Hartford Casualty Insurance v. Swapp Law et al

Filing 55

MEMORANDUM DECISION AND ORDER denying 42 Swapp Laws Motion for Partial Summary Judgment. Signed by Judge Jill N. Parrish on 8/1/2019. (jds)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
HARTFORD CASUALTY INSURANCE,
Plaintiff,
v.
SWAPP LAW, PLLC and JAMES CRAIG
SWAPP,
Defendants.

MEMORANDUM DECISION AND
ORDER DENYING COUNTERCLAIMPLAINTIFFS’ MOTION FOR PARTIAL
SUMMARY JUDGMENT
Case No. 2:17-cv-01130
District Judge Jill N. Parrish

This matter comes before the court on a Motion for Summary Judgment filed on
November 6, 2018 by Counterclaim Plaintiffs Swapp Law, PLLC and James Craig Swapp
(collectively, “Swapp Law”). Counterclaim Defendant Hartford Casualty Insurance (“Hartford”)
filed an opposition to the motion on January 3, 2019, to which Swapp Law replied on February
1, 2019. Having reviewed the parties’ memoranda and associated exhibits as well as the relevant
law, the court now DENIES Swapp Law’s Motion for Summary Judgment.
I.

STATEMENT OF FACTS

Hartford is an insurance company organized under the laws of Indiana with its principal
place of business in Connecticut. Since 2013, Hartford has provided business liability insurance
to Swapp Law, a Utah limited liability company, under a policy that was renewed annually (the
“Policy”).1 The Policy covers claims brought against Swapp Law arising from bodily injury,
property damage, or personal and advertising injury, provided that such claims do not fall under
one of the specified exclusions.
1

Although there are actually five separate policies, each covering a different year, the court refers to them
collectively as “the Policy.” The parties have stipulated that the policies are identical for the purposes of this case.
All citations will refer to the policy running from February 2016 to February 2017. See Hartford Spectrum Business
Insurance Policy (February 15, 2016 – February 15, 2017), Mot. J. Pleadings, Exhibit 4.

On August 9, 2017, Swapp Law was named as defendant in the civil action Wilcox, et. al.
v. Swapp Law PLLC, et al., Case No. 2:17-cv-275 (E.D. Wash. 2017) (the “Underlying Action”).
The Underlying Action alleges that Swapp Law violated the federal Driver’s Privacy Protection
Act (18 U.S.C. § 2721 et seq.) by purchasing accident reports from the Washington State Patrol
and using the personal information gleaned from the reports to mail motorists unsolicited Swapp
Law advertisements.
Swapp Law notified Hartford of the Underlying Action and Hartford acknowledged
receipt of the complaint in a letter dated August 15, 2017. This letter stated, in part:
At this time . . . Hartford has not yet made a determination as to whether [Swapp
Law] is entitled to coverage in connection with the [Underlying Action]. In the
interim, we suggest that you retain your own attorney to protect your interests in
this matter. In the event we determine that coverage may exist and we agree to
defend this suit, we will reimburse you only for those reasonable legal costs and
fees incurred by you for the defense of this action . . . While the issue of what
constitutes “reasonable legal costs and fees” may not be apparent to you, the legal
community doing defense work in this area is well aware of the acceptable scale.
You may wish to contact the undersigned prior to hiring an attorney since charges
considered to be above the acceptable scale could result in our not covering your
legal costs and fees in their entirety.
Two days after receiving this letter, Swapp Law signed an engagement letter with the
Lane Powell law firm to defend against the Underlying Action. The engagement agreement
included the hourly rate of the lead attorney, Barbara Duffy (“Duffy”), as well as the hourly rates
of other attorneys and paralegals within the firm.
On October 5, 2017, Hartford agreed to defend Swapp Law under a reservation of rights,
which stated that should it be determined that Hartford has no duty to provide a defense,
Hartford would “withdraw from the defense of the [Underlying Action]” and possibly “seek
reimbursement of all costs [Hartford] . . . expended in the defense.”

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On February 2, 2018, Rich Humpherys (“Humpherys”), an attorney representing Swapp
Law with respect to insurance coverage matters, provided Hartford with the rates charged by the
attorneys from Lane Powell doing most of the work on the Underlying Action: Duffy, Ryan
McBride (“McBride”), and Aaron Schaer, whose hourly rates were respectively $645, $540, and
$310. Humpherys wrote: “I understand from the insured’s defense counsel . . . that Hartford’s
rates for this kind of work is $250/hr., which is only a fraction of [Duffy’s] rate.”
On February 19, 2018, Melissa Siggia (“Siggia”), responding on behalf of Hartford, made
“an accommodation on this one case only to accept” the rates charged by Duffy and McBride.
Duffy then emailed Siggia to identify additional attorneys and a paralegal who would also be
working on the case. “We need to address the rates for these other timekeepers,” Duffy wrote.
A week later, Duffy wrote Siggia again: “What is our next step on addressing the other
timekeeper rates?” Duffy sent a follow-up on March 13, 2018, stating that “[w]e also need our
rates approved and you have only approved two timekeepers.”
On March 14, 2018, Siggia wrote to Duffy, explaining that Hartford had approved rates
for Duffy and McBride, but that all other timekeepers would be billed “at [Hartford’s] previously
identified rates of $195 per hour for associates and $100 for paralegals.” Following this email,
Hartford proceeded to pay the Lane Powell associates and paralegals who worked on the
Underlying Action $195 per hour and $100 per hour, respectively.
On October 12, 2017, one week after agreeing to defend under a reservation of rights,
Hartford brought a declaratory judgment action against Swapp Law in this court, seeking a
declaration that it had no duty to defend or indemnify Swapp Law in the Underlying Action. On
March 22, 2018, Swapp Law answered and filed a counterclaim against Hartford, arguing that
Hartford breached its duty to defend by refusing to pay in full the rates charged by Lane Powell.

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In its counterclaim, Swapp Law seeks judgment against Hartford for the amount Swapp Law
incurred in defending the Underlying Action.
On June 4, 2018, Hartford moved for judgment on the pleadings on its declaratory action.
On December 17, 2018, this court granted Hartford’s motion, finding that the claims alleged in
the Underlying Action were excluded from coverage and therefore, Hartford had no duty to
defend. By this motion, Swapp Law moves the court for summary judgment on its counterclaim
seeking payment for the full amounts billed by Lane Powell.
II.

STANDARD OF REVIEW

Summary judgment is appropriate only if “there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “An issue
is ‘genuine’ if there is sufficient evidence on each side so that a rational trier of fact could
resolve the issue either way.” Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998).
“In applying this standard, we view the evidence and the reasonable inferences to be drawn from
the evidence in the light most favorable to the nonmoving party.” Twigg v. Hawker Beechcraft
Corp., 659 F.3d 987, 997 (10th Cir. 2011).
The movant bears the initial burden of demonstrating the absence of a genuine dispute of
material fact and entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986). Once the movant has met this burden, the burden shifts to the nonmovant to
“set forth specific facts showing that there is a genuine issue for trial.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). “[T]here is no issue for trial unless there is sufficient
evidence favoring the nonmoving party for a jury to return a verdict for that party.” Id. at 249.

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“Only disputes over facts that might affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment.” Id. at 248.
III.

DISCUSSION

Under Utah law,2 an insurance company presented with an insured’s tender of defense
that believes it is not liable for coverage has two options: “[t]he insurer may either ‘protect its
interests through a declaratory judgment proceeding’ asking the court to determine coverage
under an insurance policy, or it may ‘defend the suit under a reservation of its right to seek
repayment later.’” Summerhaze Co., L.C. v. Fed. Deposit Ins. Corp., 332 P.3d 908, 921 (Utah
2014) (quoting Hartford Accident & Indem. Co. v. Gulf Ins. Co., 776 F.2d 1380, 1382 (7th Cir.
1985)). Hartford, when presented with Swapp Law’s tender of defense, agreed to provide a
defense under a reservation of rights. One week later, Hartford sought a declaratory judgment
that it had no duty to defend or indemnify Swapp Law in the Underlying Action.
As stated in the court’s December 17, 2018 Memorandum Decision and Order Granting
Plaintiff’s Motion for Judgment on the Pleadings (the “Declaratory Order”), the duty to defend
and the duty to indemnify are contractual and “hinge[] on the particular contractual terms of the
insurance policy defining the scope of the duty to defend and the duty to indemnify.” Fire Ins.
Exch. v. Estate of Therkelsen, 27 P.3d 555, 560 (Utah 2001). Although “the duty to defend is
measured by the nature and kinds of risks covered by the policy,” Deseret Fed. Sav. & Loan
Ass’n v. United States Fid. & Guar. Co., 714 P.2d 1143, 1146 (Utah 1986), it is also dependent
on whether the allegations in the underlying complaint give rise to potential liability. See Basic
Research, LLC v. Admiral Ins. Co., 297 P.3d 578, 580 (Utah 2013). Thus, “[t]he question of
whether there is potential liability under the policy ‘is determined by comparing the language of

2

The parties stipulate that Utah law governs the interpretation of the Policy.

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the insurance policy with the allegations of the complaint.’” Id. (quoting Benjamin v. Amica Mut.
Ins. Co., 140 P.3d 1210, 1214 (Utah 2006)). “This so-called ‘eight corners’ rule allows [the
court] to determine whether the allegations alone trigger the terms that provide the duty to
defend in the insurance policy.” Equine Assisted Growth & Learning Ass’n v. Carolina Cas. Ins.
Co., 266 P.3d 733, 737 (Utah 2011). “If the language found within the collective ‘eight corners’
of these documents clearly and unambiguously indicates that a duty to defend does or does not
exist, the analysis is complete.” Id.
In this case, the terms of the Policy state that “[Hartford] will have the right and duty to
defend [Swapp Law] against any ‘suit’ [to which this insurance applies]. However, [Hartford]
will have no duty to defend [Swapp Law] against any ‘suit’ seeking damages for . . . ‘personal
and advertising injury’ to which this insurance does not apply.” See Policy, Business Liability
Form § A (1)(a) (emphasis added). Thus, Hartford’s duty to defend Swapp Law, and thus its duty
to compensate Swapp Law for any legal costs and fees incurred by Swapp Law, hinged
exclusively on whether the claims asserted in the Underlying Action fell under the plain
language of the Policy.3
Because the court ruled in its Declaratory Order that the claims asserted in the
Underlying Action did not fall under the plain language of the Policy, Hartford cannot be held
responsible for legal costs and fees it had no duty to provide in the first instance. See Basic
Research, 297 P.3d at 580 (“Where the allegations, if proved, show that there is no potential

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Under the Policy and Utah law, it is possible that Hartford could have a duty to defend, but ultimately no duty to
indemnify, its insured. This situation arises where the underlying complaint alleges conduct that would be covered
under the policy at issue, but later factual development renders the suit outside of coverage. Utah law requires that,
“[w]here factual questions render coverage uncertain . . ., the liability insurer must defend until those uncertainties
can be resolved against coverage.” Benjamin v. Amica Mut. Ins. Co., 140 P.3d 1210, 1215 (Utah 2006). Here, by
contrast, the allegations in the Underlying Action, even if proved, would not give rise to coverage under the Policy,
and no factual development could alter the legal conclusion that the Policy does not cover liability flowing from
violations of the Driver’s Privacy Protection Act.

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liability [under the policy], there is no duty to defend.” (alteration in original) (quoting Deseret
Fed. Sav. & Loan Ass’n, 714 P.2d at 1147).
Swapp Law argues that Hartford’s August 15, 2017 letter and subsequent reservation of
rights created an obligation for Hartford to pay defense costs until a judicial determination on
coverage was made. But Swapp Law provides no authority for the proposition that an insurer’s
duty to defend can be enlarged beyond the terms of the contract to include additional costs
incurred by the insured. In fact, Utah law provides to the contrary. Equine Assisted Growth &
Learning, 266 P.3d at 735 (“An insurer’s ‘duty to defend arises solely under [the terms of the]
contract.’”) (alteration in original) (quoting Fire Ins. Exch., 27 P.3d at 560). Under Utah law,
Hartford’s duty to defend, and thus its duty to compensate Swapp Law for the legal costs and
fees incurred prior to the court’s issuance of the Declaratory Order, is solely governed by the
allegations of the Underlying Action and the terms of the Policy. Therefore, Hartford cannot be
liable to fulfill a duty to defend that never existed in the first place.
Alternatively, even if Hartford did, in fact, have a duty to defend Swapp Law prior to this
court’s determination that the claims asserted in the Underlying Action were excluded from
coverage, Swapp Law acted unreasonably by hiring Lane Powell and failing to confirm with
Hartford that Lane Powell’s rates would be reimbursed.
A determination of a duty to defend, even under a reservation of rights letter, does not
necessarily require Hartford to reimburse Swapp Law for all of the legal costs and fees incurred
prior to this court’s decision that Hartford has no duty to defend. In Hartford’s August 15, 2017
letter to Swapp Law acknowledging Hartford’s notice of the Underlying Action, Hartford stated
that Swapp Law would be reimbursed only for “reasonable” legal costs and fees. That letter
further stated that “the legal community doing defense work in this area is well aware of the

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acceptable scale” of legal costs and fees. Finally, the letter warned Swapp Law that, in order to
ensure reimbursement, Swapp Law may wish to confirm before hiring an attorney what rates
Hartford will consider to be reasonable. And, as evidenced by attorney Humphery’s February 2,
2018 email, Swapp Law was clearly aware of the precise rates Hartford considered to be
reasonable.
On the basis of Hartford’s August 15, 2017 letter, and Swapp Law’s knowledge of
Hartford-approved rates, Swapp Law knew, or should have known, it would not be reimbursed
for any and all attorneys’ fees it incurred. In its August 15, 2017 letter, Hartford indicated that it
considered a particular spectrum of legal fees and costs to be reasonable and therefore, eligible
for reimbursement. Thus, Swapp Law was on notice that, to ensure it would not be saddled with
unreimbursable attorneys’ fees, it had an obligation to determine that range, whether by
contacting Hartford directly or seeking the opinion of lawyers who perform this kind of defense
work in the relevant area. Even without Hartford’s warning about reimbursable attorneys’ fees,
Swapp Law—no stranger to the mechanics of insurance defense—would have been well aware
that insurance companies don’t merely write blank checks to fund the defense of potentially
covered claims.
Only two days after receiving Hartford’s letter, Swapp Law hired Lane Powell, under an
engagement letter agreeing to pay multiple lawyers more than $500 per hour. Swapp Law may
well have concluded that its potential liability flowing from the Underlying Action was so great
that it needed lawyers who charged nearly three times what Hartford deemed reasonable, and
further that it was willing to assume the difference between Lane Powell’s rates and Hartford’s
reimbursement. Or Swapp Law may have merely overlooked Hartford’s clear warnings about the
rates it would reimburse. In any event, in light of these facts, Swapp Law incurred these

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attorneys’ fees at its own risk, knowing that Hartford would not merely rubber stamp any
attorneys’ invoice it received.
In sum, Hartford had no duty under the Policy to defend against the Underlying Action
and Swapp Law incurred exorbitant attorneys’ fees at its own risk. Thus, Hartford has no
obligation to reimburse Swapp Law for the difference between the rates charged by Lane Powell
and those approved by Hartford.4
IV.

ORDER

For the reasons articulated, Swapp Law’s Motion for Partial Summary Judgment (ECF
No. 42) is DENIED.

Dated _____8/1/2019__________
BY THE COURT

______________________________
Jill N. Parrish
United States District Court Judge

Because Hartford has not yet requested reimbursement of the legal costs and fees paid to date, Hartford’s right to
reimbursement is not currently before the court. However, the Utah Supreme Court addressed the right to
reimbursement under a reservation of rights in the context of a claim brought by an insurer to recover restitution
against its insured for amounts paid in excess of the policy limits. U.S. Fidelity v. U.S. Sports Specialty, 270 P.3d
464 (Utah 2012). The court stated that “an insurer’s claim to an unbargained-for right to reimbursement from its
insured presents a perverse manipulation of risk that has no place in our law. As a result, the right to reimbursement
must be specifically bargained for and set forth in writing under [Utah Code] before it may be enforced.” Id. at 470.
The court concluded that “there can be no extracontractual right to restitution between the insurer and its insured,
and only the express terms of a policy create an enforceable right to reimbursement.” Id. at 471. Thus, while U.S.
Fidelity supports Hartford’s argument that, under Utah law, its duty to defend cannot be enlarged beyond that
explicitly provided under the Policy, it also casts serious doubt on the validity of Hartford’s extracontractual,
unilateral reservation of rights to seek reimbursement of attorneys’ fees it has already paid.
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