Aspen Specialty Insurance Co v. Technical Industries Inc

Filing 134

MEMORANDUM RULING: Currently pending before this Court is Evanston Insurance Co's 73 Motion for Partial Summary Judgment on Technical Industries, Inc.s claim seeking the recovery of damages for Evanston's alleged bad faith. Considering the evidence, the law, and the arguments of the parties, and for the reasons fully explained herein, the motion is DENIED. Signed by Magistrate Judge Patrick J Hanna on 2/12/2015. (crt,Alexander, E)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
LAFAYETTE DIVISION
ASPEN SPECIALTY INSURANCE
COMPANY

CIVIL ACTION NO. 6:12-cv-02315

VERSUS

MAGISTRATE JUDGE HANNA

TECHNICAL INDUSTRIES, INC.

BY CONSENT OF THE PARTIES

MEMORANDUM RULING

Currently pending before this Court is Evanston Insurance Company’s motion
for partial summary judgment on Technical Industries, Inc.’s claim seeking the
recovery of damages for Evanston’s alleged bad faith. (Rec. Doc. 73). The motion
is opposed. (Rec. Doc. 85). Ruling was deferred pending oral argument on motions
filed by Aspen Specialty Insurance Company and briefing by the parties on the issue
of which state’s law should be applied in resolving the disputes presented in this
lawsuit. Oral argument was held on November 24, 2014. Considering the evidence,
the law, and the arguments of the parties, and for the reasons fully explained below,
the motion is DENIED.

BACKGROUND
The Court adopts by reference the factual background set forth in its
memorandum ruling regarding choice of law as well as its ruling that Louisiana law
applies to this case. (Rec. Doc. 123).
ANALYSIS
A.

THE APPLICABLE STANDARD
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment

is appropriate when there is no genuine dispute as to any material fact, and the
moving party is entitled to judgment as a matter of law. A fact is material if proof of
its existence or nonexistence might affect the outcome of the lawsuit under the
applicable governing law.1 A genuine issue of material fact exists if a reasonable jury
could render a verdict for the nonmoving party.2
The party seeking summary judgment has the initial responsibility of informing
the court of the basis for its motion and identifying those parts of the record that

1

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Sossamon v. Lone Star
State of Tex., 560 F.3d 316, 326 (5th Cir. 2009); Hamilton v. Segue Software, Inc., 232 F.3d 473, 477
(5th Cir. 2000).
2

Brumfield v. Hollins, 551 F.3d 322, 326 (5th Cir. 2008), citing Anderson v. Liberty
Lobby, Inc., 477 U.S. at 252; Hamilton v. Segue Software, Inc., 232 F.3d at 477.
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demonstrate the absence of genuine issues of material fact.3 If the moving party
carries its initial burden, the burden shifts to the nonmoving party to demonstrate the
existence of a genuine issue of a material fact.4 All facts and inferences are construed
in the light most favorable to the nonmoving party.5
If the dispositive issue is one on which the nonmoving party will bear the
burden of proof at trial, the moving party may satisfy its burden by pointing out that
there is insufficient proof concerning an essential element of the nonmoving party's
claim.6 The motion should be granted if the nonmoving party cannot produce
evidence to support an essential element of its claim.7
B.

ANALYSIS OF THE ISSUES PRESENTED
In this motion, Evanston argues that it is entitled to partial summary judgment

in its favor, dismissing Technical’s claims for bad faith damages. As the Court
appreciates Technical’s third-party claim against Evanston, there is a claim for breach

3

Washburn v. Harvey, 504 F.3d 505, 508 (5th Cir. 2007), citing Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986).
4

Washburn v. Harvey, 504 F.3d at 508.

5

Brumfield v. Hollins, 551 F.3d 322, 326 (5th Cir. 2008), citing Matsushita Elec. Indus.
Co. v. Zenith Radio, 475 U.S. 574, 587 (1986).
6

Norwegian Bulk Transport A/S v. International Marine Terminals Partnership, 520
F.3d 409, 412 (5th Cir. 2008), citing Celotex Corp. v. Catrett, 477 U.S. at 325.
7

Condrey v. Suntrust Bank of Ga., 431 F.3d 191, 197 (5th Cir. 2005).
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of Evanston’s contractual obligation to perform in good faith as well as a claim for
violation of the duties imposed on insurers by La. R.S. 22:1973 and La. R.S. 22:1982.
As the Louisiana Supreme Court has noted, an insurer’s statutory obligations are
separate and distinct from its contractual obligations.8

The Court interprets

Evanston’s motion as addressing the damages recoverable for breach of its statutory
duties and finds that the motion does not address any damages that Technical might
be entitled to recover for Evanston’s alleged breach of its contractual obligations.9
Evanston argues that Technical cannot prove that it sustained any damages that
might be recoverable under the cited statutes because it was fully defended in the
underlying litigation by another insurer, Aspen Specialty Insurance Company. But
Aspen’s and Evanston’s indemnification of Technical with regard to the claims
asserted in the underlying lawsuit, i.e., their sharing the funding of the settlement of
the claim asserted against Technical in the underlying lawsuit, and Aspen’s payment
of the fees incurred by the attorneys who represented Technical in the underlying
lawsuit, does not mean that Technical incurred no consequential damages in addition
to its share of the settlement fund and its defense costs. Technical argues that it

8

Durio v. Horace Mann Ins. Co., 2011-C-0084 (La. 10/25/11), 74 So.3d 1159, 1170.

9

The Court finds that Technical’s argument concerning the collateral source rule may
be relevant to its contractual claim but is not relevant to its statutory claim. Accordingly, that
argument will not be addressed further here.
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incurred consequential damages in the form of loss of business from its client North
American Interpipe, Inc. (“NAI”), increased insurance premiums, and attorneys’ fees.
Those claims are not precluded by Aspen’s having defended and indemnified
Technical in the underlying litigation. To the contrary, if it is ultimately decided by
the jury that Evanston’s failure to provide Technical with a defense in the underlying
litigation violated the duty of good faith and fair dealing imposed on Evanston by La.
R.S. 22:1973(A), Technical is entitled to recover from Evanston “any damages
sustained as a result of the breach.”10 Accordingly, the fact that Aspen provided
Technical with a defense and the fact that Aspen and Evanston funded Technical’s
share of the settlement does not mean that Technical did not sustain damages due to
Evanston’s failure to defend Technical in the underlying lawsuit.
Evanston argues that the case of Vaughn v. Franklin, 2000-0291 (La. App. 1
Cir. 03/28/01), 785 So.2d 79, is on point with this one and stands for the proposition
that Technical has sustained no damages. Although the court found, in Vaughn, that
the insureds did not sustain a loss, that case does not contain a claim by an insured
for consequential damages similar to those claimed by Technical in this case.
Therefore, Vaughn is not on point with this case. Furthermore, in Vaughn there was
no claim by an insured against its insurer; instead, there was a claim by one insurer
10

La. R.S. 22:1973(A).
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against another, each of whom owed a duty to represent certain insureds in an
underlying lawsuit but only one of whom actually did so. Accordingly, Vaughn does
not govern the issues presented in Evanston’s motion.
Evanston argues that Technical cannot prove that its alleged consequential
damage resulted from Evanston’s actions. It is axiomatic that the plaintiff bears the
burden of proving that he has sustained damages and that the damages were caused
by the acts or omissions of the defendant. Thus, with regard to Technical’s thirdparty demand against Evanston, Technical will ultimately bear those burdens, and the
jury will be tasked with deciding whether damages were sustained and, if so, in what
amount. Currently, however, there is a genuine issue of material fact concerning
whether Evanston’s alleged misrepresentation of its policy provisions and its
resulting failure to defend Technical in the underlying lawsuit caused Technical to
incur consequential damages. This factual dispute precludes partial summary
judgment in Evanston’s favor with regard to Technical’s claim for bad faith damages.
Technical alleges three types of consequential damages: lost profits due to
NAI’s substantial decrease in requests for Technical’s services, increased insurance
premiums, and attorneys’ fees.
Evanston argues that any loss in profits that Technical might have suffered was
the result of “external causes” rather than Evanston’s breach of the duties it owed its
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insured. Evanston suggests that NAI stopped doing business with Technical because
of the claim asserted in the underlying lawsuit that Technical did not properly inspect
the pipe that failed. Evanston also suggests that NAI chose to do business with
Technical’s competitors because they were less expensive and faster than Technical.
These contentions are based on deposition testimony from Technical’s corporate
representative George Sfeir. But Mr. Sfeir also testified at his deposition that NAI’s
representative told him that one of the reasons he decided not to send business to
Technical was the way the settlement of the underlying lawsuit was handled.
Therefore, Evanston did not establish that Technical cannot prove that Evanston’s
action resulted in Technical losing NAI’s business. To the contrary, there is a
genuine dispute of material fact concerning the cause of Technical’s alleged loss of
profits.
Furthermore, Technical noted in its opposition brief that the parties were in the
process of scheduling the deposition of Daniel Valk of NAI in order to obtain
testimony clarifying NAI’s position on this issue. The Court interprets this as a
showing under Fed. R. Civ. P. 56(d) that Technical needs additional facts to justify
its opposition. Consequently, the Court is entitled to deny the motion so that
additional discovery may be had with regard to this issue.

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Evanston similarly argues that Technical’s alleged increased insurance
premiums resulted from “external causes” rather than from Evanston’s actions,
precluding Technical from proving a necessary element of its claim. While Technical
argues that its insurers misreported the loss in their loss run statements, resulting in
Technical’s insurance premiums being greater than they would have been if the loss
had been properly reported, Evanston argues that the loss sustained by the insurers
in the underlying litigation justifies the premiums charged. These contrary positions
establish that there is a genuine issue of material fact as to the cause of Technical’s
increased insurance premiums which precludes summary judgment in Evanston’s
favor.
Evanston’s next argument is that Technical is not entitled to recover attorneys’
fees under La. R.S. 22:1973. Evanston cites Trinity Universal Ins. Co. v. Steven
Forestry Serv. Inc., 335 F.3d 353 (5th Cir. 2003), but that case does not mention
Section 1973 and did not hold that attorneys’ fees were not recoverable under that
statute. Evanston also cites Steptore v. Masco Const. Co., Inc., 93-2064 (La.
08/18/94), 643 So. 2d 1213, which stated that “the insurance contract did not impose
a duty on the insurer to pay attorney’s fees in connection with the insured’s pursuit
of the coverage issue. Nor are we directed to any statute providing for attorney’s fees
in this instance.” Thus, the Steptore court did not consider whether attorneys’ fees
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were recoverable under Section 1973. Evanston also relies upon the Vaughn
decision, cited above, in support of this argument. As noted previously, however,
Vaughn involved a claim by one insurer against another and did not involve a claim
for consequential damages. For those reasons, Vaughn does not govern this dispute
between an insured and its insurers concerning the cause of alleged consequential
damages. Evanston has not pointed out a single decision in which a Louisiana state
or federal court held that, under a factual scenario similar to that of this case,
presenting allegations that an insurer misinterpreted its own insurance policy, failed
to promptly initiate adjustment of a claim, and failed to provide a defense to its
insured, the insured cannot recover attorneys’ fees from that insurer as an element of
damages under Section 1973.
Evanston is essentially arguing that it should be insulated from damages in the
form of attorneys’ fees because a third party – Aspen – provided Technical with a
defense. It is an undisputed fact that Steve Grubbs was retained by Aspen to
represent Technical in the underlying litigation. It is equally undisputed that
Evanston did not provide Technical with counsel in the underlying litigation. It is
also undisputed that it was through the efforts of Gerald deLaunay, the attorney
Technical hired to monitor the underlying litigation, that Evanston’s error in
interpreting its policy was discovered. Evanston has not provided any authority for
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its position that, under this scenario, attorneys’ fees cannot be recovered as
consequential damages under Section 1973. Therefore, Evanston has not established
that it is entitled to summary judgment in its favor.
Evanston’s final argument is that, to the extent that Technical is seeking to
recover attorneys’ fees under La. R.S. 22:1892, it is limited to recovering the
attorneys’ fees it incurred in prosecuting bad faith claims under that statute. This
argument is confusing. Evanston’s motion is for partial summary judgment with
regard to Technical’s claimed bad faith damages. Such damages are recoverable for
a breach of the insurance contract or under La. R.S. 22:1973(A). As noted above, the
Court interprets Evanston’s motion as addressing statutory damages only. But
Section 1892 does not address the recovery of damages; instead, it provides for the
assessment of penalties under certain circumstances. Technical alleges, among other
things, that Evanston failed to comply with the requirements of Section 1892(A)(3),
which requires an insurer to initiate loss adjustment within fourteen days after
notification of the loss. Such a failure subjects the insurer to the penalties provided
for in Section 1973, which may include an award of double the damages sustained as
a result of the insurer’s breach of its statutory duties. Therefore, if attorneys’ fees are
recoverable as an element of damages under Section 1973, then they may be used as
a basis for calculating a penalty imposed under Section 1892. As noted above,
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Evanston has not established that attorneys’ fees are not a recoverable element of
damages under Section 1973. The Court also notes that an award of attorneys’ fees
is mandatory if it is determined that Section 1892 has been breached.11 Therefore,
Evanston has not established that Technical’s recoverable attorneys’ fees under
Section 1892 are limited to the amount of attorneys’ fees Evanston incurred in
prosecuting bad faith claims under that statute.
Whether an insurer acts in good faith is a factual determination12 that must, in
this case, be left to the jury. Similarly, whether Technical was damaged was
Evanston’s actions is a factual issue for the jury to decide. Accordingly, Evanston’s
motion for partial summary judgment with regard to Technical’s claim for bad faith
damages is denied.
Signed at Lafayette, Louisiana, this 12th day of February 2015.

____________________________________
PATRICK J. HANNA
UNITED STATES MAGISTRATE JUDGE

11

Calogero v. Safeway Ins. Co. of Louisiana, 1999-1625 (La. 01/19/00), 753 So. 2d

170, 174.
12

Dickerson v. Lexington Ins. Co., 556 F.3d 290, 300 (5th Cir. 2009).
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