United States Fidelity and Guaranty Company v. United States Sports Specialty Association

Filing 287

MEMORANDUM DECISION granting 274 Motion for Partial Summary Judgment. Signed by Judge Ted Stewart on 01/18/2013. (tls)

IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION

NATIONAL INDEMNITY COMPANY and
Certain Underwriters at LLOYD’S OF
LONDON who subscribed to policy numbers
D064L0074 and D064Y00423, as subrogees
of and on behalf of UNITED STATES
FIDELITY AND GUARANTEE CO., and as
subrogee of, and on behalf of UNITED
STATES SPORTS SPECIALTY
ASSOCIATION,

MEMORANDUM DECISION AND
ORDER GRANTING MOTION FOR
SUMMARY JUDGMENT
REGARDING FEES

Plaintiffs,

vs.

Case No. 2:07-CV-996 TS

NELSON, CHIPMAN & BURT, and
CLIFFORD PAYNE,
Defendants.
This matter is before the Court on Nelson, Chipman & Burt, Clifford Payne, and Lewis
Quigley’s (referred to hereinafter as “NCB”) Motion for Partial Summary Judgment Regarding
Fees.1 For the reasons discussed more fully below, the Court will grant NCB’s Motion.
I. BACKGROUND
The facts relevant to this Motion are undisputed. This action arises from an underlying
liability suit brought on behalf of a minor who was injured during an adult softball tournament.

1

Docket No. 274.
1

United States Sports Specialty Association (“USSSA”) was one of the defendants in that action.
United States Fidelity and Guarantee Co. (“USF&G”) provided insurance coverage for USSSA.
USF&G subsequently obtained reinsurance for USSSA’s policy through National Indemnity and
Certain Underwriters at Lloyd’s of London (the “Reinsurers”). NCB was engaged by USF&G to
represent USSSA.
After a jury trial, the minor obtained a verdict in the amount of $6,688,077, with 92.5%
of the fault attributed to USSSA. USF&G later settled with the minor for $4,825,000. This
settlement was well in excess of the $2,000,000 limit on USSSA’s insurance policy.
Nevertheless, the Reinsurers, through USF&G, paid the full settlement amount. USF&G then
filed the instant suit against USSSA seeking reimbursement from USSSA for the amounts it
expended beyond the policy limits. The question of reimbursement presented an issue of first
impression under Utah law that this Court certified to the Utah Supreme Court. The Utah
Supreme Court held that “there can be no extracontractual right to restitution between the insurer
and its insured.”2 USF&G and USSSA subsequently entered into a settlement agreement
whereby they agreed to mutually dismiss their claims against each other with prejudice.
The Reinsurers, as subrogees of USF&G and USSSA, now bring various legal
malpractice claims against NCB. The Reinsurers seek to recover the following fees as damages
from NCB: (1) attorney fees in the underlying action after the point at which the case could have
settled for below policy limits; (2) litigation expenses incurred by both USSSA and USF&G in
determining USF&G’s reimbursement rights for payments beyond the policy limits; and (3)
USF&G and USSSA’s litigation expenses incurred in this action. NCB argues that summary
2

Docket No. 182, at 13–14.
2

judgment is appropriate on the second and third categories of fees. In their Response, the
Reinsurers voluntarily withdraw their claim for attorney fees in the present action against NCB.
Thus, the only remaining issue to be decided in this Motion is whether the Reinsurers can recover
as damages the litigation expenses incurred by USSSA and USF&G in determining USF&G’s
reimbursement rights.
II. STANDARD OF REVIEW
Summary judgment is proper if the moving party can demonstrate that there is no genuine
dispute as to any material fact and it is entitled to judgment as a matter of law.3 In considering
whether a genuine dispute of material fact exists, the Court determines whether a reasonable jury
could return a verdict for the nonmoving party in the face of all the evidence presented.4 The
Court is required to construe all facts and reasonable inferences in the light most favorable to the
nonmoving party.5
III. DISCUSSION
“The long-standing rule in Utah is that attorney fees cannot be recovered unless provided
for by statute or contract.”6 “‘A well-established exception to this general rule allows recovery of
attorney fees as consequential damages, but only in the limited situation where the defendant’s
wrongful conduct foreseeably causes the plaintiff to incur attorney fees through litigation with a

3

Fed. R. Civ. P. 56(a).

4

See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986); Clifton v. Craig, 924
F.2d 182, 183 (10th Cir. 1991).
5

See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986);
Wright v. Sw. Bell Tel. Co., 925 F.2d 1288, 1292 (10th Cir. 1991).
6

Collier v. Heinz, 827 P.2d 982, 983 (Utah Ct. App. 1992).
3

third party.’”7 This exception to the general rule is commonly referred to as the third-party
litigation exception.
The third-party litigation exception has been applied to both contract and tort cases. In
breach of contract cases the exception applies “where the defendant’s breach of contract
foreseeably caused the plaintiff to incur attorney fees through litigation with a third party.”8 For
a loss resulting from a breach of contract to be reasonably foreseeable it “must result from the
breach in the natural and usual course of events, so that it can fairly and reasonably be said that if
the minds of the parties had adverted to breach when the contract was made, loss of such
character would have been within their contemplation.”9 In tort cases the exception applies
“when the natural consequence of one’s negligence is another’s involvement in a dispute with a
third party.”10
In the instant case, the Reinsurers bring legal malpractice claims under contract and tort
causes of action. However, both causes of action are premised on the same allegations. Namely,
that NCB failed to properly evaluate the liability of USSSA, failed to keep USSSA and USF&G
advised of potential settlement opportunities, and failed to advise USSSA and USF&G of
potential conflicts of interest.

7

Macris & Assocs., Inc. v. Neways, Inc., 60 P.3d 1176, 1179 (Utah Ct. App. 2002)
(quoting Collier, 827 P.2d at 983).
8

Collier, 827 P.2d at 983–84.

9

Pac. Coast Title Ins. Co. v. Hartford Accident & Indem. Co., 325 P.2d 906, 907 (Utah

1958).
10

S. Sanpitch Co. v. Pack, 765 P.2d 1279, 1282–83 (Utah Ct. App. 1988) (internal
citations omitted).
4

Even accepting these allegations as true, it cannot fairly and reasonably be said that a
contemplated loss resulting from NCB’s allegedly negligent acts would be the attorney fees
expended in a reimbursement action between USF&G and USSSA. The Reinsurers’ argument
requires the Court to infer that it was foreseeable that: (1) the underlying case would result in a
verdict at trial in excess of policy limits; (2) that USF&G would settle with the minor for an
amount in excess of policy limits; (3) that USSSA would refuse to pay the amount in excess of
the policy limits; and (4) that USF&G would bring suit against USSSA to determine the scope of
its coverage under the policy. Such is not the natural and usual course of events resulting from a
breach of a representation agreement entered into by an insurer and counsel retained for its
insured. Nor is it the foreseeable natural consequence of NCB’s alleged negligence.
Because USF&G’s coverage dispute with USSSA is not the foreseeable consequence of
NCB’s alleged malpractice, the Court finds that no reasonable jury could return a verdict for the
Reinsurers on their claim for attorney fees under the third-party litigation exception.
IV. CONCLUSION
It is therefore
ORDERED that NCB’s Motion for Partial Summary Judgment Against USF&G and
USSSA (Docket No. 274) is GRANTED.
DATED January 18, 2013.
BY THE COURT:

_____________________________________
TED STEWART
United States District Judge

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