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ROYAL INSURANCE CO. OF AM. v. LAURELTON WELDING SERV.

United States District Court, E.D. Pennsylvania


September 3, 2004.

ROYAL INSURANCE COMPANY OF AMERICA
v.
LAURELTON WELDING SERVICE, INC., et al.

The opinion of the court was delivered by: HARVEY BARTLE, III, District Judge

MEMORANDUM

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 $162,892.57.

  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 bad faith.

  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 fees.

  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 $153,180.07. ORDER

  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.


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