Siegel v. William E. Bookhultz & Sons, Inc.

• Decision Date: 28 August 1969
• Docket Number: No. 22265.,22265.
• Citation: 419 F.2d 720
• Parties: Jack SIEGEL et al. v. WILLIAM E. BOOKHULTZ & SONS, INC., et al., St. Paul Fire and Marine Insurance Co., Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

419 F.2d 720 (1969)

Jack SIEGEL et al. v. WILLIAM E. BOOKHULTZ & SONS, INC., et al., St. Paul Fire and Marine Insurance Co., Appellant.

No. 22265.

United States Court of Appeals District of Columbia Circuit.

Argued March 17, 1969.

Decided August 28, 1969.

Mr. John L. Ridge, Jr., Washington, D. C., with whom Mr. Walter J. Murphy, Jr., Washington, D. C., was on the brief, for appellant, St. Paul Fire and Marine Ins. Co.

Mr. John J. Dempsey, Washington, D. C. (appointed by the District Court) for appellee, Harold Surrey Co., Inc.

Before BAZELON, Chief Judge, PRETTYMAN, Senior Circuit Judge, and ROBINSON, Circuit Judge.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

William E. Bookhultz & Sons, Inc. (Bookhultz), a plumbing contractor, and Crane Company (Crane), a wholesaler of plumbing materials, were sued jointly in the District Court for damages following Bookhultz' installation of plumbing, utilizing allegedly defective materials supplied by Crane, in an apartment house under construction. Crane, in turn, filed a third-party complaint against Harold Surrey Company, Inc. (Surrey Corporation), which had sold the materials to Crane, seeking indemnification on the theory of a breach of warranty.

Surrey Corporation was the successor to Harold Surrey Company (Surrey Company), a sole proprietorship.¹ Before the incorporated entity came into being, and prior to the events in suit, St. Paul Fire and Marine Insurance Company (St. Paul) had issued a policy of insurance to "Harold Surrey Company" as the insured, and had amended the policy by endorsement to provide coverage for products liability on the sale of plumbing materials. The policy remained otherwise unchanged at the time of the incorporation and at the time of Crane's purchase of the materials from Surrey Corporation. That transaction was concededly embraced within the coverage of the policy if it survived the incorporation and conferred its benefits upon the corporation.

Upon notification of the third-party action, St. Paul engaged counsel² who actively defended Surrey Corporation for approximately a year and a half.³ No one seems to have entertained misgivings as to St. Paul's obligation under the policy to do so until St. Paul became conscious of the fact that the policy had never been formally endorsed to the corporation as the insured. St. Paul then took the position that it had no contract of insurance with the corporation, and its attorney obtained leave of the District Court to withdraw from the case.⁴

Since Surrey Corporation, as a corporation, could not continue in propria persona,⁵ the court appointed new counsel to represent it, which it was financially unable to arrange on its own.⁶ Appointed counsel promptly asserted the continuing efficacy in the corporation's favor of the policy stipulations protecting against products liability, and commenced a series of activities designed to obtain their enforcement.⁷ The controversy matured when counsel filed what may be described as a fourth-party complaint against St. Paul seeking a declaratory judgment respecting its responsibility under the policy for expenses incurred in the litigation. The fourth-party action was severed from the main action and advanced for prior trial by the court without a jury.⁸

The court concluded that St. Paul had received sufficient notice of the incorporation to extend the coverage of the policy to Surrey Corporation⁹ and, moreover, that St. Paul was estopped by the representation it furnished the corporation to deny that the policy protected it; and these rulings are not contested on this appeal.¹⁰ The court then awarded Surrey Corporation a judgment declaring, among other things, that St. Paul was liable "for all . . . costs of legal representation" in the proceedings since St. Paul's attorney withdrew,¹¹ and from this judgment St. Paul appeals.

I

St. Paul does not complain of the judgment insofar as it adjudicates responsibility for the corporation's counsel fees in defending the suit brought by Crane.¹² It contends, instead, that the judgment is erroneous to the extent that it makes St. Paul financially answerable for legal services attributable to prosecution of the action respecting coverage and duty to defend. Pointing to the absence of a specific policy provision on the subject, St. Paul refers us to the proposition that fees of counsel for prevailing litigants are usually non-recoverable.

Such is the general rule,¹³ but one subject to "limited exceptions . . when overriding considerations of justice seem to compel such a result,"¹⁴ and this case, we think, falls within such an exception. Thus we have no occasion to select from the decided cases¹⁵ a fixed rule to broadly govern ordinary breach-of-duty cases. For the same reason, we need not inquire whether the questioned fees would normally qualify as costs "as between solicitor and client,"¹⁶ which St. Paul would dispute, or delve into the policy stipulations, as Surrey Corporation urges, to ascertain whether any may be construed to render such fees allowable.¹⁷ Our starting point, rather, is St. Paul's express policy obligation to defend any suit for damages against the insured arising out of a risk insured against. That obligation, the District Court held, ran in favor of the corporation and was not fulfilled by St. Paul, and that holding is not under attack here.

It is well settled that an insurer's refusal to defend a claim within the coverage of a liability policy constitutes a breach of contract rendering the insurer liable to the insured for the losses resulting.¹⁸ The damages recoverable therefor include not only the adjudicated or negotiated amount of the claim¹⁹ and the insured's expenses in resisting it²⁰ but also any additional loss legally traceable to the breach.²¹ Thus we reach the question whether counsel fees incurred in this branch of the litigation were assessable as a part of the damages flowing from St. Paul's nonperformance of its contract to defend Surrey Corporation against the demand asserted by Crane.²² We treat that question in the light of the peculiar circumstances disclosed by the record before us, for whatever conclusion we might be inclined to reach in a situation presenting a bare breach of the contract to defend, we do not have so simple a situation here. What we do have, by our estimate, is a breach under conditions justifying the District Court in imposing upon St. Paul a responsibility for the full expense of the litigation between the corporation and it.

II

Courts in some number have held that a party may recover the fees of his counsel where the conduct of his opponent has been oppressive,²³ and we ourselves have indicated as much.²⁴ In damage suits the rationale recently espoused by the Supreme Court is that the fees constitute an item of compensatory damages.²⁵ We think the chain of circumstances giving rise to the present controversy was such as to bring the case within the ambit of that line of authority.

After unqualifiedly taking over and for many months maintaining the defense of Surrey Corporation, St. Paul's attorney discontinued his services. That was done on St. Paul's instructions effectuating its position that the policy did not burden it with the defense. That position, we reiterate, stemmed from the fact that the policy had been issued to the unincorporated Surrey Company, and by St. Paul's reckoning did not insure the corporation that succeeded it.

The reasonableness of St. Paul's stand — a relevant consideration, since unreasonableness breeds oppression — is at once suspect. The record contains no suggestion that St. Paul investigated more than the designation of the insured in the insurance contract, or that it ever consulted Surrey Corporation on this aspect of the matter. Had it done either, it very probably would have gained information that Harold Surrey claimed that he gave notice of the incorporation to one of St. Paul's agents — a claim which St. Paul was unable to refute at the trial.²⁶ To this may be added the significance, in terms of duties imposed by the policy, of St. Paul's assumption of the corporation's defense. At no time did St. Paul seek a full-fledged judicial determination²⁷ as to whether the facts bore out its legal view, a view the District Court was later to reject as doubly erroneous.²⁸

Nonetheless, it was St. Paul's resolve to terminate the defense, and its attorney moved the District Court for leave to withdraw. Leave was granted, but certainly not under conditions warranting the thought that the court could have fully appraised the problem. The substance of the motion lay in its flat allegation that St. Paul "at no time covered the third-party defendant corporation with an insurance policy that would entitle them to a defense of the suit, . . ." While technically an accurate statement of St. Paul's thesis, this allegation hardly said enough to reveal its questionability. There was no debate before the court; indeed, the motion was unopposed, for a reason not difficult to discern from the record. Service of the motion on the corporation was attempted by mailing a copy to Harold Surrey who, in a deposition filed in the action some six months previously, had stated that he no longer held office or stock in the corporation. The further fact is that by this time Surrey Corporation was defunct and unable to do anything for itself.²⁹

Court-appointed counsel for Surrey Corporation, promptly after appointment, moved for reconsideration of the order allowing withdrawal, an effort St. Paul opposed. Its opposition, and much more to follow, came forth despite the inclusion in the motion papers of Harold Surrey's claim that he had orally informed St. Paul's agent of the incorporation. The motion was unsuccessful³⁰ but, after the filing of the fourth-party complaint, there were further proceedings throughout which St. Paul fought the corporation every step of the way.³¹ It was only when the litigation reached this court that...