Nelson et al v. American Home Assurance Company

Filing 145

ORDER granting in part 139 Motion for Attorney Fees. (Written Opinion). Signed by Judge Richard H. Kyle on 03/01/12. (kll)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Curtis and Ethel Nelson,
Plaintiffs,
Civ. No. 11-1161 (RHK/FLN)
ORDER
v.
American Home Assurance Company,
Defendant.

This insurance-coverage dispute is before the Court for the third time. Previously,
the Court determined that Defendant American Home Assurance Company (“American
Home”) (1) owed no duty to indemnify Plaintiffs for damages arising out of related statecourt litigation, see Nelson v. Am. Home Assurance Co., 2011 WL 4640889 (D. Minn.
Oct. 5, 2011), but (2) did owe a duty to defend in that action, which American Home had
breached, see Nelson v. Am. Home Assurance Co., 2011 WL 6151519 (D. Minn. Dec.
12, 2011). The Court also determined that Plaintiffs were entitled to an award of
attorneys’ fees and costs incurred establishing American Home’s breach of the duty to
defend. See id. at *5. Presently before the Court is Plaintiffs’ Motion for such an award
(Doc. No. 139), in which they seek nearly $160,000 in fees and costs. For the reasons
that follow, Plaintiffs’ Motion will be granted in part.
The background in this action is set forth in detail in the Court’s prior opinions
and will not be repeated here; familiarity with that background is presumed. In its most
recent Order, the Court determined that Plaintiffs were entitled to recover fees and costs

incurred establishing American Home’s breach of the duty to defend, but not expenses
incurred litigating the duty to indemnify. Both sides agree that such an award must be
limited to reasonable fees and costs (see Pl. Mem. at 4; Def. Mem. at 4), in accordance
with Minnesota law, see, e.g., Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724,
738-39 (Minn. 1997).
Plaintiffs argue that they reasonably expended $159,541.22 establishing American
Home’s breach of the duty to defend. 1 They have broken down such expenses into two
categories: (1) fees and costs incurred before the Court’s decision on the duty to
indemnify ($72,382.24), at which point both the duty to defend and the duty to indemnify
were in question, and (2) fees and costs incurred after the Court’s decision on the duty to
indemnify ($87,158.98), at which point only the duty to defend remained at issue. There
are at least two problems with Plaintiffs’ argument.
First, the Court has already counseled Plaintiffs that they “may not recover fees
and costs incurred litigating the [indemnity] issue, which has already been decided
against them.” Nelson, 2011 WL 6151519, at *5. Yet, their first requested category of
fees includes amounts expended litigating both the duty to indemnify and the duty to
defend. To be sure, Plaintiffs have attempted to “fair[ly] apportion” those fees between
the two duties, reducing by half the amount they expended before the Court ruled that
1

Plaintiffs also seek (1) $4,931 in defense costs incurred in the underlying action and
(2) prejudgment interest on that amount, and American Home does not appear to challenge
Plaintiffs’ entitlement to either. Under Minnesota law, the appropriate prejudgment interest rate
is 10%, calculated from “the date the request for payment . . . was made to the insurer” to the
date the judgment is entered. Minn. Stat. § 60A.0811. Accordingly, Plaintiffs may recover
prejudgment interest from May 4, 2011 (the date they filed this action) to the date judgment is
entered; assuming that is the same date as this Order, the Court calculates prejudgment interest as
$403.41 ($4,931 x 303 days at a rate of .027% per day).
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they had failed to establish a duty to indemnify. (See Pl. Mem. at 3-4.) Yet, Plaintiffs
offer no justification for their ad hoc 50% reduction, and the Court finds such a reduction
inadequate.
In the undersigned’s view, Plaintiffs undertook a “scorched earth” approach to this
case, litigating the narrower (and more complex) duty to indemnify before the broader
(and significantly more straightforward) duty to defend. The duty to defend “is triggered
when a complaint alleges claims arguably falling within the scope of the policy.” Nelson,
2011 WL 6151519, at *2 (emphases deleted). To determine whether such a duty exists, a
court need only “compare the allegations in the complaint in the underlying action with
the relevant language in the insurance policy.” Meadowbrook, Inc. v. Tower Ins. Co.,
559 N.W.2d 411, 415 (Minn. 1997) (emphases in original). Hence, Plaintiffs could have
sought a ruling on the duty to defend as soon as they filed this action, without discovery
or Motion practice – that is, without incurring significant expense. Instead, they opted to
litigate the wholly distinct – but far more difficult – question of indemnification, likely
because their potential recovery on that issue was significantly higher. They should not
be rewarded for that ill-advised tactical decision. See, e.g., Hensley v. Eckerhart, 461
U.S. 424, 434-35 (1983) (fees should not be awarded for time expended on unrelated and
unsuccessful claim).
Second, a reasonable fee is calculated using the “lodestar” method, multiplying the
reasonable number of hours expended by a reasonable hourly rate and then adjusting the
result upward or downward as appropriate. See, e.g., Domtar, 563 N.W.2d at 741. Two
key considerations regarding the reasonable number of hours expended and the
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reasonableness of the hourly rates charged are (1) the difficulty of the issue presented and
(2) the results obtained. These factors militate strongly against the fees and costs sought
by Plaintiffs here.
As noted above, the duty-to-defend issue was a simple one that should not have
required a significant number of hours to litigate, and certainly not the 550 hours for
which Plaintiffs now seek reimbursement. Nor should that issue have necessitated the
involvement of five separate attorneys, including one who billed as much as $480 per
hour, as Plaintiffs’ fee request indicates. Moreover, despite their success on the duty to
defend, the amount Plaintiffs could recover (and did recover) for breach of that duty was
relatively small, just under $5,000. While it is not necessarily improper to award fees and
costs exceeding the amount recovered on a claim, “[t]he amount of damages a plaintiff
recovers is certainly relevant to the amount of attorney’s fees to be awarded.” City of
Riverside v. Rivera, 477 U.S. 561, 574 (1986); see also Milner v. Farmers Ins. Exch., 748
N.W.2d 608, 623 (Minn. 2008) (“The court should focus on whether the hours expended
are reasonable in relation to the overall relief obtained.”); Holt v. Swenson, 90 N.W.2d
724, 729 (Minn. 1958) (noting “the amount involved” is properly considered in setting
reasonable fee).
For these reasons, and based on all of the factors relevant to an award of
reasonable fees and costs, see Milner, 748 N.W.2d at 621, the Court concludes that
Plaintiffs should recover $27,000 for establishing American Home’s breach of the duty to
defend. Such an award – which equates to 75 hours of work at the average hourly rate of

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$360 for Plaintiffs’ five attorneys – is, in the Court’s view, “reasonable in relation to the
results obtained.” Id. at 624 (quoting Hensley, 461 U.S. at 440).
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
ORDERED that Plaintiffs’ Motion for Attorney Fees and Costs Award (Doc. No. 139) is
GRANTED IN PART. Plaintiffs shall recover of Defendant American Home Assurance
Company the sum of $32,334.41, comprising $4,931 in compensatory damages, $403.41
in prejudgment interest, and $27,000 in attorneys’ fees and costs.
Judgment shall be entered in favor of Plaintiffs and against American Home in the
amount of $32,334.41.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: March 1, 2012

s/Richard H. Kyle
RICHARD H. KYLE
United States District Judge

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