Liberty Mut. Ins. Co. v. Continental Cas. Co., s. 84-1877

• Decision Date: 23 August 1985
• Docket Number: Nos. 84-1877,84-1878,s. 84-1877
• Citation: 771 F.2d 579
• Parties: LIBERTY MUTUAL INSURANCE CO., Plaintiff, Appellant, v. CONTINENTAL CASUALTY CO., Defendant, Appellee. LIBERTY MUTUAL INSURANCE CO., Plaintiff, Appellee, v. CONTINENTAL CASUALTY CO., Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 579

771 F.2d 579

LIBERTY MUTUAL INSURANCE CO., Plaintiff, Appellant, v. CONTINENTAL CASUALTY CO., Defendant, Appellee.

LIBERTY MUTUAL INSURANCE CO., Plaintiff, Appellee, v. CONTINENTAL CASUALTY CO., Defendant, Appellant.

Nos. 84-1877, 84-1878.

United States Court of Appeals, First Circuit.

Argued May 8, 1985.

Decided Aug. 23, 1985.

James D. Casey, Boston, Mass., with whom Law Offices of James D. Casey and Steven A. Rusconi, Boston, Mass., were on brief for Liberty Mut. Ins. Co.

Thomas D. Burns, Boston, Mass., with whom Charles Mark Furcolo, Alan K. Posner, Steven H. Goldberg and Burns & Levinson, Boston, Mass., were on brief for Continental Cas. Co.

Before CAMPBELL, Chief Judge, COFFIN and TORRUELLA, Circuit Judges.

COFFIN, Circuit Judge.

The issues in these cross-appeals center upon the costs incurred by H.H. Robertson Co. (Robertson) and its assignee, plaintiff Liberty Mutual Insurance Co. (Liberty), in defending Robertson in three state court suits arising out of the failure of glass panels which Robertson had installed in the Hancock Tower in Boston, Massachusetts. In one of these suits, a declaratory judgment action brought by defendant Continental Casualty Company (Continental), it was held that Continental was obligated, pursuant to a comprehensive liability insurance policy, to defend Robertson in the other two suits, both of which were ultimately settled. Thereafter, Liberty filed this federal action in an attempt to recover from Continental the $1.75 million that Liberty had spent in defending Robertson. Trial on the question of what part of these fees ¹ were reasonable resulted in a jury verdict of $1.29 million for Liberty. The district court entered judgment for that amount plus $610,000 in interest. Both parties appeal with respect to several of the district court's rulings. For reasons detailed below, we affirm the district court in all respects but one.

BACKGROUND

A number of parties were involved in the construction of the Hancock Tower, which was commenced in 1969. Four of the parties, including Robertson, the installer of the glass panels constituting the "curtain wall" that formed the outside of the building, ² were insured by two policies underwritten by defendant Continental and purchased by the owner of the building, the John Hancock Mutual Life Insurance Company (John Hancock). The primary policy, the only one that is of concern here, stated that Continental had "the right and duty to defend any suit against [Robertson] seeking damages on account of bodily injury or property damage...."

By the spring of 1973, it was clear that the curtain wall was seriously defective, as numerous glass panels were being blown from the building and onto the streets below. On June 1, 1973, Robertson notified Continental's agent by letter that John Hancock considered Robertson to be in breach of its contract to install suitable and safe glass panels. Robertson added that it would present to Continental any claims that might be filed for personal injury or property damage arising out of the failure of the glass panels. On June 8, 1973, Continental's agent responded in a letter, noting that no claims for personal injury or property damage had yet been filed, suggesting that its policy might not cover a contract claim by John Hancock (ostensibly because John Hancock was a co-insured under the policy and not a "third-party"), and promising that Continental would live up to the obligations of its policy if and when a third-party claim for injuries and property damage were presented. Interpreting this response as a firm statement that Continental would not defend Robertson against any breach of contract action subsequently filed by John Hancock, Robertson For a number of reasons, including the fact that John Hancock, Robertson, and others involved in the design and construction of the building agreed to try to solve the problem of the defective panels before filing any suits, it was not until more than two years later, on September 15, 1975, that John Hancock filed suit in state court against Robertson and several others. ³ Continental's formal refusal to defend Robertson in that action was indicated in a letter dated October 10, 1975. Approximately one month later, a second state action was filed, this one by Mama Leone's, a local restaurant whose business was adversely affected by the falling glass. On January 26, 1976, Continental sent a letter refusing to defend Robertson in this second liability suit. In both cases, Continental's contention was that certain provisions in the policy excluded coverage of the type of claims brought by John Hancock and Mama Leone. To fully set forth its view of its obligations under the policy and to obtain a judicial determination thereof, Continental filed a third state action, one for declaratory judgment, on April 20, 1976.

retained the legal services of Goodwin, Procter & Hoar on June 20, 1973.

The two liability suits were eventually settled by all parties, with Robertson agreeing in December of 1982 to pay approximately $2.6 million in damages. During the years of litigation, Liberty and its counsel, the law firm of Goodwin, Procter & Hoar, asked Continental on a number of occasions whether it wanted to change its position and take over Robertson's defense of the two liability suits. Each time Continental declined to assist. Not until June of 1981, when litigation of the declaratory judgment action resulted in an initial determination that Continental's policies did obligate it to defend Robertson, did Continental's stance begin to soften. Thereafter, while appealing the declaratory judgment ruling to the Massachusetts Supreme Judicial Court, Continental made serious efforts to settle the two liability claims. Settlement was achieved about 18 months later, and two years after that Massachusetts's highest court affirmed the lower court's decision in the declaratory judgment action, establishing once and for all Continental's duty to defend. Continental Casualty Co. v. Gilbane Building Co., 391 Mass. 143, 156, 461 N.E.2d 209, 217 (1984).

On April 20, 1983, Liberty, which in 1977 had assumed the cost of defending Robertson in all three of the state actions, commenced this suit against Continental. In its complaint, Liberty sought the $1.75 million in fees it had incurred plus interest measured from the various dates on which it had made fees payments to Goodwin, Procter & Hoar. Trial was held to determine whether all or part of that amount was reasonably incurred. As we noted at the outset, the jury found that only $1.29 million was reasonable and thereafter the court determined that under Massachusetts' interest provision for contract actions, Mass.Gen.Laws ch. 231, Sec. 6C, $610,000 in interest should be awarded. On appeal Liberty claims that rather than trying the question of the reasonableness of the fees, the district court should have simply awarded the full amount of fees incurred, and that significantly greater interest should have been awarded. Continental cross-appeals, claiming that a new trial should be granted because the district court incorrectly allowed Liberty to recover, first, fees incurred before the John Hancock suit was filed in 1975 and, second, fees incurred in the defense of the declaratory judgment action. Continental also claims that various remarks by the trial court in the presence of the jury seriously prejudiced Continental's case.

DISCUSSION

A. Burden of Proving Reasonableness of Incurred Fees and Expenses

Liberty contends that, as a matter of law, it should have recovered the attorney's fees actually incurred and that it should not have been required to establish the reasonableness of those fees. We are not persuaded by any of the grounds that Liberty advances to support this claim.

In the first place, Liberty suggests that Massachusetts law calls for the recovery of incurred fees, rather than reasonable fees. There is no support for this in Massachusetts case law, see Magoun v. Liberty Mutual Insurance Co., 346 Mass. 677, 684, 195 N.E.2d 514, 519 (1964) (insurer required to pay the "reasonable charges" of counsel hired by insured); Mandell v. Fidelity & Casualty Co., 170 Mass. 173, 178, 49 N.E. 110 (1898) (insured's duty is "to take all reasonable means to reduce" the amount of its liability in defending against a claim that the insurer refuses to defend). Furthermore, the standard treatises on the law of insurance establish clearly that only reasonable fees may be recovered. 7C J. Appleman, Insurance Law and Practice Sec. 4691, at 261 (1979) ("[A]ttorneys' fees incurred by the insured in the defense of an action must be shown to be reasonable to allow a recovery thereof from the insurer."); 14 G. Couch, Cyclopedia on Insurance 2d (Rev. ed.) Sec. 51:61, at 539 (1982); 1 R. Long, The Law of Liability Insurance Sec. 5.15, at 5-97 (1985). To apply a lesser standard would be to invite excessive, duplicative, or outrageous charges--charges which were not originally contemplated by the parties to the policy and which, if allowed, might ultimately lead to increased premiums for many purchasers of insurance. We conclude therefore that the district court was correct in putting to the jury the question of whether all or part of the fees and expenses incurred by Robertson and Liberty were reasonable.

Secondly, Liberty contends that it should have been Continental's burden to prove the unreasonableness, not Liberty's to prove the reasonableness, of the fees and expenses actually charged by Goodwin, Procter & Hoar. This stands the law on its head. As we have just established, Liberty's claim was, by law, for the "reasonable" fees that it incurred. It is obvious that the party claiming such expenditures has the burden of proving them, including the burden of proving whether the fees were in fact reasonable. See Snow v. Mikenas, 373 Mass. 809, 812, 370 N.E.2d 1001, 1003 (1977); First National Bank of Boston v. Brink, 372 Mass....