Canal Insurance Company v. Montello, Inc.
Filing
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OPINION AND ORDER by Judge John E Dowdell ; accepting 274 Report and Recommendation; denying 201 Motion for Attorney Fees; denying 204 Motion for Attorney Fees; denying 213 Motion for Attorney Fees; denying 214 Motion for At torney Fees; finding as moot 246 Appeal of Clerk's Taxation of Costs; denying 247 Appeal of Clerk's Taxation of Costs; denying 248 Appeal of Clerk's Taxation of Costs; denying 249 Appeal of Clerk's Taxation of Costs (Re: 182 Opinion and Or der,,, Striking/Withdrawing Document(s),,, Ruling on Motion for Miscellaneous Relief,,, Ruling on Motion for Summary Judgment,,, Ruling on Joinder in Motion,,,,,,,,,,,, Ruling on Motion for Partial Summary Judgment,, 196 Opinion and Order, Dismissing/Terminating Case, 136 Opinion and Order,, Striking/Withdrawing Document(s),, Ruling on Motion for Summary Judgment,, Ruling on Motion to Strike,, Ruling on Motion for Partial Summary Judgment,,, ) (SAS, Chambers)
IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OKLAHOMA
CANAL INSURANCE COMPANY,
Plaintiff,
v.
MONTELLO, INC.,
Defendant/Third Party Plaintiff,
v.
HARTFORD FINANCIAL SERVICES
GROUP, INC., et al.,
Third-Party Defendants.
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Case No. 10-CV-411-JED-TLW
OPINION AND ORDER
I.
Background
The factual and procedural background of this litigation is set forth in United States
District Judge James H. Payne’s summary judgment orders (Doc. 136, 182) and order of
dismissal (Doc. 196) and the Report and Recommendation (R&R) (Doc. 274) entered by United
States Magistrate Judge T. Lane Wilson.
In short, the issue as to Canal and Houston General (the parties objecting to the R&R)
was whether either of them, as excess insurers, had a duty to “drop down” to assume the defense
and indemnity obligations of Montello, Inc.’s primary liability insurer, The Home Insurance
Company, which was previously declared insolvent. Judge Payne predicted that Oklahoma
would follow the majority rule that excess insurers’ policies do not “drop down” upon a primary
insurer’s insolvency, and he entered summary judgment in favor of the excess insurers. (See
Doc. 136, 182). Judge Payne subsequently found that the remaining coverage issues were
dependent upon contingencies that may not occur, and he thus dismissed the remainder of the
action because there was no longer a justiciable case or controversy. (Doc. 196).1
Following Judge Payne’s entry of Judgment, Canal Insurance Company (Canal), Houston
General Insurance Company (Houston General), Scottsdale Insurance Company (Scottsdale),
Continental Casualty Company (Continental), and Hartford Financial Services Group, Inc.
(Hartford) and Twin City Fire Insurance Company (Twin City) moved for attorneys’ fees (Doc.
201, 204, 207, 213, 214), and all but Continental filed Bills of Costs (Doc. 198, 208, 210, 211).
The Clerk awarded costs to be taxed against Montello, Inc. (Montello) and in favor of Hartford
and Twin City (Doc. 242), Canal (Doc. 243), Houston General (Doc. 244), and Scottsdale (Doc.
245). Hartford and Twin City later entered a Stipulation (Doc. 259), whereby Hartford and Twin
City waived their rights as to the Order on Bill of Costs (Doc. 242), and Montello withdrew its
appeal of that Order (Doc. 246). In addition, Hartford and Twin City withdrew their motion for
fees (Doc. 207).
Now before the Court for consideration are Judge Wilson’s R&R (Doc. 274), objections
thereto by Canal (Doc. 275, 276) and Houston General (Doc. 277), and Montello’s response to
the objections (Doc. 279).
In the R&R, Judge Wilson recommended that the Court: (1)
determine that the insurance companies are not entitled to attorneys’ fees and costs under Okla.
Stat. tit. 36, § 3629(B); (2) deny the motions for attorneys’ fees filed by Canal (Doc. 201),
Houston General (Doc. 204), Scottsdale (Doc. 213), and Continental Casualty (Doc. 214); and
(3) deny Montello’s appeals (Doc. 246, 247, 248, and 249) of the Clerk’s Orders taxing costs
against Montello and in favor of Canal, Houston General, Scottsdale, Twin City, and Hartford
(Doc. 242, 243, 244, and 245).
1
The Tenth Circuit recently affirmed those decisions in all respects. See Canal Ins. Co. v.
Montello, Inc., __ F. App’x __, 2015 WL 7597429, at *1 (10th Cir. Nov. 27, 2015).
2
Canal and Houston General filed Objections to Judge Wilson’s R&R. (Doc. 275-277).
Scottsdale and Continental Casualty Company did not object to the R&R or the recommended
disposition of their motions for fees, and Montello likewise did not object to the R&R’s
recommendations to deny Montello’s appeals of the Clerk’s Orders on costs. Accordingly, there
has been no objection to the R&R as it applies to Doc. 213, 214, 246, 247, 248, or 249.
II.
Standard of review
Consistent with Fed. R. Civ. P. 54(d)(2)(D), the motions for attorneys’ fees were referred
to Judge Wilson. Pursuant to Rule 54(d)(2)(D), a motion for fees is to be treated “as if it were a
dispositive pretrial matter” under Fed. R. Civ. P. 72(b). Accordingly, this Court’s review of the
R&R is governed by the standard set forth in Rule 72(b), which provides in relevant part that
“[t]he district judge must determine de novo any part of the magistrate judge’s disposition that
has been properly objected to [and] may accept, reject, or modify the recommended disposition;
receive further evidence; or return the matter to the magistrate judge with instructions.” Fed. R.
Civ. P. 72(b)(3).
III.
Analysis
A.
Fee Motions
Both Canal and Houston General filed objections on the same grounds, and their
arguments will be addressed together. They argue that Judge Wilson erred in finding that Canal
and Houston General did not satisfy the procedural and substantive requirements of the statute
under which they seek fees because their motions did not include either the policy language
governing notice of proof of loss or the document(s) they claimed to constitute the proof of loss.
The statute provides in relevant part as follows:
B. It shall be the duty of the insurer, receiving a proof of loss, to submit a written
offer of settlement or rejection of the claim to the insured within ninety (90) days
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of receipt of that proof of loss. Upon a judgment rendered to either party, costs
and attorney fees shall be allowable to the prevailing party. For purposes of this
section, the prevailing party is the insurer in those cases where judgment does not
exceed written offer of settlement. In all other judgments the insured shall be the
prevailing party. If the insured is the prevailing party, the court in rendering
judgment shall add interest on the verdict at the rate of fifteen percent (15%) per
year from the date the loss was payable pursuant to the provisions of the contract
to the date of the verdict.
Okla. Stat. tit. 36, § 3629(B).
Judge Wilson noted that the statute requires that insurance companies establish the
required elements of the statute in order to recover fees and construed the statute to require proof
of the following: “(1) that Montello provided them with proof of loss; (2) that the insurance
companies provided either a written offer of settlement or rejection of the claim within ninety
days of the proof of loss; and (3) that the insurance companies prevailed in the litigation.” (Doc.
274 at 11 (citing § 3629(B)). While the insurance companies were the prevailing parties, Judge
Wilson found that the insurers had not established the other elements so as to entitle them to
attorney fees under the statute.
Citing Stauth v. National Union Fire Ins. Co., 236 F.3d 1260 (10th Cir. 2001), Canal and
Houston General argue that § 3629(B) does not require such proof of loss in a case such as this,
where Canal filed for declaratory judgment and Montello asserted third party claims against the
insurers. Essentially, they assert that the requirements are met by the initiation of this action and
Montello’s third-party claims.
The Court has reviewed Stauth and agrees with Judge Wilson’s analysis that the case
does not support the arguments made by Canal and Houston General here. (See Doc. 274 at 6, 912). Moreover, Judge Wilson correctly noted that the fee motions of Canal and Houston General
did not include all of the information necessary to establish entitlement to fees under § 3629(B),
as they did not provide any proof of loss by Montello and did not provide information by which
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the Court could determine that the insurance companies provided either a written offer of
settlement or a rejection within 90 days of any proof of loss. Under Oklahoma law, these are
prerequisites which must be established in order to be entitled to fees under § 3629(B). See, e.g.,
Spears v. Shelter Mut. Ins. Co., 73 P.3d 865, 870 (Okla. 2003) (insurer who prevailed on
coverage dispute was not entitled to fees under § 3629 because its “motion for attorney’s fees did
not demonstrate that defendant submitted a written offer of settlement or rejection of the claim to
[the insureds] within ninety days of receipt of a proof of loss.”); see also American Commerce
Ins. Co. v. Harris, 664 F. Supp. 2d 1220, 1221-22 (E.D. Okla. 2009).
The Court declines the insurers’ invitations to hold that declaratory judgment pleadings,
alone, are sufficient to satisfy the proof of loss and timely offer of settlement or rejection
requirements of § 3629(B) under the facts here. To so hold would be to judicially bypass the
plain requirements of the statute and expand the statute to provide for an award of attorney fees
to the prevailing party in virtually all insurance-related litigation. Oklahoma law does not
support that result. See Spears, 73 P.3d at 870.
Canal has now attached to its Objection a “reservation of rights and coverage position”
letter dated February 22, 2008, which it sent to Montello’s counsel.
(Doc. 275-1).
That
document was not submitted as part of Canal’s motion for fees, and Canal does not indicate if, or
where, the letter was previously made a part of the record. (See id.). The Court declines to
undertake a search of the voluminous record to determine whether the letter has ever before been
submitted at any time since the inception of this litigation in 2010. In any event, assuming that
the letter has been timely provided for consideration, the Court is not persuaded that the
reservation of rights letter establishes the requisite proof of loss or a timely rejection or
settlement offer. Montello has argued that it did not provide any proof of loss, but rather that it
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merely provided notice of claims in order to protect its right to later seek indemnity if its
liabilities exceeded the limits of its primary insurance. Canal’s reservation of rights letter is at
least partly consistent with Montello’s position, as Canal noted in that letter that it had been “put
on notice” of a number of lawsuits against Montello, but that Montello had not specifically
requested that Canal assume the primary defense of Montello. (See Doc. 275-1 at 1, first
paragraph).
In addition to requesting that the Court award fees associated with the litigation in the
district court, Canal and Houston General also request an award of their fees incurred on appeal.
(See Doc.275 at 4; Doc. 277 at 3). After receipt of the R&R, Canal and Houston General also
filed a Joint Application for appellate fees in the Tenth Circuit. Like their objections to the R&R
in this Court, their Joint Application to the appellate court was premised upon Okla. Stat. tit. 36,
§ 3629(B) and arguments that Stauth authorizes an award of fees to Canal and Houston General
in this declaratory judgment action. They also argued that Judge Wilson’s R&R was entered
contrary to Stauth. Thus, they requested that the Tenth Circuit “conditionally approve the award
of reasonable attorney fees on appeal, subject to the District Court’s ruling on their objections to
the R&R ... [and] remand the case to [the District Court] to determine whether [Canal and
Houston General] are entitled to fees pursuant to § 3629(B), and if so, the amount of reasonable
fees, including fees associated with the appeal.”
The Tenth Circuit recently ruled on the Joint Application of Canal and Houston General,
and denied it:
[Canal and Houston General] ask this court to find that they are entitled to
an award of their appeal-related attorneys’ fees. The basis for the requested
award is a provision in the Oklahoma Insurance Code, Okla. Stat. tit. 36, §
3629(B). [Montello] filed a response opposing the motion.
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Upon consideration of the Joint Application, the Response of Montello,
Inc. in opposition, and the applicable law, we find that Canal and Houston
General have not established that they are entitled to their appeal-related
attorneys’ fees. Accordingly, the Joint Application is denied.
(1/6/2016 Order by Judges Kelly, Lucero, and Phillips, in appeal No. 14-5039). Upon de novo
review, the undersigned has likewise concluded that Canal and Houston General have not
established that they are entitled to an award of fees – either trial or appellate fees – under §
3629(B).
B.
Taxation of Costs
As noted, Montello did not object to the R&R, in which Judge Wilson recommended that
the Court deny Montello’s appeals of the Clerk’s Orders awarding costs. (Doc. 246, 247, 248, or
249). Nonetheless, the Court has conducted a de novo review of the R&R, the filings associated
with the costs awarded, and the Clerk’s Orders (Doc. 242, 243, 244, and 245) and finds that the
costs awarded were appropriate, and Judge Wilson’s analysis thereof was correct. The Court
will accordingly accept the R&R’s recommendation to deny Montello’s appeals (Doc. 247, 248
and 249) and to accept the stipulation between Montello and Hartford and Twin City (Doc. 259).
Because Hartford and Twin City waived their rights as to the costs awarded in their favor and
Montello withdrew its appeal of that cost order in the stipulation filed by those parties (see Doc.
259), the Court finds that the better course is to deem that appeal (Doc. 246) withdrawn and
therefore moot.
IV.
Conclusion
For the foregoing reasons, the objections filed by Canal and Houston General are hereby
overruled, and the Court accepts the findings, conclusions, and recommendations of the R&R
(Doc. 274). The motions for attorney fees (Doc. 201, 204, 213, 214) and the appeals of the
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Clerk’s Orders on costs (Doc. 247, 248, and 249) are hereby denied. The stipulation (Doc. 259)
is hereby accepted, and the appeal at Doc. 246 is deemed moot.
SO ORDERED this 5th day of February, 2016.
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