Aetna Cas. & Sur. Co. v. Pitrolo

• Decision Date: 13 March 1986
• Docket Number: No. 16697,16697
• Citation: 176 W.Va. 190,342 S.E.2d 156
• Court: West Virginia Supreme Court
• Parties: AETNA CASUALTY & SURETY CO. v. Paul Joseph PITROLO.

Page 156

342 S.E.2d 156

176 W.Va. 190

AETNA CASUALTY & SURETY CO. v. Paul Joseph PITROLO.

No. 16697.

Supreme Court of Appeals of

West Virginia.

March 13, 1986.

Syllabus by the Court

1. Where an insured is required to retain counsel to defend himself in litigation because his insurer has refused without valid justification to defend him, in violation of its insurance policy, the insured is entitled to recover from the insurer the expenses of litigation, including costs and reasonable attorney's fees.

2. Where a declaratory judgment action is filed to determine whether an insurer has a duty to defend its insured under its policy, if the insurer is found to have such a duty, its insured is entitled to recover reasonable attorney's fees arising from the declaratory judgment litigation.

3. "Rule 52(a) mandatorily requires the trial court, in all actions tried upon the facts without a jury, to find the facts specially and state separately its conclusions of law thereon before the entry of judgment. The failure to do so constitutes neglect of duty on the part of the trial court, and if it appears on appeal that the rule has not been complied with, the case may be remanded for compliance." Syllabus Point 1, Commonwealth Tire Co. v. Tri-State Tire Co., 156 W.Va. 351, 193 S.E.2d 544 (1972).

4. Where attorney's fees are sought against a third party, the test of what should be considered a reasonable fee is determined not solely by the fee arrangement between the attorney and his client. The reasonableness of attorney's fees is generally based on broader factors such as: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the undesirability of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.

Franklin D. Cleckley, Morgantown, for appellant.

Elisabeth H. Rose, Rose, Southern & Padden, Fairmont, for appellee.

MILLER, Chief Justice:

The principal issue in this appeal involves the amount of attorney's fees that should be awarded to an insured's attorney who represented the insured after the insurer denied coverage.

The case below was a declaratory judgment action filed in the Circuit Court of Marion County by the Aetna Casualty & Surety Company against Paul Pitrolo, Mary Pitrolo, and Pitrolo Pontiac-Cadillac Company, which is owned and operated by Mr. Pitrolo. The purpose of the declaratory judgment action was to determine Aetna's obligations to defend Mr. Pitrolo in three separate civil suits filed against him arising from an automobile accident he had on September 13, 1981. At the time of the accident, three Aetna insurance policies were in effect. The first was an automobile insurance policy issued to Mary Pitrolo, Mr. Pitrolo's mother, covering the vehicle driven by Mr. Pitrolo in the accident. The second provided for garage insurance and was issued in the name of Pitrolo Pontiac-Cadillac Company. The third was a personal excess indemnity policy issued in the names of Pitrolo Pontiac-Cadillac Company, Acme Land Company, and Mr. Pitrolo.

Aetna denied coverage under all three policies and refused to represent Mr. Pitrolo in the civil actions. As a result of Aetna's refusal to defend him, Mr. Pitrolo hired attorney Robert Amos to represent him in the civil suits. Prior to Aetna's filing of the declaratory judgment action, Mr. Amos had represented Mr. Pitrolo in preliminary matters involving the three civil suits, which had not yet gone to trial.

Following a hearing in the declaratory judgment action, a jury found Aetna had a duty to defend Mr. Pitrolo in the civil suits under the first and third insurance policies. The jury also found that Mr. Pitrolo had not failed in any duty to cooperate with Aetna in the investigation, settlement, or defense of the suits. The trial court entered an order containing findings of fact and conclusions of law on the issue of Aetna's duty to defend Mr. Pitrolo. In addition to ordering Aetna to defend Mr. Pitrolo in the civil suits, the trial court further ordered Aetna to reimburse Mr. Pitrolo "for the costs of said defense to date to the extent and in an amount to be determined by the Court...."

No hearing was held to determine what amount of attorney's fees and other costs had been incurred by Mr. Pitrolo as a result of Aetna's refusal to represent him. The trial court was given copies of correspondence between Mr. Amos and Aetna, along with some other documentation, concerning the amount of attorney's fees incurred. Mr. Amos had not kept contemporaneous time sheets, so he attempted to reconstruct time sheets by going through his file. In a letter to Aetna, which was presented to the trial court, Mr. Amos estimated how much time he had spent performing various legal services for Mr. Pitrolo in the civil suits and the declaratory judgment action, and concluded his total attorney's fees would be approximately $114,385. In a letter dated May 23, 1984, which was also given to the trial court, Aetna made a detailed analysis of Mr. Amos's estimates and challenged many of the figures.

The trial court by a letter opinion ruled that Aetna was required to pay attorney's fees in the amount of $18,083.75. The letter opinion does not go into any detail as to how this figure was derived. Mr. Pitrolo filed a motion for reconsideration of the attorney's fee award. At the hearing where this motion was argued, the trial court was asked how it had computed the award of attorney's fees and a hearing was requested. The trial court reaffirmed its original award and denied the motion for reconsideration, stating that its original rough calculations would be placed in a sealed envelope along with the relevant material considered and would be made available for appeal purposes.

The chief issue raised in the present case is whether the trial court followed the appropriate procedure in awarding attorney's fees to Mr. Pitrolo. Included in the attorney's fee award are the legal fees generated by Mr. Amos in defending Mr. Pitrolo in the three civil actions and the declaratory judgment action. The purpose of the attorney's fee award was to reimburse Mr. Pitrolo for the legal costs incurred as a result of Aetna's unjustified refusal to defend him under the terms of its insurance policies. Although the parties have not challenged the trial court's underlying conclusion that Aetna is obligated to reimburse Mr. Pitrolo for these attorney's fees, it appears that this is an area of law which we have not had occasion to decide. A few comments are necessary in order to put the main issue into proper focus.

Most courts have held that where an insured is required to retain counsel to defend himself in litigation because his insurer has refused without valid justification to defend him, in violation of its insurance policy, the insured is entitled to recover from the insurer the expenses of litigation, including costs and reasonable attorney's fees. See Afcan v. Mutual Fire, Marine & Inland Insurance Co., 595 P.2d 638 (Alaska 1979); Petrol Industries, Inc. v. Gearhart-Owen Industries, Inc., 424 So.2d 1059 (La.Ct.App.1982); Bankers & Shippers Insurance Co. of New York v. Electro Enterprises, Inc., 287 Md. 641, 415 A.2d 278 (1980); Union Mutual Fire Insurance Co. v. Town of Topsham, 441 A.2d 1012 (Me.1982); Brown v. State Automobile & Casualty Underwriters, 293 N.W.2d 822 (Minn.1980); Truck Insurance Exchange v. Woldstad, 687 P.2d 1022 (Mont.1984); Tooker v. Hartford Accident & Indemnity Co., 136 N.J.Super. 572, 347 A.2d 371 (1975); Lerner v. General Insurance Co. of America, 219 Va. 101, 245 S.E.2d 249 (1978); see generally 7C J. Appleman, Insurance Law and Practice § 4691 (Berdal ed. 1979); 14 G. Couch, Cyclopedia of Insurance Law §§ 51:57 through : 68 (2d ed. 1982); 44 Am.Jur.2d Insurance § 1547 (1969); Annot., 49 A.L.R.2d 694 (1956). The theory for allowing this recovery is that these damages directly resulted from the insurer's breach of contract. We agree with the foregoing law and conclude the trial court was correct in finding Aetna liable to Mr. Pitrolo for the costs of litigation, including reasonable attorney's fees, incurred by Mr. Pitrolo in initially defending himself in the three civil actions.

An insured's ability to recover attorney's fees incurred in a declaratory judgment action filed to determine an insurer's duty to defend is an issue where there is a split of authority. See generally 7C J. Appleman, supra, § 4691 at 281-86; 14 G. Couch, supra, § 58:141; Annot., 87 A.L.R.3d 429 (1978).

Several jurisdictions have adopted the view that attorney's fees incurred by an insured in a declaratory judgment action are not recoverable even though a duty to defend is found to exist. E.g., Inland Mutual Insurance Co. v. Hightower, 274 Ala. 52, 145 So.2d 422 (1962); Gerhardt v. Continental Insurance Cos., 48 N.J. 291, 225 A.2d 328 (1966); Carter v. Virginia Surety Co., 187 Tenn. 595, 216 S.W.2d 324 (1948); Kremers-Urban Co. v. American Employers Insurance Co., 119 Wis.2d 722, 351 N.W.2d 156 (1984). These cases are premised on the so-called "American rule," which states that in the absence of a contractual provision, statute, or recognized ground of equity, attorney's fees are not recoverable. See Nelson v. West Virginia Public Employees Insurance Board, 171 W.Va. 445, 451, 300 S.E.2d 86, 92, 34 A.L.R. 4th 438, 447 (1982) (Neely, J., concurring opinion in which he criticizes the "American rule").

Other courts do allow a recovery if it can be shown that the insurer acted in bad faith, fraudulently,...