General Star Indem. v. Virgin Islands Port Auth.

• Decision Date: 29 May 2008
• Docket Number: Civil No. 2001-188.
• Citation: 564 F.Supp.2d 473
• Parties: GENERAL STAR INDEMNITY COMPANY, Plaintiff, v. VIRGIN ISLANDS PORT AUTHORITY, Defendant.
• Court: U.S. District Court — Virgin Islands

564 F.Supp.2d 473

GENERAL STAR INDEMNITY COMPANY, Plaintiff, v. VIRGIN ISLANDS PORT AUTHORITY, Defendant.

Civil No. 2001-188.

District Court, Virgin Islands, D. St. Croix.

May 29, 2008.

Felice M. Quigley, Esq., St. Croix, V.I., for the Plaintiff.

Henry V. Carr, III, Esq., St. Thomas, V.I., for the Defendant.

MEMORANDUM OPINION & ORDER

GÓMEZ, Chief Judge.

Before the Court is the motion of the plaintiff General Star Indemnity Company ("General Star") for summary judgment on Count Three of the complaint filed by the defendant Virgin Islands Port Authority ("VIPA"). For the reasons stated below, the Court will deny the motion.

I. FACTS

From October 27, 1999 to March 15, 2001, and from March 15, 2001, to March 15, 2002, VIPA was insured by General Star under several insurance policies (collectively, the "Policies"). The Policies provided two categories of coverage: Employment Practices Liability and Public Officials Liability. The Policies stated that General Star will pay the sums that VIPA becomes legally obligated to pay as damages resulting from claims for wrongful acts covered by the policies ("Employment Wrongful Acts" and "Public Officials Wrongful Acts").

On April 9, 2001, over 100 residents of Estate Paradise in St. Croix, U.S. Virgin Islands, commenced an action against VIPA in this Court (the "Yellow Cedar litigation"). The Yellow Cedar litigation stems from the construction of an extension of the Henry E. Rohlson Airport in St. Croix. The Yellow Cedar plaintiffs allege that VIPA's actions in connection with the construction effected an unconstitutional taking of their real property. They also assert several causes of action stemming from the alleged emission of pollutants, dust, and other particles from the construction. VIPA tendered the defense of the Yellow Cedar litigation to General Star.

In a letter dated June 12, 2001, Summit Risk Services, Inc. ("Summit"), third party administrator for General Star, informed VIPA's counsel that the claims against VIPA in the Yellow Cedar litigation were not covered by the Policies, and that General Star refused to defend VIPA in the Yellow Cedar litigation. On September 25, 2001, Summit sent a second letter to VIPA's counsel. The September 25, 2001, letter states:

[N]one of the claims asserted in the [Yellow Cedar] Complaint are covered nor potentially covered under the scope of said policies.

...

However, [General Star] will defend VIPA UNDER A RESERVATION OF RIGHTS. We reserve all rights to continue to deny coverage and/or to withdraw from defending VIPA from any and all claims asserted in the [Yellow Cedar] Complaint.... In addition, we reserve all rights to seek reimbursement from VIPA for all costs and attorney's fees to be expended in the defense of any and all claims that we had no duty to defend and/or that are not covered and/or not potentially covered under the scope of the policies.....

(Varley Letter 2, 6, Sept. 25, 2001.)¹

Thereafter, General Star filed a three-count complaint against VIPA. Count One of the Third Amended Complaint (the "Complaint") seeks a declaration from the Court that, under the Policies, General Star owes no duty to defend VIPA in the Yellow Cedar litigation. Count Two requests a declaration from the Court that, under the Policies, General Star owes no duty to indemnify VIPA in the Yellow Cedar litigation. Count Three alleges that General Star is entitled to a declaratory judgment stating that VIPA must reimburse General Star for all costs and attorneys' fees expended defending VIPA in the Yellow Cedar litigation.

General Star moved for summary judgment against VIPA. This Court granted General Star's motion with respect to the issue of General Star's duty to defend or indemnify VIPA in the Yellow Cedar litigation. The Court entered a judgment declaring that General Star owed no duty to defend or indemnify VIPA in the Yellow Cedar litigation. The Court indicated that it would dispose of the request for declaratory relief set forth in Count Three separately.

II. DISCUSSION

Summary judgment is appropriate under Federal Rule of Civil Procedure 56 ("Rule 56") if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Hersh v. Allen Products Co., 789 F.2d 230, 232 (3d Cir.1986).

The movant has the initial burden of showing there is no genuine issue of material fact, but once this burden is met it shifts to the non-moving party to establish specific facts showing there is a genuine issue for trial. Gans v. Mundy, 762 F.2d 338, 342 (3rd Cir.1985). "[T]here is no issue for trial unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Anderson, 477 U.S. at 249, 106 S.Ct. 2505. "[A]t the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In making this determination, this Court draws all reasonable inferences in favor of the non-moving party. See Bd. of Educ. v. Earls, 536 U.S. 822, 850, 122 S.Ct. 2559, 153 L.Ed.2d 735 (2002).

III. ANALYSIS

General Star argues that summary judgment is appropriate on Count Three of the Complaint because General Star is entitled to reimbursement for attorneys' fees and costs expended defending VIPA in the Yellow Cedar litigation. General Star asserts that, because it agreed to defend VIPA pursuant to a reservation of rights contained in the September 25, 2001, letter, it is entitled to recoup the attorneys' fees and costs expended prior to this Court's determination that the Yellow Cedar claims were outside the scope of coverage of the Policies.

An insurer's right to reimbursement of defense costs expended in a separate action is an issue of first impression in the Virgin Islands. Other courts that have considered the matter are split as to whether an insurer may bring a cause of action against an insured for attorneys' fees and costs expended defending the insured in a different matter. See Perdue Farms, Inc. v. Travelers Cos. and Surety Co. of Am., 448 F.3d 252, 258 (4th Cir. 2006) (acknowledging that "jurisdictions differ on the soundness of an insurer's right to reimbursement of defense costs"); LA Weight Loss Centers, Inc. v. Lexington Ins. Co., 2006 WL 689109 at *6 (Pa.Com. Pl.2006) ("A review of the[ ] cases demonstrates a split in authority as to whether recoupment should be permitted.").

Some courts have held that allowed causes of action by insurers for reimbursement for the cost of litigating claims against which there was no duty to defend, or for a judgment declaring the insurer's right to such reimbursement. See, e.g., United Nat'l Ins. Co. v. SST Fitness Corp., 309 F.3d 914, 921 (6th Cir.2002) ("We agree that allowing an insurer to recover under an implied in fact contract theory so long as the insurer timely and explicitly reserved its right to recoup the costs and provided specific and adequate notice of the possibility of reimbursement promotes the policy of ensuring defenses are afforded even in questionable cases"); Buss v. Super. Ct., 16 Cal.4th 35, 65 Cal. Rptr.2d 366, 939 P.2d 766 (1997) (allowing an insurer's action for a declaratory judgment stating that it was entitled to reimbursement for costs defending claims not even potentially covered by the policy, reasoning that the insurer had a "right of reimbursement that is implied in law as quasi-contractual.... run[ning] against the person who benefits from `unjust enrichment' and in favor of the person who suffers loss thereby"); Resure, Inc. v. Chemical Distribs., Inc., 927 F.Supp. 190, 194 (M.D.La.1996) (holding that the insurer was entitled to recover all defense costs because it timely and specifically reserved the right to seek reimbursement and the insured failed to object to the reservation); Knapp v. Commonwealth Land Title Ins. Co., 932 F.Supp. 1169, 1172 (D. Minn.1996) (granting summary judgment in favor of the insurer on its claim for reimbursement for costs litigating a prior action because "[the insured's] silence in response to [the insurer's] reservations of rights letter, and subsequent acceptance of the defense provided by [the insurer], constitutes an implied agreement to the reservation of rights"); N. Atl. Casualty & Surety Ins. Co. v. William D., 743 F.Supp. 1361 (N.D.Cal.1990) (concluding that reimbursement for defense costs was appropriate because the insurer reserved its rights in a letter and the insured accepted the defense without comment).

Courts that recognize such claims for reimbursement of defense costs generally do so under a quasi-contract theory, allowing recovery to prevent unjust enrichment. For example, in Buss v. Superior Court of Los Angeles, 16 Cal.4th 35, 65 Cal.Rptr.2d 366, 939 P.2d 766 (1997), the insurer agreed to pay for the defense of the underlying action against the insured, but reserved the right to deny actual coverage and the right to reimbursement in the event of a determination that the claim was not covered. Buss, 65 Cal.Rptr.2d 366, 939 P.2d at 770. It was later determined that only one of twenty-seven claims against the insured was even potentially covered by the policy. Id. The court explained that the insured had paid premiums in consideration for the defense of the claim that was potentially covered by the policy. Id. at 775. The defense of the potentially-covered claim was therefore part of the bargained-for exchange between the insurer and the insured. Id. Accordingly, the court concluded that the insurer had no right to reimbursement for the claim that was potentially covered by the policy. Id. at 774-75. On the other hand, the Buss court found that...