Tag Archives: attorneys’ fees

CGL POLICY COVERING ATTORNEY’S FEES IN PROPERTY DAMAGE CLAIMS

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shutterstock_195189626Does a CGL policy cover attorney’s fees and costs in property damages claims, to the extent there is a contractual or statutory basis to recover attorney’s fees? Naturally, you need to review the policies and this is not a clear-cut issue, but there is law to argue under.  

 

A case I have argued in support of CGL policies providing for coverage for attorney’s fees as a component of property damage claims when there is a contractual or statutory basis is Assurance Co. of America v. Lucas Waterproofing Co., Inc., 581 F.Supp.2d 1201 (S.D.Fla. 2008).  In this case, the following applied:

 

-The policy provided coverage for “those sums that the insured becomes legally obligated to pay as damages of… ‘property damage’….

– Property damage was defined as “physical injury to tangible property, including all resulting loss of use of that property.”

-The term damage, in of itself, was not defined in the policy.

 

The trial court looked at whether  attorneys’ fees and costs are damages arising because of ‘property damage’ to which the insurance policy at issue applies.  

 

If an insurer may defend against a claim that is covered by the policy without taking into account potential attorneys’ fees and costs that will be awarded if the opposing party prevails, the insurer creates an externality whereby, in the course of seeking to minimize its own liability, it imposes potential costs on the insured at no additional cost to itself.  This externality undermines the very reason why an insurer can at once possess a duty and a right to defend, which is that the interests of the insured and the insurer are presumed to be aligned with respect to a claim for damages covered by the policy.  Every dollar of liability for a covered claim for which the insured cannot be held liable is a dollar saved by the insurance company.  If, however, when defending against a claim that is covered by the policy, an insurer can increase the liability of the insured while simultaneously decreasing its own liability, the interests of the insurer and insured are no longer aligned, giving rise to a conflict between the insurer and insured and making the coexistence of the right and duty to defend untenable. 

***

Therefore, this Court finds that attorneys’ fees and costs that an insured becomes obligated to pay because of a contractual or statutory provision, which are attributable to an insurer’s duty to defend the insured against claims that would be covered by the policy if the claimant prevails, constitute damages because of ‘property damage” within the meaning of a CGL policy.

Assurance Co. of America, 581 F.Supp.2d at 1214-15. 

 

In July of 2018, the Ninth Circuit Court of Appeals reached a similar conclusion in Association of Apartment Owners of Moorings, Inc. v. Dongbu Insurance Co., Ltd., 731 Fed.Appx. 713 (9thCir. 2018). The issue on appeal was whether the liability insurer was required to indemnify its insured for attorneys’ fees its insured was ordered to pay against a third-party that prevailed on a water damage claim.  Similar to above, the policy did not define the term “damage” and the Ninth Circuit explained:

 

The policy provides coverage for damages Moorings [insured] must pay “because of” covered property damage.  This phrase, which is undefined, connotes a non-exacting causation requirement whereby any award of damages that flows from covered property damage is covered, unless otherwise excluded.  The Bradens [third-party claimant] were awarded fees…because their home incurred water damage, and they incurred additional loss in order to recover for this damage.  The fee award is thus properly considered an award of damages that Moorings must pay “because of” that covered property damage and is not otherwise excluded. 

Association of Apartment Owners of Moorings, Inc., 731 Fed.Appx. at 714.

 

 

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

INDEMNIFICATION PROVISIONS DO NOT CREATE RECIPROCAL ATTORNEY’S FEES PROVISIONS

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shutterstock_121868692In a good, recent decision, the Eleventh Circuit in International Fidelity Insurance Co. v. Americabe-Moriarity, JV, 2018 WL 5306683 (11th Cir. 2018), held that Florida Statute s. 57.105(7) cannot be used to shift attorney’s fees in a contractual indemnification clause in a dispute between a general contractor and subcontractor’s performance bond surety, when the dispute does not involve an actual indemnification claim stemming from a third-party.

 

In this case, a prime contractor terminated a subcontractor and looked to the subcontractor’s performance bond surety to pay for the completion work.  The subcontractor had a standard AIA A312 performance bond that requires the prime contractor to comply with the terms of the bond, as well as the incorporated subcontract, in order to trigger the surety’s obligations under the bond.  The surety filed an action for declaratory relief against the prime contractor arguing that the prime contractor breached the terms of the performance bond through non-compliance thereby discharging the surety’s obligations.  The trial court agreed and the surety moved for attorney’s fees. 

 

The surety’s argument for attorney’s fees was threefold: (1) the indemnification provision requiring the subcontractor to indemnify the prime contractor required the subcontractor to indemnify the prime contractor for, among other things, attorney’s fees; (2) Florida Statute s. 57.105(7) provides that one-sided contractual attorney’s fees provisions must apply to both parties (and treated reciprocally), hence the inclusion of attorney’s fees in the indemnification provision means that the surety should be entitled to attorney’s fees; and (3) since the subcontract was incorporated into the performance bond, the surety should be entitled to attorney’s fees since it steps in the shoes of the subcontractor under principles of surety law.

 

Surprisingly, the trial court agreed with the surety.  However, thankfully, the Eleventh Circuit held that the indemnity provision in the subcontract was an indemnity clause that applies only to third-party claims and not suits between the general contractor and subcontractor.  Thus, the requirement of reciprocity for attorney’s fees provisions pursuant to Florida Statute s. 57.105 does not apply.  The Eleventh Circuit, however, did not enter a ruling as to whether even if s. 57.105 did apply such that attorney’s fees must be reciprocal in an indemnification clause, whether such rationale would allow the performance bond surety to recover attorney’s fees under principles of surety law. 

 

This decision is useful for a few reasons:

 

(1)  If a contractor, subcontractor, etc. is trying to create an argument for attorney’s fees based on an indemnification clause, this decision is helpful to put that issue to bed since the indemnification provision applies in the context of third-party claims, and is not related to independent claims between the contracting parties;

(2) A party looking to take advantage of a performance bond must, and I mean, must, make sure to properly comply with the terms of the bond.  Certain sureties will raise any argument to avoid obligations under a performance bond hoping that the beneficiary of the bond undertakes an act that allows the surety to discharge its obligations; and

(3) General (prime) contractors should explore subcontractor default insurance, which is a first-party insurance policy, as an alternative to performance bonds to avoid the issues associated with delays and other arguments a surety may raise in furtherance of avoiding obligations under the bond.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

PRE-SUIT SETTLEMENT OFFERS AND CONSTRUCTION LIEN ACTIONS

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shutterstock_127849640It is unfortunate, but in certain matters, a construction lien foreclosure action is not actually driven by the principal amount in dispute.  Oh no.  Rather, it is driven by attorney’s fees.  That’s right.  Attorney’s fees. This is true even though Florida applies the significant issues test to determine the prevailing party for purposes of attorney’s fees.  However, oftentimes  the prospect of attorney’s fees is enough for parties to fear that exposure. 

 

There is a 1985 Florida Supreme Court case that I like to cite if applicable, C.U. Associates, Inc. v. R.B. Grove, Inc., 472 So.2d 1177, 1179 (Fla. 1985), that finds, “in order to be a prevailing party entitled to the award of attorney’s fees pursuant to section 713.29 [a construction lien claim], a litigant must have recovered an amount exceeding that which was earlier offered in settlement of the claim.”  Accord Sullivan v. Galske, 917 So.2d 412 (Fla. 2d DCA 2006) (explaining that although contractor is receiving a judgment in his favor, he may not be the prevailing party if the homeowner offered to settle prior to the lawsuit for an amount equal to or greater  than the award in the judgment).

 

If there is a pre-suit settlement offer on the table, and it is a good faith offer (which presumably it is), than that offer can very well come into play to determine whether the party that will the action should be deemed the prevailing party for purposes of attorney’s fees.  This is still good law.  Therefore, before readily dismissing a pre-suit offer, consider the potential ramifications if you are unable to beat this offer at trial. Banking on attorney’s fees may not be prudent if there is a pre-suit offer that is within striking distance from where you need to be or can very well be a likely outcome based on a reasonable argument raised by the opposing party.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

RECEIVING A $0 VERDICT AND STILL BEING DEEMED THE PREVAILING PARTY FOR PURPOSES OF ATTORNEY’S FEES

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shutterstock_336450779Low and behold, a party can be the prevailing party for purposes of attorney’s fees even if that party is awarded $0.  That’s right, even if the party is awarded a big fat zero, they can still be the prevailing party for purposes of being entitled to attorney’s fees.   This is because a party is the prevailing party if they prevail on the significant issues in the case.  A party can prevail on the significant issues even if that party is awarded $0. Whoa!

 

For example, in Coconut Key Homeowner’s Association, Inc. v. Gonzalez, 43 Fla.L.Weekly D1045a (Fla. 4th DCA 2018), a homeowner sued her homeowner’s association claiming the association breached its governing documents. There was a basis for fees under Florida’s homeowner’s association law (and there likely was a basis under the governing documents).  At trial, the jury held that the association breached its governing documents, but awarded the homeowner nothing ($0). The trial court also issued injunctive relief in favor of the homeowner.  The homeowner claimed she should be deemed the prevailing party for purposes of attorney’s fees; however, this was denied by the trial court  based on the $0 verdict and no fees were awarded to the homeowner.

 

On appeal, however, the Fourth District took a different stance.  The Court, relying on other Florida appellate decisions, maintained that the homeowner could be deemed the prevailing party despite receiving no monetary award:

 

While the prevailing party determination does not depend solely on the magnitude of relief Gonzalez [homeowner] obtained, she was required, at the least, to secure some relief on the merits of her claim to achieve such status. “ ‘[P]laintiffs may be considered a ‘prevailing party’ for attorney’s fees purposes if they succeed on any significant issue in litigation which achieves some of the benefit the parties sought in bringing suit.’ ”  Although there is ongoing debate in the courts on whether a plaintiff who recovers no money damages can be a prevailing party, a party who receives affirmative judicial or equitable relief is clearly considered a prevailing party under the law. Gonzalez was indisputably a prevailing party on her injunctive claim in equity, regardless of her marginal victory on the breach count. Thus, prevailing party attorney fees should be awarded to Gonzalez in this dispute. 

Gonzalez, supra (internal citations omitted).

 

The Fourth District  justified declaring the homeowner the prevailing party because an injunction was also issued in her favor.  Hence, she did receive some benefit by bringing the suit even if she recovered no monetary damages.  However, even if the homeowner did not bring a claim for injunctive relief, it is highly likely the same result would have been reached by the Fourth District.  Since the jury found that the association breached the governing documents, the homeowner would have achieved some benefit in bringing the suit and, therefore, prevailed on the significant issues.  Gonzalez, supra (“When there is a prevailing party statute or contract, reasonable attorney fees must be awarded.”). 

 

As of now, it is uncertain how this would be reconciled with the significant issues test to determine the prevailing party in a construction lien action.  Case law has held that a court has discretion to determine no party is the prevailing party for purposes of attorney’s fees in a construction lien action.  Putting this aside, however, this holding should apply to breach of contract cases and to other potential statutory claims that afford a basis for attorney’s fees to the prevailing party. Despite a party receiving no monetary award, they may still be deemed the prevailing party for purposes of attorney’s fees if they prevail on the significant issues in the case (e.g., the jury determined the other party committed a breach). 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

AMBIGUITY IN INSURANCE POLICY WILL BE INTERPRETED IN FAVOR OF INSURANCE COVERAGE

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shutterstock_389538880An ambiguity in an insurance policy–after reading and interpreting the policy as a whole–will be construed against an insurer.  This means an ambiguity will be construed in favor of insurance coverage (for the benefit of the insured) as opposed to against insurance coverage.  This does not mean that every insurance policy contains an ambiguity.  This also does not mean a court will interpret plain and ordinary words contrary to their conventional meaning or definition.  But, as we all know, insurance policies are not the easiest of documents to decipher and ambiguities do exist relating to a particular issue or circumstance to the benefit of an insured.  An insured that is dealing with specific insurance coverage issues should make sure they are working with counsel that looks to maximize insurance coverage, even if that means exploring ambiguities that will benefit an insured based on a particular issue or circumstance.

 

An example of an ambiguity in an insurance policy relating to a particular issue that benefitted an insured can be found in the Florida Supreme Court decision of Government Employees Insurance Co. v. Macedo, 42 Fla. L. Weekly S731a (Fla. 2017).  This case involved an automobile accident and the interpretation of an automobile liability policy. 

 

In this case, after an accident, a plaintiff sued the defendant that caused the accident. The defendant’s insurer GEICO provided a defense in accordance with the defendant’s automobile liability policy.  During the litigation, the plaintiff served a proposal for settlement for $50,000, which is a procedural vehicle to create the argument for attorney’s fees if the defendant does not accept the proposal.  The defendant—again, being defended by its insurer GEICO—did not accept the proposal.  The case proceeded to trial and the plaintiff obtained a jury verdict of approximately $243,000.  This meant the plaintiff had a basis to recover attorney’s fees since the defendant did not accept the proposal for settlement.   The plaintiff moved to bind GEICO to a judgment, and the underlying issue was whether the defendant’s insurer GEICO was liable under the policy for attorney’s fees.  If GEICO was not liable, then that meant the defendant was individually liable for the plaintiff’s incurred attorney’s fees. 

 

This is a significant issue because by the defendant’s counsel not accepting the proposal for settlement, the defendant, individually, was exposed to substantial attorney’s fees incurred by the plaintiff.   The defendant’s counsel was hired by GEICO and GEICO controlled any settlement of the case and the defendant was required to cooperate with GEICO.

 

The applicable language of the insurance policy as relied upon by the Florida Supreme Court was as follows:

 

ADDITIONAL PAYMENTS WE WILL MAKE UNDER THE LIABILITY COVERAGES

1. All investigative and legal costs incurred by us.

. . . .

4. We will upon request by an insured, provide reimbursement for the following items:

. . . .

(c) All reasonable costs incurred by an insured at our request.

. . . .

Additionally, the index of the policy lists “Legal Expenses And Court Costs” as items that are covered under the Additional Payments section.

 

The Florida Supreme Court, interpreting the policy as a whole, found this language to be ambiguous relating to the insurer’s obligation to cover attorney’s fees incurred by the plaintiff due to GEICO’s defense counsel not accepting the proposal for settlement.  This ambiguity was a big “W” for both the defendant-insured and the plaintiff because it meant that GEICO was liable for the plaintiff’s attorney’s fees.

 

First, the Court explained that the terms “Legal Expenses” and “Court Courts” signify that legal expenses in addition to court costs would be covered under the policy; otherwise, there would have been no reason to separately include the language “Legal Expenses” in the index of the policy.

 

Second, the Court explained that there are numerous reasonable interpretations that attorney’s fees are encompassed by the terms “costs” and expenses” as used in the policy. 

 

And, third, the Court explained that the legal expenses (attorney’s fees) incurred by the insured were the product of GEICO electing not to accept the proposal for settlement, and thus, were incurred by the defendant-insured at GEICO’s direct request.  GEICO had complete discretion under the policy to settle the case with the insured being required to cooperate with its insurer.   “It follows that any cost or fee incurred as a result of GEICO exercising its authority and control is something that it intended to pay.”  See Macedo, supra

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

APPELLATE ATTORNEY’S FEES AND THE SIGNIFICANT ISSUES TEST

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shutterstock_379140319The significant issues test to determine the prevailing party in construction lien actions (which, by the way, also applies to breach of contract actions) applies to appellate attorney’s fees too!  Under this test, the trial court has discretion to determine which party prevailed on the significant issues of the case for purposes of attorney’s fees.  The trial court also has discretion to determine that neither party was the prevailing party for purposes of attorney’s fees. 

 

In a recent decision, Bauer v. Ready Windows Sales & Service Corp., 42 Fla. L. Weekly D1417a (Fla. 3d DCA 2017), there were competing motions for appellate attorney’s fees.   Both parties believed they should be deemed the prevailing party under Florida Statute s. 713.29 (statute that authorizes prevailing party attorney’s fees under Florida’s Construction Lien Law).    The appellate court held that neither party was the prevailing party under the significant issues test:  “[W]e conclude that each party lost on their appeal, while each party successfully defended that part of the judgment in their favor on the other party’s cross-appeal. Because both parties prevailed on significant issues, this Court finds that appellate fees are not warranted for either party.” Bauer, supra. 

 

Attorney’s fees can very easily drive construction lien and bond disputes.  Just remember, the significant issues test to determine the prevailing party for purposes of attorney’s fees applies to fees incurred at the trial court and appellate court levels.  This test has a subjective component that gives a court an easy out—determine that neither party prevailed on the significant issues or, as in the above case, both parties prevailed on the significant issues, meaning neither party is entitled to attorney’s fees. 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

NEW EBOOK: INNOVATIVE ATTORNEY’S FEE ARRANGEMENTS

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41b5ksdWluL._AC_US436_QL65_The traditional attorney’s fee model for business disputes including construction disputes is hourly billing.   There is certainly nothing wrong with this model.  But…it is NOT the only model and there are other models that can actually be perceived as value-added to your business.  There is nothing wrong with innovation and creativity.  This new ebook discusses Innovative Attorney’s Fee Arrangements.  It can be obtained from Amazon, iTunes, or Nook.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

PRIME CONTRACTOR & SURETY’S RECOVERY OF ATTORNEY’S FEES IN MILLER ACT LAWSUIT

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Can a claimant recover attorney’s fees in a Miller Act payment bond dispute even though the Miller Act does not contain a prevailing party attorney’s fee provision?  Yes, if the underlying contract that formed the basis of the suit provided for attorney’s fees.  

 

What about a prime contractor and surety—can they recover their attorney’s fees if they prevail in a Miller Act payment bond claim and the underlying contract provides a basis for fees?   The Eleventh Circuit Court of Appeals in U.S.A. f/u/b/o RMP Capital Corp. v.  Turner Construction Co., 2017 WL 244066 (11th Cir. 2017) seemingly just answered this question in the affirmative when it reversed a lower court’s ruling that precluded a prime contractor and surety that prevailed in a Miller Act claim from recovering their attorney’s fees:

 

“Like all other parties to contracts, general contractors on federal projects and their sureties can recover attorney’s fees where a contract allocates attorney’s fees to them. Here the contract that Turner [prime contractor] and the Sureties claim entitles them to an award of attorney’s fees was between Southwick [sub-subcontractor] and Bolena [subcontractor]. We remand to the district court to interpret that contract in the first instance, so as to determine whether it entitles Turner and the Sureties to an award of attorney’s fees, and if so how much.  Id at *2 (internal citation omitted).

While this ruling may seem harmless, it is a favorable ruling to a prime contractor and surety that prevail in a Miler Act payment bond claim when the underlying contract provides for attorney’s fees (which would likely be the same contract the claimant relies on to seek attorney’s fees).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

SIGNIFICANT ISSUES TEST APPLIES TO FRAUDULENT LIEN CLAIMS TO DETERMINE ATTORNEY’S FEES

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Construction lienors need to appreciate on the frontend that recovering statutory attorney’s fees in a construction lien action is NOT automatic—far from it.  This is because the prevailing party for purposes of attorney’s fees in a construction lien action is determined by the “significant issues test,” a subjective test with no bright line standards based on who the trial court finds prevailed on the significant issues in the case.  If you want to talk about the subjective and convoluted nature of recovering attorney’s fees in a construction lien action under the significant issues test, a recent opinion by the Fourth District Court of Appeal is unfortunately another nail in the coffin.   

 

In Newman v. Guerra, 2017 WL 33702 (Fla. 4th DCA 2017), a contractor recorded a construction lien on a residential renovation project and filed a lien foreclosure lawsuit.  The homeowner countersued the contractor and asserted a fraudulent lien claim pursuant to Florida Statute s. 713.31.  An evidentiary hearing was held on whether the lien was a fraudulent lien and the trial court held that the lien was fraudulent (therefore unenforceable) because it included amounts that were not lienable under the law.  The remaining claims including both parties’ breach of contract claims proceeded to trial.  There was no attorney’s fees provision in the contract.  At the conclusion of the trial, the court found that the contractor was entitled a monetary judgment on its breach of contract claim. 

 

Question:  If the owner prevailed in the contractor’s construction lien claim and established that the lien was in fact fraudulent, is the owner entitled to his statutory attorney’s fees? 

 

While equity may suggest “yes” as the answer, the answer is not necessarily.  This is because of the significant issues test where the court is going to look at the outcome of the entire litigation to determine the party that prevailed on the significant issues in the entire case.   Since the contractor ultimately recovered a money judgment, the court held the owner was not the prevailing party for purposes of attorney’s fees under the significant issues test.  The contractor was not either, but this is beside the point since the owner established the lien was fraudulent and the contractor recovered a money judgment under a breach of contract claim that did not provide for attorney’s fees.  Nonetheless, the court maintained:

 

In sum, the trial court properly applied the “significant issues” test…in denying the homeowner’s claim for attorney’s fees under section 713.31 [fraudulent lien statute]. Even if a party prevails on a fraudulent lien claim, the party must be the prevailing party in the case as a whole to be entitled to attorney’s fees under section 713.31.

Newman, supra, at *4.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

QUICK NOTE: ATTORNEY’S FEES AND THE SIGNIFICANT ISSUES TEST

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imagesAttorney’s fees become a component of damages that parties seek to recover whenever there is a contractual or statutory basis for them to recover their fees.  Parties want to be able to recover all or substantially most of the attorney’s fees they incurred in pursuing their claim. (In my experience, recovering all of the fees incurred is very challenging.)  But, to be entitled to attorney’s fees, a party has to be deemed the prevailing party.  There is the sentiment that as long as you recover a positive net judgment (even if it is for $100 when your claim was for $50,000) then you will be able to recover your attorney’s fees which will likely exceed the amount that was ever in dispute.  With this sentiment, certain disputes become solely driven by attorney’s fees.  Now, there is a trend for the prevailing party for purposes of attorney’s fees for certain disputes such as construction lien actions and breach of contract actions to be determined by the significant issues test.  While recovering a net judgment is important, there are other equitable considerations a court or arbitrator can consider to determine the party that prevailed on the significant issues for purposes of awarding attorney’s fees.  This article explains more.  

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.