Select Comfort Corp. v. Arrowood Indem. Co.
| Decision Date | 20 August 2015 |
| Docket Number | No. 13-cv-2975 (JNE/FLN),13-cv-2975 (JNE/FLN) |
| Parties | Select Comfort Corporation, Plaintiff, v. Arrowood Indemnity Company, Defendant and Third-Party Plaintiff, v. St. Paul Mercury Insurance Company, Third-Party Defendant. |
| Court | U.S. District Court — District of Minnesota |
This matter is before the Court on Plaintiff Select Comfort Corporation's Amended Motion for an Award of Attorneys' Fees, Costs, and Interest from Defendant Arrowood Indemnity Company. For the reasons and in the manner discussed below, the motion is granted in part and denied in part.
This case arose out of a dispute over Arrowood's duty to defend Select Comfort against a putative class action lawsuit. Select Comfort is the maker of the Sleep Number bed, and Arrowood is an insurance company from which it had purchased two commercial general liability ("CGL") policies for the years 2001-02 and 2002-03.
The underlying case, referred to as the Stearns litigation, was brought against Select Comfort in California in 2008. That suit included claims by several co-plaintiffs who alleged that they had suffered health problems from mold in the Sleep Number beds they had purchasedover roughly the prior two decades. Select Comfort tendered its defense of that matter to several insurers with whom it held liability policies during the time period implicated by those claims. Among those insurers was Arrowood, which accepted Select Comfort's tender with a reservation of rights.
Select Comfort took the position that Arrowood's reservation of rights created a conflict of interest in the defense of the Stearns action, thereby converting Arrowood's obligation to provide Select Comfort with a defense into an obligation to pay Select Comfort for the reasonable attorneys' fees and costs it incurred in defending itself. Accordingly, Select Comfort rebuffed Arrowood's plan to select defense counsel for the Stearns matter and retained counsel of its own choosing from the law firm of Oppenheimer Wolff & Donnelly, with attorneys from the firm of Pillsbury Winthrop Shaw Pittman serving as local counsel. Arrowood disagreed with the position Select Comfort took regarding its reservation of rights, but agreed to reimburse Select Comfort for some of the defense fees and costs that would be incurred through Oppenheimer and Pillsbury Winthrop.
The Stearns litigation then proceeded over the next several years. Select Comfort successfully resisted class certification and, in the summer of 2012, reached a settlement with the individual co-plaintiffs. During the mediation that produced the settlement, Arrowood agreed to pay 33% of the total, with Select Comfort paying the remaining 67%.
All told, Oppenheimer and Pillsbury Winthrop billed Select Comfort for a total of $1,033,780 in attorneys' fees and costs for the Stearns defense. Arrowood and two other of Select Comfort's insurers paid approximately half of that amount - $557,252 - over the course of the litigation, while Select Comfort paid the balance to the firms.
In 2013, more than a year after the Stearns case settled, Select Comfort commenced this action against Arrowood, seeking to recover from it the approximately $500,000 in defense costs that it had paid to the law firms. In its Complaint, Select Comfort pled two counts: at Count I, a claim that "Arrowood has breached the [CGL] Policies by wrongfully refusing to reimburse Select Comfort for approximately half a million dollars that Select Comfort paid in reasonable and necessary defense fees and costs that were incurred in defending the Stearns Action"; and at Count II, a request for "a judicial declaration that Arrowood has a duty to fully reimburse Select Comfort for its reasonable and necessary fees and costs incurred by Select Comfort in defending the Stearns Action through independent counsel retained by Select Comfort."
Soon after Arrowood answered the Complaint, Select Comfort moved for a "partial summary judgment declaring that . . . Arrowood['s] reservation of rights created a conflict of interest, which precluded Arrowood from selecting defense counsel and controlling Select Comfort's defense of the [Stearns] lawsuit . . . ." Finding the record undeveloped and the motion premature, the Court denied it without prejudice.
Arrowood then filed a Third-Party Complaint against the other insurance companies from whom Select Comfort had purchased liability policies during the time period implicated by the Stearns plaintiffs' claims. Over eight counts, Arrowood asserted claims against those other insurers for contribution with respect to the amounts it paid towards both the Stearns defense costs and the settlement. Within weeks of that filing, Arrowood also moved for leave to amend its Answer in order to assert a counterclaim against Select Comfort for reimbursement of an amount that it believed it had "overpaid" towards the Stearns settlement.
With that motion for leave to amend pending, Select Comfort refiled its motion for partial summary judgment on the conflict of interest issue. Arrowood responded with a cross-motion inwhich it sought a "summary judgment declaring that Arrowood's coverage position did not create a conflict of interest such that Arrowood was precluded from selecting defense counsel and controlling the defense of the [Stearns] lawsuit . . . ." As those motions were being briefed, Arrowood's motion for leave to amend its Answer was granted, and Arrowood accordingly filed its counterclaim for reimbursement against Select Comfort. When the dispositive cross-motions were heard, the Court found that the manner in which Arrowood had reserved its right to challenge whether the Stearns action was covered by its CGL policies created "a conflict of interest . . . that converted [Arrowood's] duty to defend into a duty to reimburse the reasonable costs of [the] separate counsel" at Oppenheimer and Pillsbury Winthrop that Select Comfort had hired to defend it. The Court therefore granted Select Comfort's motion for partial summary judgment and denied Arrowood's motion for summary judgment.
Within days of that decision, Select Comfort filed a motion for summary judgment on Arrowood's counterclaim and a motion to exclude the testimony of Arrowood's expert witness. The Court denied Select Comfort's Daubert motion and granted its summary judgment motion, finding that Arrowood's pursuit of reimbursement from Select Comfort for money it had unconditionally paid towards the Stearns settlement did not constitute a viable claim.
The cumulative effect of these rulings was to leave only Select Comfort's breach of contract claim against Arrowood for trial, which took place over four days in April of 2015. On April 10, 2015, the jury returned a special verdict in which it found: (1) that Select Comfort had carried its burden of proving that the total amount of attorneys' fees and costs that were reasonable and necessary to defend it in the Stearns action was more than the $557,252 it had been reimbursed by Arrowood and the two other insurers; (2) that the total amount of attorneys' fees and costs that were reasonable and necessary to the Stearns defense was $964,252; and (3)that Select Comfort would therefore recover the $407,000 difference from Arrowood. After Arrowood subsequently resolved its outstanding third-party claims against Select Comfort's other insurers, judgment was entered in accordance with the jury's special verdict on June 30, 2015.
With the motion now before the Court, Select Comfort seeks (1) the addition of pre- and post-judgment interest to the $407,000 it was awarded in accordance with the jury's special verdict and (2) an award of $849,208, plus pre- and post-judgment interest, for the attorneys' fees and costs that it incurred in bringing this case. The Court will address these two aspects of the motion in turn.
First, Select Comfort's moves under Federal Rule of Civil Procedure 59(e) to add pre-and post-judgment interest to the $407,000 it recovers from Arrowood as a result of the jury's special verdict.
In a diversity case such as this, pre-judgment interest is awarded in accordance with state law. Schwan's Sales Enters. v. SIG Pack, Inc., 476 F.3d 594, 595 (8th Cir. 2007). To determine which state's law applies, courts "look to the conflict-of-law principles of the state where the district court sits." Id. Under Minnesota's conflict-of-law rules, "if the law is procedural, then we apply the law of the forum state." Nesladek v. Ford Motor Co., 46 F.3d 734, 736 (8th Cir. 1995). Because "the issue of prejudgment interest . . . is a procedural matter for conflict-of-lawspurposes under Minnesota law," Schwan's, 476 F.3d at 595, Minnesota's pre-judgment interest statute applies.
And indeed, Select Comfort and Arrowood agree that Minn. Stat. § 60A.0811 "exclusively governs" Select Comfort's request for pre-judgment interest on its $407,000 recovery. They disagree, however, about its application to the facts of this case. That statute reads as follows:
An insured who prevails in any claim against an insurer based on the insurer's breach or repudiation of, or failure to fulfill, a duty to provide services or make payments is entitled to recover ten percent per annum interest on monetary amounts due under the insurance policy, calculated from the date the request for payment of those benefits was made to the insurer.
The parties' dispute two issues: (1) whether Arrowood "breach[ed] or repudiat[ed], or fail[ed] to fulfill, a duty to provide services or make payments" to Select Comfort; and (2) on what date Select Comfort made the requisite "request for payment of those benefits."
On the first issue, Arrowood contends that Select Comfort is not entitled to pre-judgment interest because "there is no evidence, verdict, or finding that Arrowood 'breached,' 'repudiated,' or 'failed to fulfill a duty' to Select Comfort . . . ." This argument is wholly without merit. The Stearns action was covered by the two CGL policies Select Comfort...
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