procedure § 2742 (3d. ed. 1998). Many courts consider affidavits containing
perjury, unabashed falsehood, or statements directly in conflict with prior
testimony to be evidence of a bad faith submission. See id.; see, e.g., U.S. v.
Nguyen, 655 F. Supp. 2d 1203 (S.D. Ala. 2009); Reyes v. Professional HEPA
Certificate Corp., 74 F. Supp. 3d 489 (D. Puerto Rico 2015), aff’d, 817 F.3d
380 (1st Cir. 2016); Olem Shoe Corp. v. Wash. Shoe Corp., 591 Fed. App’x 873,
887 (11th Cir. 2015); Rogers v. AC Humko Corp., 56 F. Supp. 2d 972 (W.D.
Tenn. 1999). “It is axiomatic that sanctions under Rule 56(h) will not be
imposed unless the court is convinced that the party employing the affidavits
was acting in bad faith or solely for the purposes of delay.” Wright et. al,
Federal Practice and Procedure § 2742 (4th ed. 2016). If a court determines
“the misinformation has been included negligently rather than intentionally,”
it will not apply sanctions. Id. (citing Instituto Per Lo Sviluppo Economici
Dell’ Italia Meridionale v. Sperti Prods., Inc., 323 F. Supp. 630 (S.D.N.Y.
Having established the governing standard, the Court now turns to
consider whether the evidence establishes DRHI-B and its counsel submitted
Mr. Riis’s Affidavit in bad faith.
1. The Falsity of the Affidavit
Nationwide contends Mr. Riis’s Affidavit contains blatant falsehoods
because it avers the “billing ID number reflects work performed and expenses
related only to the preparation of a defense to the Saddler lawsuit.” (Doc. 691, p. 3). It further states, “In my opinion, the time spent and billed on this
case by all of the professionals in our firm was reasonable and necessary to
properly defend the claims against [DRHI-B] in the underlying litigation.” Id.
at 5. To establish the apparent falsehood of the Affidavit, Nationwide relies
substantially on the mysterious Spreadsheet it anonymously received.3 This
Nationwide also contends DRHI-B and its counsel admitted to knowing the
Affidavit is false. (See Docs. 81, p. 2; 86, p. 4). Having reviewed the evidence
submitted, the Court determines DRHI-B and its counsel did not make such
an admission. DRHI-B, through counsel, stated, “Your contention that [Riis’s]
affidavit is ‘false’ and in violation of [Rule] 56(h) (e.g. filed in bad faith) is
incorrect.” (Doc. 81-2, p. 1). Moreover, DRHI-B’s good faith gesture to notify
Nationwide of its reevaluation of over two year’s of billing statements and the
removal of certain charges “relat[ing] directly to efforts to obtain indemnity
from Nationwide” further evidences the Affidavit was not submitted to the
Court in bad faith. Its letter to Nationwide maintains—as does its argument
to this Court—that “fees related to efforts to obtain indemnification from
other subcontractors and their carriers are compensable as related to the
defense of the Saddler action because those efforts have reduced the fees for
which Nationwide is responsible.” Id.
Spreadsheet purportedly demonstrates that Defendant’s counsel is
improperly4 claiming $15,275.20 for 64.8 hours worked, or roughly 4.16% of
the damages claimed.5 Naturally, DRHI-B disagrees with this assessment
and claims that its billing statements, as well as the Affidavit, recognize the
legal principal that defense costs are properly included in attorney’s fees and
expenses for an insurer’s duty to defend. As such, the dispute about the
falsity of the Affidavit turns upon the definition of “defense costs.”
a. The Meaning of “Defense Costs”
Nationwide correctly contends that “various jurisdictions hold that an
insurer’s duty to defend generally does not extend to pursuing an insured’s
claims for relief.” (Doc. 86, p. 5). What Nationwide does not consider,
however, are the special circumstances in which courts have extended the
duty to defend to include affirmative claims used as a defensive mechanism
Furthermore, Nationwide argues DRHI-B misrepresented its third-party
agreement with Essex because Essex did not pay a full third of the damages.
(Doc. 86, p. 7). Having reviewed the evidence Nationwide submitted, the
Court finds Nationwide has stretched the truth too far when claiming the
interrogatory answer is “at best inaccurate and at worst false.” (See id.). The
record clearly establishes Essex paid $120,710.05 of the claimed $374,662.39
billed. Nationwide did not provide the Court with a mathematical
breakdown, presumably because it knew it would look incredibly foolish. The
Court, of its own accord, calculates Essex paid 32.22% of the invoices billed.
While not technically a full 33.33%, the Court cannot find DRHI-B or its
counsel fundamentally misled the Court or Nationwide as to its arrangement
with Essex or otherwise acted in bad faith.
4 The Court notes the Spreadsheet fails to provide any methodology or other
details of how it accounted for the “improper time.” This in and of itself
renders the Spreadsheet dubious in the Court’s view.
5 The damages, as set in the Order, total $366,794.44. (Doc. 80, p. 37).
$15,275.20 equates to 4.16% of this total claim.
and strategy. As our sister court in the U. S. District Court for the District of
Colorado has thoroughly explained,
A number of cases have held that the duty to defend
includes paying for affirmative claims filed by the insured
in some circumstances. For example, when the insured
defendant files a counterclaim arising from the same facts
as part of its defense strategy, several courts have held
the insurer must pay the costs of the counterclaim as well
as the costs of directly refuting the plaintiff’s claim. See
Hartford Fire Ins. Co. v. Vita Craft Corp., 911 F. Supp. 2d
1164, 1183 (D. Kan. 2012) (holding that Hartford’s duty to
defend Vita Craft in the underlying case included the cost
of Vita Craft’s counterclaims that were inextricably
intertwined and were part of the defensive strategy to
reduce Vita Craft’s liability); Ultra Coachbuilders, Inc. v.
Gen. Sec. Ins. Co., 229 F. Supp. 2d 284, 289 (S.D.N.Y.
2002) (holding that insurer must pay the costs of insured’s
counterclaims that were “‘inextricably intertwined
with the defense of [defendant’s] claims and necessary
to the defense of the litigation as a strategic
matter’”); Oscar W. Larson Co. v. United Capitol Ins. Co.,
845 F. Supp. 458 (W.D. Mich. 1993), aff’d, 64 F.3d 1010
(6th Cir. 1995) (where prosecuting counterclaims and
cross claims is defensive and is reasonably necessary
to limit or defeat the insured’s liability, the costs are
covered as defense costs); cf. IBP, Inc. v. Nat’l Union
Fire Ins. Co. of Pittsburgh, PA, 299 F. Supp. 2d 1024, 1031
(D.S.D. 2003) (defendant’s cross claim against plaintiff in
a separate law suit was “in essence IBP’s answer to
Tyson’s complaint in Arkansas,” and thus fell within the
duty to defend).
The facts of the present case admittedly distinguish it
from those cases. Here we are dealing not with
counterclaims against the plaintiff but with third-party
claims against the subcontractors. [A witness] testified
that insurers are often willing to pay those costs, and it is
not difficult to imagine at least one situation where that
would make perfect sense. Suppose, for example, Trimark
had its own insurance. Because Trimark’s insurer in that
hypothetical may well be liable to indemnify as well as to
defend Trimark, it might be eager to fund an effort to
pass the indemnification burden through to the
subcontractors by means of third-party contribution
claims, at least where Trimarks’ insurer is not also the
insurer of a subcontractor.
But that, too is not the case. Here, under Trimark’s
theory, Mountain States (and other insurers) would be
paying the lawyers on both sides of the third-party claims.
Trimark created the situation by insisting that the
subcontractors provide the insurance rather than
providing its own insurance. Neither the parties nor the
Court found any case on point. The one case that tends to
be the most supportive of Trimark’s position is Great West
Casualty Co. v. Marathon Oil Co., 315 F. Supp. 2d 879
(N.D. Ill. 2003).
D.R. Horton, Inc.-Denver v. Mountain States Mut. Cas. Co., 69 F. Supp. 3d
1179, 1198–1200 (D. Colo. 2014) (emphasis supplied). The Colorado court
continues in its analysis of Great West and concludes,
At the end of the day, it seems to me that the simple
answer is that if Mountain States owes Trimark a
defense, and if Trimark’s pursuit of third-party claims
against the subcontractors was a reasonable defense
strategy (which Mountain States has never disputed),
then those costs are part of the defense costs.
Id. at 1200. Just as our sister court adopted the reasoning of Great West, so
shall this Court, for reasons explained below.6
In doing so, this Court recognizes the longstanding principal of law that an
insurer which “breaches its duty to defend or unjustifiably refuses to defend
its insured . . . forfeits control of the suit to the insured and may be held
liable to its insured for costs incurred in providing its own defense.” Roger
Kennedy Constr., Inc. v. Amerisure Ins. Co., 506 F. Supp. 2d 1185, 1196 (M.D.
Fla. 2007); see also RESTATEMENT OF THE LAW OF LIABILITY INSURANCE § 19
DD (2015). Given that Nationwide refused to defend DRHI-B in the
underlying action, it cannot now claim dissatisfaction with how DRHI-B
defended itself. As the issue of whether Nationwide breached its contract or
In Great West, 315 F. Supp. 2d 879 (N.D. Ill. 2003), Heidenreich
Trucking Company picked up oil from Marathon Oil Company’s terminals. In
doing business, the companies agreed Heidenreich would defend and
indemnify Marathon for any claims arising out of the presence of
Heidenreich’s drivers at the terminals, except for claims “arising solely out of
[Marathon’s] negligence.” Heidenreich had a commercial general liability
policy with Great West and named Marathon as an additional insured on
that policy. This additional insured endorsement covered Marathon “only if
[it is] liable for the conduct of [Heidenreich] and only to the extent of that
liability.” In a tragic accident, a Heidenreich employee, Mr. Howe, was killed
at the Marathon terminal. Mr. Howe’s estate sued Marathon, alleging its
negligence caused his death. Marathon filed a third-party complaint for
indemnification and contribution against Heidenreich. After finding Great
West had a duty to defend Marathon against the estate’s claims, the court
concluded, based upon thorough research, “the authority appears virtually
uniform in holding that there is a class of affirmative claims which, if
successful, have the effect of reducing or eliminating the insured’s liability
and that the costs and fees incurred in prosecuting such ‘defensive’ claims are
encompassed in an insurer’s duty to defend.” Id. at 881.
The cases—some of which Nationwide relies upon in rebutting DRHIB’s arguments—in which courts have decided the counterclaims or crossotherwise had a duty to defend is still a triable issue (see Doc. 80), this Court
will not discuss this further.
claims are not defense costs but rather are affirmative actions on the part of
the insured are readily distinguishable from those in which the courts hold
these costs constitute defensive costs. For example, Nationwide cites to
International Insurance Co. v. Rollprint Packaging Products, Inc., 728 N.E.2d
680 (Ill. App. Ct. 2000), to support the proposition that the duty to defend
generally does not extend to cover the insured’s affirmative claims for relief.
Great West Casualty Company also cited to Rollprint to support its claim
that it did not owe fees and expenses for any affirmative actions on the basis
of its insured. As did the court in Great West, this Court easily distinguishes
Rollprint: The counterclaim Rollprint sought to include was characterized as
an “offensive” claim as it was a declaration as to its ownership of trade
secrets. See Rollprint, 728 N.E.2d at 694. In Great West, the U. S. District
Court for the Northern District of Illinois accurately and appropriately
summarized the leading case law on this point, and this Court adopts its
The distinction recognized in Rollprint appears to
represent the general rule. In Safeguard Scientifics, Inc.
v. Liberty Mutual Ins. Co., 766 F. Supp. 324, 334 (E.D. Pa.
1991), aff’d in part rev’d in part, 961 F.2d 209 (3d Cir.
1992) (without reported opinion), the court ruled broadly
that the insurer’s duty to defend extended to the litigation
of non-compulsory counterclaims “inextricably
intertwined with the defense” of the covered claims. In
Oscar W. Larson Co. v. United Capitol Insurance Co., 845
F. Supp. 458, 461 (W.D. Mich. 1993), cited in Rollprint,
the court ruled that with respect to expenses relating to
claims for affirmative relief, they are encompassed by the
duty to defend if they are “expenses which are reasonable
and necessary to limit or defeat liability.” In TIG
Insurance Co. v. Nobel Learning Communities, Inc., 2002
WL 1340332, at *1 (E.D. Pa. June 18, 2002), Nobel sued
Dr. Levy, the previous owner of its assets, seeking a
declaration of the parties' respective intellectual property
rights. Levy and his associated entities counterclaimed for
copyright infringement. In holding that Nobel's insurer
had a duty to defend its affirmative claims, the court
employed the same analysis, stating, “Although few
courts have addressed the issue of an insurer's liability for
affirmative claims by the insured, the courts that have
found liability have done so where the claims could ‘defeat
or offset liability.’ ” Id. at *14, quoting Safeguard
Scientifics, 766 F. Supp. at 333–34.
The issue was also discussed in Perchinsky v. State, 232
A.D. 2d 34, 660 N.Y.S.2d 177 (N.Y. App. Div. 1997).
There, an employee of Lemon Enterprises, Inc. (“Lemon
Enterprises”) which had been hired by Todd's Kite World
(“Kite World”), which in turn had been hired by Granny
“G” Productions, Inc. (“Granny ‘G’ ”), to decorate an
armory for a Lions Club home show, fell and was injured
in the course of installing wiring. The employee sued the
Lions Club and Granny “G,” who in turn commenced
third-party actions against Kite World and Lemon
Enterprises for contribution and/or indemnity. Granny
“G” had an indemnification agreement with the Lions
Club, pursuant to which the Lions Club sought
indemnification for the costs and counsel fees it incurred
in pursuing its third-party actions against Kite World and
Lemon Enterprises. The court, while noting that the
Lions Club could not recover for the expense of enforcing
its contractual right to indemnification against Granny
“G,” ruled that the Lions Club was entitled not only to its
costs of defense in the main claim, but its costs in
pursuing the third-party actions against Kite World and
Lemon Enterprises “because the filing of the third-party
actions was an essential component of the defense of the
main action . . . .” Id. at 181.
Great West has attempted to distinguish each of these
authorities, or to argue that it is not binding authority,
but it has come forward with not a single case that
supports its argument that the duty to defend does not
encompass fees and costs incurred in counterclaims or
third-party actions aimed at shifting liability for the claim
as to which the duty to defend exists. “Defense” is about
avoiding liability. Claims and actions seeking third-party
contribution and indemnification are a means of avoiding
liability just as clearly as is contesting the claims alleged
to give rise to liability. A duty to defend would be nothing
but a form of words if it did not encompass all litigation
by the insured which could defeat its liability, including
claims and actions for contribution and indemnification.
Great West, 315 F. Supp. at 882–83.
Having considered the case law in other jurisdictions and the relevant
principals of Alabama law, the Court finds the fees and expenses relating to
DRHI-B’s counsel’s efforts to demand indemnification from third parties and
other third party settlements are appropriately categorized as “defense costs”
for the Saddler action and are thus properly included in its claim for
damages. As such, the Court holds Mr. Riis’s Affidavit is not patently false or
otherwise submitted in bad faith. The Court, therefore, finds it proper to
DENY Nationwide’s motion to alter or amend (Doc. 81) and will neither issue
sanctions to DRHI-B or its counsel nor strike the Affidavit. Further, the
Court declines to reconsider Nationwide’s motion to preclude evidence of
contract-related damages, as the Affidavit and other evidence in the record
amply evidence DRHI-B’s damages. Notwithstanding this judgment, the
Court hereby COMPELS DRHI-B to provide unredacted copies of the
invoices and fee statements to Nationwide and to update its final calculation
of damages it will seek at trial, keeping in mind the Court’s reduction of
damages in the Order. The Court further ORDERS these statements, as
provided, will be subject to the Protective Order (Doc. 48) entered in this case.
B. Nationwide’s Motion to Partially Alter or Amend Order Denying
Motion for Summary Judgment
On a motion based upon Rule 59(e), Nationwide “‘must demonstrate a
justification for relief so compelling that the district court was required to
grant [the] motion.’” Maradiaga, 679 F.3d at 1291 (internal citation omitted).
In this case, however, Nationwide merely points to evidence that was in the
record that it believes counters the Court’s ruling and reasoning. (See Docs.
82, pp. 2–5; 87, pp. 3–6). Rule 59(e) motions are not intended “to give the
moving party another ‘bite at the apple’ by permitting the arguing of issues
and procedures that could and should have been raised prior to judgment.”
Mincey, 206 F.3d at 1137 n. 69; see also Groover v. Michelin N. Am., Inc., 90
F. Supp. 2d 1236, 1256 (M.D. Ala. 2000) (“Additional facts and arguments
that should have been made in the first instance are not appropriate grounds
for a motion for reconsideration.”).
Even if appropriately raised, Nationwide’s arguments do not persuade
the Court that a material issue of fact does not exist such that summary
judgment could be granted in its favor. After a thorough reexamination of the
record, including Ms. Thomas’s log notes (Docs. 71-38, 71-39) and the
information DRHI-B submitted to Nationwide September 2014 (Doc. 61-2),
the Court stands by its original analysis. As early as June 26, 2014, Ms.
Thomas advised Agent Kilgro, “there’s no cov[erage] under the GL policy for
this [Worker’s Compensation] loss so there would be no cov[erage] for
ANYONE – ins[ure]d, [Additional Insured], etc[.] – if there’s no cov[erage],
there’s no cov[erage].” (Doc. 71-39, p. 8). Numerous entries throughout
Thomas’s logbook indicate she had resolved DRHI-B did not have any
endorsement for ongoing operations under the policy in effect, despite her
claims that she would investigate this issue further. (See id. at pp. 2–5; Doc.
71-38, pp. 24–25, 29, 36–38).
Looking at the information she received from DRHI-B’s counsel before
the filing of the instant action, the Court once again concludes a reasonable
jury could infer Nationwide acted in bad faith by conducting only surface
level inquiries into why DRHI-B had received a certificate of insurance with
the incorrect policy information printed on it.7 The record clearly shows
DRHI-B, through counsel, submitted a Certificate of Insurance for the
August 2013 through August 2014 period with policy number ACP GLGO
2304496714. (Doc. 61-2, p. 3). Four of the attached endorsements contained
this same policy number and indicated coverage for both ongoing and
completed operations. Id. Upon receipt, Ms. Thomas merely informed DRHIThe Court recognizes it made a small but significant typographical error in
its original Order by stating “certificates” instead of “certificate.” (See Doc. 80,
p. 35). The Court now corrects itself and finds that a reasonable fact finder
could interpret Nationwide’s refusal to acknowledge the certificate of
insurance and the attached endorsements that contradicted its internal
information as more than “mere negligence or mistake” but as an attempt to
avoid coverage. To be perfectly clear, the Court only considered the
documents DRHI-B, through counsel, submitted prior to the extensive
discovery in this case at arriving at this conclusion in the instant Order and
in its original Order.
B’s counsel that, “it appears the policy number and dates on the certificates
on insurance do not match up.” (Doc. 61-3). She further informed counsel, “To
make a long story short, the policy that was in force at the time of this
accident, assuming the 5/16/13 date is correct, has only one additional
insured endorsement on it, and it’s for completed operations only. As this was
not a completed operation, that additional insured endorsement would not be
applicable to the loss.” Id. In effect, the evidentiary record in full
demonstrates facts that could lead a reasonable jury to determine that
Nationwide did not fully investigate why the certificate of insurance DRHI-B
sent to Thomas contained at least one notable error (that of the mismatched
policy numbers). (See also Doc. 71-9, pp. 2, 54). Moreover, the Court has
already noted sound Alabama law in this area, which requires errors in
representing policy coverage to be construed against the insurer. See Am. and
Foreign Ins. Co., Inc. v. Tee Jays Mfg. Co., Inc., 699 So. 2d 1226, 1228 (Ala.
1997); Waikar v. Royal Ins. Co. of Am., Inc., 765 So. 2d 11, 15 (Ala. Civ. App.
1999). As such, the Court stands firm behind its original reasoning and
analysis, despite its one scrivener’s error (see n. 7), and thus deems it proper
to DENY Nationwide’s motion to partially alter or amend (Doc. 82).
Upon reviewing Nationwide’s apocryphal evidence suggesting the
falsity of Mr. Riis’s Affidavit and the full and expanded evidentiary record
relating to DRHI-B’s claim for damages, the Court once again declines to
strike the Affidavit and will not revisit Nationwide’s motion to preclude
damages. The Court finds Nationwide’s allegations of falsity and bad faith to
be unfounded on the basis that law across this nation characterizes the fees
and expenses it complains of as “defensive costs.” Having reexamined the
facts and evidence and engaged, anew, in substantially the same analysis as
it did in its original Order, the Court determines it did not commit a clear
error in denying summary judgment as to DRHI-B’s counterclaim for bad
faith. In so concluding, the Court determines Nationwide has failed to
demonstrate “extraordinary circumstances” requiring further reconsideration
of this Court’s Order.
The Court, therefore, deems it proper to DENY Nationwide’s motions
to alter or amend the Order as issued in Document 80 (Docs. 81, 82). In light
of the concluded settlement in the underlying Saddler action, the Court
further COMPELS DRHI-B, through counsel, to produce unredacted copies
of its fee statements to Nationwide within thirty (30) days of the issuance of
this Order and ORDERS these documents to be placed under the Protective
Order (Doc. 48) issued in this case.
DONE and ORDERED this 18th day of November, 2016.
/s/ Callie V. S. Granade
SENIOR UNITED STATES DISTRICT JUDGE
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