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Innovative Mold Solutions, Inc. v. Central Mutual Insurance Co., Inc.

United States District Court, D. Massachusetts

September 29, 2017

INNOVATIVE MOLD SOLUTIONS, INC., Plaintiff,
v.
CENTRAL MUTUAL INSURANCE COMPANY, INC., ALL AMERICA INSURANCE COMPANY, INC., and CENTRAL INSURANCE COMPANIES Defendants.

          ORDER AND MEMORANDUM OF DECISION ON PLAINTIFF'S DAMAGES AND REASONABLE ATTORNEY'S FEES AND COSTS

          TIMOTHY S. HILLMAN, D.J.

         Background

         This case was filed in response to All America Insurance Company and Central Mutual Insurance Company's (“Central”) refusal to defend Innovative Mold Solutions, Inc. (“IMS”) in a qui tam lawsuit brought against them under the federal False Claims Act (“FCA”).[1] IMS was served with the complaint for the underlying action (“Ladas action”) on February 15, 2012.[2]After Central refused to defend IMS in the Ladas action, Kelley Drye & Warren LLP (“Kelley Drye”) and Bleakley Platt & Schmidt, LLP (“Bleakley Platt”) were hired by IMS to represent them. After IMS spent over $400, 000 in legal fees in defense of the Ladas action, the Connecticut District Court dismissed it for lack of standing and failure to plead sufficient particularity under the Federal Rules of Civil Procedure 9(b). The plaintiff then appealed to the 2nd Circuit and IMS paid $25, 000 to settle the suit.

         IMS subsequently filed this complaint against Central in this Court. On this case they are represented by LaFortune & LaFortune (“LaFortune”), seeking relief for breach of their duty to defend in the Ladas action.[3] Pursuant to this Court's Memorandum and Order On Defendants' Motion For Judgment On The Pleadings (Docket No. 32) And Plaintiff's Cross-Motion for Judgment On the Pleadings (Docket No. 36) (“Judgment Order”), I found Central had breached its duty to defend the Ladas action.[4] (Docket No. 57). This Order And Memorandum Of Decision addresses the total amount of damages, including attorney's fees and costs IMS will be awarded.

         Discussion

         Legal Standard

         Insurers who provide liability insurance have a duty to defend the insured against claims falling under their policy and if an insurer fails to do so, they can be found liable for that breach. New England Environ. Tech. Corp. v. American Safety Risk Retention Group, Inc., 810 F.Supp.2d 390, 396 (2011). The determination of damages is analogous to those for breach of contract claims and are considered to be “those that cannot be reasonably prevented and arise naturally from the breach, or which are reasonably contemplated by the parties.” Polaroid Corp., v. Travelers Indem. Co., 414 Mass. 747, 762, 610 N.E.2d 912 (1993); quoting Delano Growers' Coop. Winery v. Supreme Wine Co., 393 Mass. 666, 680, 473 N.E.2d 1066 (1985). In Massachusetts, an insurer's breach of their duty to defend a policyholder makes them liable to the insured for all defense costs, including reasonable attorney's fees in both the underlying litigation and the duty to defend claim. New England Environ. Tech. Corp., 810 F.Supp.2d at 396; see Polaroid Corp., 414 Mass. at 762; Preferred Mut. Ins. Co., 426 Mass. at 95. The courts have reasoned that failure to provide such relief would provide insurers a significant financial advantage over their policyholders by allowing them the ability to refuse to defend and obligating the insured to bear the cost of both the underlying litigation and the litigation against the insurers for failure to defend. Preferred Mut. Ins. Co., 426 Mass. at 95. The failure to allow defense costs as relief after an insured party establishes that their insurer had a duty to defend and failed to do so, would leave the insured footing the bill for two litigations they should not have been required to defend or initiate. In essence, failure to award a prevailing insured party reasonable costs and attorney fees in a duty to defend claim would negate the benefit of having liability insurance because the insured would be no better off financially. Id.; see Wilkinson v. Citations Ins. Co., 447 Mass. 663, 671, 856 N.E.2d 829, 836. No showing of fraudulence or bad faith on behalf of the insurer for failing to defend is required. Liberty Mut. Ins. Co. v. Cont. Cas. Co., 771 F.2d 579 (1st Cir. 1985).

         The case law is clear that when attorney's fees and costs are awarded to a prevailing party, they must be reasonable, as established by the prevailing party. Tennessee Gas Pipeline Co. v. 104 Acres of Land, 32 F.3d 632, 634 (1st Cir.1994). The First Circuit has held that “if an alternative method is not expressly dictated by applicable law, we have customarily found it best to calculate fees by means of the time and rate method known as the lodestar.” Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 526 (1st Cir. 1991). In analyzing under the lodestar method, the court must determine the number of hours reasonably spent working productively on the case multiplied by a reasonable attorney rate. Hensley, 461 U.S. at 433, 103 S.Ct. 1933. The determination of reasonableness falls within the wide discretion of the court. Id. at 434. The court should thoroughly examine the records and eliminate “time that was unreasonably, unnecessarily, or inefficiently devoted to the case” and discount “excessive, redundant, or otherwise unnecessary” work. Id. Upon establishing the reasonable number of hours productively expended on the case and applying an appropriate rate, the court should provide a “concise but clear” explanation. Id. at 437.

         The Ladas Action

         Central argues that the fees accrued during the Ladas action are excessive and unreasonable and therefore, IMS is not entitled to them. Central points to the fact that multiple law firms handled it, a high number of attorneys worked on it, the use of block billing and the excessive hourly rates charged. Central is not automatically responsible for any and all costs associated with the Ladas action, to the extent that the fees are unreasonable however, I find the fees charged by Kelley Drye and Bleakley Platt to be reasonable. Polaroid Corp., 414 Mass. at 762, 610 N.E.2d at 921.

         Generally, in assessing the reasonableness of the hours and rates, the Court looks to the complexity of the issues presented, the location of the litigation, and the exposure of IMS for Central's failing to defend. Although there was some minimal duplicative work due to the overlapping of legal representation, I do not find that work to be unreasonable. See New England Enviro. Tech. Corp., 810 F.Supp.2d 390 (The insured was entitled to the attorney's fees and costs although there was some inefficiencies and duplicative work in billing caused by overlapping of legal representation) In fact, I find that lead attorney, Christopher Palermo (“CCP”), was more than reasonable in his billing practice considering the challenging legal and factual issues presented. This included allegations of improper action by IMS over a lengthy period of time requiring extensive review of significant documentation. The potential damage IMS was exposed to and the favorable outcome of the case were significant, and there was no dispute that the continued existence of IMS was at stake in the Ladas action. CCP's rate, although higher than the norm in the Worcester area, is reasonable for a qui tam defense case, such as the Ladas action, in Connecticut.[5] Central points to the fact that CPP charged a lesser amount once he transferred from Kelley Drye to Bleakley Platt in an effort to show why his rates are unreasonable. However, I find the fact that he lowered his rates upon transferring to a new firm is consistent with him charging the going rates.

         Moreover, Central fails to acknowledge that it was their “unjustified refusal to defend under its policy” that caused IMS to have to seek their own counsel. Preferred Mut. Insu., 426 Mass. at 95; see Palermo v. Fireman's Fund. Ins. Co., 42 Mass.App.Ct. 283, 676 N.E.2d 1158, 1163 (1997) (“An insurer who fails to defend its insured assumed the consequential risks of that breach of its insurance contract.”). Therefore, Central cannot now, after refusing to defend, try to “claim prejudice in the form of billing format or litigation practices that do not meet its standards, since it could have assumed the defense and imposed the standard.” Liberty Mutual Insur. Co. v. Black & Decker Corp., 383 F.Supp.2d 200, 210 (D. Mass. 2004). (Emphasis added).

         Therefore, the Court finds the attorney's fees associated with Kelly Drye and Bleakley Platt to be reasonable and award them to the Plaintiff with one exception. The invoices provided pursuant to Plaintiff Innovative Mold Solutions, Inc.'s Submission Of Supplemental Legal Bills, are included in the award for damages as they are not unreasonable and arise naturally out of the Central's breach of duty to defend.[6] (Docket No. 158). However, because the work conducted on December 12th, 14th, and 22nd of 2016 and January 7, 2017 is clearly with regards to an independent state court matter, [7] I have deducted those hours from the total amount to be awarded to Bleakley Platt.[8]

         The Duty ...


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