Liberty Mut. Ins. Co. v. Black & Decker Corp.

383 F.Supp.2d 200

LIBERTY MUTUAL INSURANCE CO., Plaintiff, v. THE BLACK & DECKER CORP., Black & Decker, Inc., Black & Decker, U.S. Inc., Emhart Corp., and Emhart Industries, Inc., Defendants.

No. Civ.A.96-10804-DPW.

No. Civ.A.04-10657-DPW.

No. Civ.A.04-10684-DPW.

United States District Court, D. Massachusetts.

August 25, 2004.

COPYRIGHT MATERIAL OMITTED

Deborah E. Barnard, Robin-Lee Main, Holland & Knight, LLP, Boston, MA, for Plaintiff.

Janice Kelley Rowan, Ralph T. Lepore, III, Holland & Knight, LLP, Boston, MA, for Plaintiff and Counter Defendants.

Jack R. Pirozzolo, Richard E. Bennett, Richard L. Binder, Willcox, Pirozzolo & McCarthy, P.C., Boston, MA, for Defendants and Counter Claimants.

MEMORANDUM AND ORDERS REGARDING POST-TRIAL MOTIONS

WOODLOCK, District Judge.

                                   TABLE OF CONTENTS
  I.  Motions for Judgment as a Matter of Law ......................................202
 II.  Scope of Reimbursable Defense Costs ..........................................203
      A.  Pre-November 1994 Expenses ...............................................203
      B.  Prejudgment Interest .....................................................208
      C.  Standards for Determining Reasonableness of Legal Fees and Costs .........209
III.  Scope of Reimbursable Indemnity Costs ........................................210
      A.  "Deemer" Clause ..........................................................210
      B.  Allocation of Damage to Individual Policy Periods ........................214
      C.  "Non-Cumulation of Liability" Clauses ....................................216
      D.  Reduction for Settlement from Aetna ......................................216
 IV.  Attorney's Fees in Declaratory Judgment Action ...............................217
      A.  Existence of Common Law Right to Fees ....................................217
      B.  Fees for Issues Other Than the Duty to Defend ............................219
  V.  Conclusion ...................................................................222

Pending before me are various post-trial motions related to the Whitman and Bostik Middleton sites. The motions address four main topics: (1) judgment as a matter of law after trial; (2) the scope of reimbursable defense costs; (3) the scope of reimbursable indemnity costs; and (4) attorney's fees in the declaratory judgment action.

I. Motions for Judgment as a Matter of Law

The parties respectively press motions for judgment as a matter of law on grounds fully considered earlier in the proceedings. I find no basis to disturb earlier rulings or the jury's verdict. Consequently, Liberty Mutual's motion for judgment as a matter of law or partial new trial and Black & Decker's motion for judgment as a matter of law will be denied.

II. Scope of Reimbursable Defense Costs

A. Pre-November 1994 Expenses

Liberty Mutual argues that (1) the same limitations concerning pre-November 3, 1994 expenses that apply to the Bostik Middleton site should also apply to the Whitman site, and (2) those limitations exclude all defense costs as a general proposition.

Before addressing these contentions, it will be useful to review precisely what I held concerning Bostik Middleton in my December 5, 2003 Memorandum and Order. There I distinguished Black & Decker's response to a 1986 Notice of Responsibility ("NOR") from its response to cleanup orders that followed. See December 5, 2003 Memorandum and Order, Doc. 372, at 110-12.¹ As to the NOR, I found:

... Liberty Mutual has not produced any evidence that it was prejudiced by this compliance with the NOR. I find it unlikely that, had Liberty Mutual been able to assume Black & Decker's defense, it could have contrived a way to avoid conducting [site] assessments. If there was such a way, I cannot speculate as to it in Liberty Mutual's favor for purpose of Liberty Mutual's summary judgment motion.

Id. at 110.

By contrast, as to the subsequent cleanup order, I found:

The record contains absolutely no evidence suggesting that Black & Decker resisted DEP's cleanup order.... I find that Liberty Mutual is entitled to partial summary judgment declaring that the remediation monies already spent by November 1994 (when Liberty Mutual received notice of the claim) were voluntarily paid in a manner prejudicial to Liberty Mutual, and that those costs were therefore not covered. In other words, Black & Decker's claims for indemnification for pre-November 1994 remediation are not recoverable.

. . . . .

My judgment at this stage is necessarily painted in broad strokes, so the upshot of this finding is somewhat unclear for the purpose of the duty to defend (as against the duty to indemnify). In addition to the pre-November 1994 remediation costs, which are excluded, Black & Decker's defense costs (if any) that can be specifically attributed to defending against the DEP cleanup order are also not recoverable.

Id. at 111-12 & n. 26 (emphasis in original).

It is important to emphasize that I distinguished Black & Decker's pre-notice response to the NOR from its pre-notice response to the eventual cleanup order. While both violated the notice and voluntary payments provisions, only for the latter could Liberty Mutual establish prejudice as a matter of law. The difference is relatively simple: there are myriad ways to attempt to resist or modify a cleanup order, but it is nearly impossible to avoid conducting a site assessment pursuant to an NOR where there has been a solvent leak into soil. See id. at 100-01.

In short, I granted Liberty Mutual's motion as to the pre-notice costs attributable (whether under the banner of defense or indemnity) to the cleanup order, because, as a matter of law, Liberty Mutual had been prejudiced by Black & Decker's response to this order. Conversely, I did not grant Liberty Mutual's motion as to pre-notice costs attributable to the NOR, because I did not find that, as a matter of law, Liberty Mutual had been prejudiced by Black & Decker's voluntary site assessments.

I must emphasize what I did not hold. I did not hold that, at the Bostik Middleton site, all defense costs predating notice are unrecoverable. Nor did I hold, as a general proposition, that all defense costs predating notice are unrecoverable. Liberty Mutual assumes that I have reached the first conclusion, and now urges me to reach the second.

In my December 5, 2003 Memorandum and Order, I explained that pre-notice defense costs attributable to the cleanup order were excluded. See id. at 112 n. 26. In a subsequent January 16, 2004 memorandum, I observed that "[i]t may be that there is no category of expenses that fall within the duty to defend but are attributable to defending against (as opposed to complying with) the cleanup order." January 16, 2004 Memorandum and Order, Doc. 428, at 11 n.3. By negative implication, I clearly did not hold that defense costs attributable to the NOR were excluded, and in fact, specifically noted that I had denied Liberty Mutual's motion as to the costs of preparing the site assessments required by the NOR. See December 5, 2003 Memorandum and Order at 113.

For present purposes, there are four theoretical categories of expenses at Bostik Middleton: (1) costs associated with the 1986 NOR that are allocable to the duty to defend, (2) costs associated with the 1986 NOR that are allocable to the duty to indemnify, (3) costs associated with the eventual cleanup order that are allocable to the duty to defend, and (4) costs associated with the eventual cleanup order that are allocable to the duty to indemnify.² The December 5, 2003 Memorandum and Order granted Liberty Mutual's motion with respect to categories 3 and 4. On the other hand, it did not grant Liberty Mutual's motion with respect to categories 1 or 2.

Of course, the December 5, 2003 Memorandum and Order addressed cross-motions for summary judgment, and both parties have now stipulated that remaining questions regarding the duty to defend may be decided by the court as factfinder. I find no evidence to convince me by a preponderance of the evidence that Liberty Mutual was prejudiced by Black & Decker's voluntary compliance, without notice to Liberty Mutual, with the NOR and its requirement of a site assessment. Indeed, Liberty Mutual did not present any evidence whatsoever concerning prejudice at the trial. Therefore, with respect to Bostik Middleton, I find on the facts of this case that there was no such prejudice.

I turn to Liberty Mutual's legal argument that pre-notice defense costs must always be excluded, because the duty to defend does not exist until notice is given. This is a question on which courts have split. Judge Keeton has held, albeit without citation to authority and as an alternative holding, that under Massachusetts law pre-notice defense costs are unrecoverable even in the absence of prejudice. Hoppy's Oil Serv., Inc. v. Ins. Co. of N. Am., 783 F.Supp. 1505, 1509 (D.Mass.1992) (Keeton, J.);³ see also Managed Health Care Sys., Inc. v. St. Paul Fire & Mar. Ins. Co., No. 98-10831, 2001 WL 34114949, *2 (D.Mass. Sept.28, 2001) (O'Toole, J.) (citing Hoppy's Oil); Am. Mut. Liability Ins. Co. v. Beatrice Companies, 924 F.Supp. 861, 872 & n. 17 (N.D.Ill.1996) (applying Massachusetts law and citing both Hoppy's Oil and various cases from other states). Under this approach, prejudice analysis "applies only to the insurer's attempt to assert lack of notice as a policy defense against payment even of losses and costs incurred after belated notice," and not to the pre-notice costs themselves. Xebec Dev. Partners, Ltd. v. Nat'l Union Fire Ins. Co., 12 Cal.App.4th 501, 566-67, 15 Cal.Rptr.2d 726 (1993) (emphasis in original), rev. denied (Apr. 1, 1993).

By contrast, other courts have held that prejudice analysis should apply not just to the existence of a duty to defend after late notice, but also to whether it includes pre-notice costs. See, e.g., TPLC, Inc. v....