United States District Court, E.D. Pennsylvania
September 3, 2004.
ROYAL INSURANCE COMPANY OF AMERICA
LAURELTON WELDING SERVICE, INC., et al.
The opinion of the court was delivered by: HARVEY BARTLE, III, District Judge
Before the court is the motion of Laurelton Welding Service,
Inc. and its principal, Thomas Gallagher ("Laurelton")*fn1
for an award of attorneys' fees and costs.
On June 15, 2004, after a non-jury trial, we entered judgment
in favor of defendant Laurelton and against plaintiff Royal
Insurance Company of America ("Royal") on Royal's complaint for a
declaratory judgment that it is not liable to indemnify Laurelton
under its excess insurance policy in connection with now
consolidated lawsuits involving the death of three crew members
of a clam vessel known as the F/V Adriatic ("Adriatic"),
which sank off the coast of New Jersey. See Royal Ins. Co. of
America v. Laurelton Welding Service, Inc., 2004 WL 1336324
(E.D. Pa. June 15, 2004). We also entered judgment entered in
favor of Laurelton on its counterclaim for a declaratory judgment
that Royal has a duty to indemnify Laurelton up to the limits of
policy #POH008379 to the extent that there is any judgment for
compensatory damages or settlement in the underlying lawsuits
which exceeds the limits of Laurelton's primary insurance policy
and the self-retention layer of $25,000. However, we found that
Royal was not liable for any punitive damages which might be
awarded and entered judgment in favor of Royal on Laurelton's
counterclaim for bad faith. Laurelton now contends that as the
successful party in the declaratory judgment action, it is
entitled to attorneys' fees and costs in the amount of
We tried this action under this court's admiralty jurisdiction,
and thus federal maritime law applies. See Windsor Mt. Joy
Mut. Ins. Co. v. Pozzi, 832 F. Supp. 138, 140 (E.D. Pa. 1993).
The application of federal maritime law does not, however, result
in the "automatic displacement of state law." Centennial Ins.
Co. v. Lithotech Sales, LLC, 29 Fed. Appx. 835, 836 (3d Cir.
2002) (citing Jerome B. Grubart, Inc. v. Great Lakes Dredge &
Dock Co., 513 U.S. 527, 545 (1995)). A federal court sitting in
admiralty may rely on state law as long as the law in question
does not conflict with federal maritime law. Id. (citing
Calhoun v. Yamaha Motor Corp., U.S.A., 40 F.3d 622, 627 (3d
Cir. 1994)). In cases involving marine insurance policies,
federal courts will generally apply relevant state law. Wilburn
Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 320-21 (1955)
("Wilburn"); Advani Enterprises, Inc. v. Underwriters at
Lloyds, 140 F.3d 157, 162 (2d Cir. 1998); Bank of San Pedro v. Forbes
Westar, Inc., 53 F.3d 273, 275 (9th Cir. 1995)). Indeed, the
Supreme Court recognized in Wilburn that "[i]n the field of
maritime contracts . . . the National Government has left much
regulatory power in the States . . . [T]his state regulatory
power, exercised with federal consent or acquiescence, has always
been particularly broad in relation to insurance companies and
the contracts they make." Id. at 370 (citations omitted). There
was no dispute at the trial that the Royal excess insurance
policy involved here was a marine insurance contract and that
state law governed its interpretation and construction.
Royal contends, however, that "a general award of attorneys'
fees pursuant to a state statute which does not require a finding
of bad faith directly conflicts with federal admiralty law."
Sosebee v. Rath, 893 F.2d 54, 56 (3d Cir. 1990) (citations
omitted). Sosebee, on which Royal relies, involved a scuba
diver's personal injury claim in which the court sat in
admiralty. The court disallowed attorneys' fees. It explained
that "as a general matter, attorneys' fees are not available in
admiralty cases unless the court determines in its equitable
discretion that one party has acted in bad faith." Id.
(emphasis added). Clearly, the court did not rule that counsel
fees are never to be awarded in admiralty cases in the absence of
Neither Sosebee nor the cases on which it relied concerned
marine insurance contracts. Id. (citing See F.D. Rich Co. v. United States ex rel. Industrial Lumber Co.,
417 U.S. 116, 129(1974); Vaughan v. Atkinson, 369 U.S. 527, 530-31
(1962)). F.D. Rich Co. did not involve admiralty law or an
insurance contract, but examined attorneys' fees in the context
of a Miller Act case. In Vaughan, the court allowed attorneys'
fees in a seaman's action for maintenance and cure upon finding
that the defendant shipowner's default was "willful and
persistent." 368 U.S. at 531.
Notably, one of the cases mentioned in Sosebee recognized an
"indemnification exception" to the general rule that a court may
not grant attorneys' fees in admiralty actions absent a statute
or enforceable contract providing for such fees. Ocean Barge
Transport Co. v. Hess Oil Virgin Islands Corp., 598 F. Supp. 45,
47-48 (D.V.I. 1984) ("Ocean Barge"), aff'd without opinion,
760 F.2d 259 (3d Cir. 1985). Ocean Barge involved a contract
for the sale of a sulfur loading device that had malfunctioned
causing property damage that was the subject of the lawsuit. The
court construed the contract to require third-party defendant
Mintec/International ("Mintec") to indemnify
defendant/third-party plaintiff Hess Oil Virgin Islands Corp.
("Hess"). Thereafter, Hess brought an action to recover
attorneys' fees from Mintec. The court ruled that "where an
indemnitee has been required to defend a law suit [sic], such
indemnitee may recover attorney's fees from his indemnitor."
Ocean Barge, 598 F. Supp. at 48. Similarly, before this court was the issue whether Royal was
required to indemnify Laurelton for any liability in the
underlying wrongful death actions should the limits of Royal's
insurance policy be implicated. Accordingly, Sosebee is not a
bar to the award of attorneys' fees and costs should they be
allowed under applicable state law.
At the trial of the declaratory judgment action, the question
arose as to whether Pennsylvania or New Jersey law controlled
since relevant events occurred in both states. In our findings of
fact and conclusions of law issued June 15, 2004, we did not
reach a determination as to which law governed the issues of late
notice, prejudice, and bad faith because we concluded that the
result would be the same regardless of which law applied. With
respect to the attorneys' fee claim, however, our choice of law
is outcome determinative. We found no bad faith conduct on the
part of Royal. Pennsylvania does not permit an award of
attorneys' fees unless there is a finding of bad faith. First
State Underwriters Agency of New England Reinsurance Corp. v.
Travelers Ins. Co., 803 F.2d 1308, 1318 (3d Cir. 1986). In
contrast, Rule 4:42-9(a)(6) of the New Jersey Rules of Court
allows an award of counsel fees "[i]n an action upon a liability
or indemnity policy of insurance, in favor of a successful
claimant." N.J. Ct. R. 4:42-9(a)(6).
In determining whether New Jersey or Pennsylvania law applies
as a federal court exercising admiralty jurisdiction, we must
look to federal choice of law rules. Windsor, 832 F. Supp. at 140. Generally, "[t]he law of the
state chosen by the parties to govern their contractual rights and
duties will be applied if the particular issue is one which the parties
could have resolved by an explicit provision in their agreement directed
to that issue." RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 187(1)
(1971). Here, the insurance contract does not contain a choice of law
provision. Thus, we must look to "the modern approach" expressed
in RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(2) (1971) in
our efforts to resolve the choice of law issue. Windsor,
832 F. Supp. at 140. "This Restatement section refers us to the place of
contracting, negotiating, and performing the contract, as well as
to the location of the subject matter of the contract and the
domicile, residence and place of business of the parties." Id.
(citing RESTATEMENT (SECOND) OF CONFLICT OF LAWS §
188(2)).*fn2 We evaluate these contacts "according to their
relative importance with respect to the particular issue."
RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 188(2) (1971). If state law governs, Royal argues for Pennsylvania law, which
does not provide for attorneys' fees and costs under the present
circumstances. According to Royal, it bound and issued
Laurelton's insurance contract from its Philadelphia office. In
addition, Laurelton's broker solicited and made an application to
Royal in Pennsylvania through correspondence and telephone calls
to Philadelphia. Royal also contends that the premium payments
were forwarded to its Philadelphia office. However, the address
listed for Royal on its insurance policy is Charlotte, North
Carolina, not Pennsylvania.
Laurelton, the insured, maintains that New Jersey law governs
because New Jersey has a greater interest in this action than
Pennsylvania. Laurelton is located in Point Pleasant Beach, New
Jersey. Royal delivered a quote for the insurance policy to J.F.
Murray, Laurelton's broker, in New Jersey, and Laurelton
purchased the policy through J.F. Murray in New Jersey. In
addition, the Adriatic was docked in New Jersey, where
Laurelton performed work on the vessel just prior to its fatal
voyage. The Adriatic sank off the coast of New Jersey and the
consolidated underlying wrongful death actions by the estates of
the deceased crew members are pending in New Jersey.
Pennsylvania has only limited contact with the events giving
rise to this lawsuit in that Royal purportedly issued the excess
insurance policy from its Pennsylvania office and Laurelton's
premiums were apparently sent there. The contacts with New
Jersey, by contrast, are both more numerous and substantial. The insurance policy covered the activities of
Laurelton, which was located and did business in that state. Any
wrongful acts or omissions of Laurelton also occurred there.
Moreover, New Jersey has a significant interest in protecting its
citizens from being improperly denied insurance coverage by a
company doing business in that state. In contrast, no
Pennsylvania insured was involved. We agree with Laurelton that
New Jersey law controls its claim for attorneys' fees and costs.
As noted above, the New Jersey Rules of Court allow attorneys'
fees for a successful claimant in "an action upon a liability or
indemnity policy of insurance." N.J. Ct. R. 4:42-9(a)(6). "This
Rule fosters the policy of benefitting insureds who should not
bear the additional cost of attorney's fees in obtaining the
contractual entitlements promised by the carrier." Prudential
Prop. & Cas., 1994 WL 708226, at *2 (internal citations and
quotations omitted). Under this rule, attorneys' fees are allowed
even when the insured did not initiate the action. Prudential
Prop. and Cas. Ins. Co. v. Liberty Mut. Ins. Co., 1994 WL
708226, at *1 (E.D. Pa. Dec. 14, 1994). Moreover, "[a]n insured
is not required to show bad faith or arbitrary action by an
insurer in order to recover its fees." Liberty Village
Associates v. West American Ins. Co., 706 A.2d 206, 212 (N.J.
Super. Ct. 1998).
Royal argues that Laurelton is not entitled to attorneys' fees
under N.J. Ct. R. 4:42-9 because Laurelton is not the "successful
claimant" since we granted Royal a declaration that it is not liable for punitive damages and denied Laurelton's
counterclaim for bad faith. We disagree with the proposition that
a "successful claimant" under N.J. Ct. R. 4:42-9 is required to
prevail on all claims. Laurelton was successful in defending
against Royal's denial of coverage, the major issue in this
litigation. It also prevailed in prosecuting its counterclaim
against Royal, which sought to enforce coverage under the excess
policy in question. The fact that Laurelton did not succeed on
its claim for bad faith does not detract from its entitlement to
attorneys' fees as successful claimant on the indemnity issue.
See Prudential Prop. & Cas., 1994 WL 708226, at *1. See
Fed.R. Civ. P. 54(d)(2)(A); N.J. Ct. R. 4:42-9(b).
Laurelton has submitted a detailed affidavit supporting its
request for attorneys' fees and costs, including exhibits
itemizing dates, time spent, and work performed by attorneys in
this case. Royal concedes the reasonableness of the hourly fee
charged by Laurelton's counsel and only challenges $9,712.00 in
attorneys' fees and $2,907.57 in costs out of the over
$160,000.00 in fees and costs that Laurelton has requested.
To the extent that the amount requested is unopposed, it must
be granted. Prudential Prop. & Cas., 1994 WL 708226, at *2.
With respect to the disputed fees, Royal argues that the $5,985
of Laurelton's billing entries should not be reimbursed because
these entries are related to its motions to dismiss, for change
of venue, for a protective order, and for forum non-conveniens.
These motions were denied or never filed. Royal also contends that Laurelton should not be reimbursed for the
$3,727.50 of billing entries associated with its bad faith claim
because this claim was ultimately denied. We find that these
challenged fees relate to the work performed by Laurelton on
issues as to which it was not the "successful claimant."
Therefore, Rule 4:42-9(a)(6) does not permit us to award these
Finally, Royal challenges $2,907.57 in costs related to courier
services, along with costs associated with an expert, a witness,
and medical records that were not utilized in the case. We find
that in light of the factors listed in Rule 1.5 of the New Jersey
Rules of Professional Conduct,*fn3 these challenged costs are reasonable as they relate to the representation of Laurelton
in this matter and the preparation of this case for trial.
For the reasons set forth above, we will grant Laurelton's
motion for attorneys' fees and costs in the amount of
AND NOW, this day of September, 2004, for the reasons set forth
in the accompanying Memorandum, it is hereby ORDERED that:
(1) the motion of Laurelton Welding Service, Inc. and Thomas
Gallagher for attorneys' fees and costs is GRANTED; and
(2) Royal Insurance Company of America shall pay Laurelton
Welding Service, Inc. and Thomas Gallagher attorneys' fees in the
amount of $150,272.50 and costs in the amount of $2,907.57 for a
total of $153,180.07.