Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-00368/USCOURTS-azd-2_04-cv-00368-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Insurance Contract

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Rubecca Mikkelsen, surviving spouse of

Kelly Mikkelsen, deceased, on behalf of

Miles, Jerret, and Allison Mikkelsen, the

minor children of Kelly Mikkelsen,

deceased; Dennis Mikkelsen, natural father

of Kelly Mikkelsen, deceased; and Taylor

R Fox, a minor, by her next friend and

natural mother, Tracy Fox-Tanga,

Plaintiffs, 

vs.

Arch Specialty Insurance Company, a

foreign corporation; AIG National

Insurance Company, Inc., a foreign

corporation; Lexington Insurance

Company, a foreign corporation; Willis of

Tennessee, Inc., a foreign corporation;

Correctional Health Resources, Inc., a

foreign corporation; Kenneth L Faiver,

husband; and Joseph Edward Rich, M.D.,

Defendants. 

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No. CIV-04-0368-PHX-MHM

ORDER

Currently, before the Court are Defendant Arch Specialty Insurance Company's

Motion for Attorney Fees, (Dkt. #69), and Defendant Lexington Insurance Company's

Motion for Attorney Fees. (Dkt. #70). Having reviewed the motions and papers, the Court

issues the following Order.

Case 2:04-cv-00368-MHM Document 80 Filed 11/02/05 Page 1 of 5
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I. Background

Plaintiffs in this action are the surviving relatives of decedent Kelly Mikkelsen. Kelly

Mikkelsen died on October 11, 2001, while in the Yuma County Adult Detention Center.

Plaintiffs filed suit against Yuma County, Correctional Health Resources (CHR), Kenneth

Faiver, and Joseph Rich alleging wrongful death, which is currently pending in the United

States District Court, District of Arizona, CIV-02-2252 before the Honorable James A.

Teilborg ("wrongful death action"). 

Plaintiffs commenced the instant litigation on February 20, 2004, naming CHR's

insurers Arch Specialty Insurance Company (“Arch”), AIG National Insurance Company,

Inc. and its subsidiary Lexington Insurance Company (AIG/Lexington) as Defendants.

Plaintiffs' declaratory judgment complaint primarily sought a determination that should

Plaintiffs obtain a favorable judgment against CHR that Arch and AIG/Lexington are

obligated to indemnify CHR. 

On March 23, 2005, the Court granted Defendants Arch and AIG/Lexington's motion

to dismiss for lack of subject matter jurisdiction, concluding that Plaintiffs failed to allege

a justiciable controversy because an injured party does not have a cause action against a

tortfeasor's insurer until the injured party obtains a judgment against the tortfeasor.

Defendants now seek attorneys' fees pursuant to ARIZ. REV. STAT. § 12-341.01(A).

II. Legal Standard

Section 12-341.01(A) provides: "[i]n any contested action arising out of a contract,

express or implied, the court may award the successful party reasonable attorney fees." Id.

Section 12-341.01 authorizes the award of "reasonable attorney's fees" to the prevailing party

in Arizona in any action "arising out of a contract." Id. Whether fees are actually awarded

and the amount to be awarded, however, lies within the discretion of the Court. Associated

Indemnity Corp. v. Warner, 694 P.2d 1181, 1184 (Ariz.1985).

III. Discussion

Case 2:04-cv-00368-MHM Document 80 Filed 11/02/05 Page 2 of 5
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First, Plaintiff contends the Court's conclusion their declaratory judgment complaint

did not raise a justiciable controversy was not a final decision on the merits, entitling

Defendants to seek attorneys' fees under section 12-341.01. However, the Arizona Supreme

Court has noted “A.R.S. § 12-341.01 makes no reference to adjudication on the merits as a

prerequisite to recovering attorney's fees as a successful party.” Wagenseller v. Scottsdale

Memorial Hosp., 710 P.2d 1025 (Ariz. 1985)( holding under section 12-341.01 a party is the

“successful party” and may be awarded attorneys' fees when that party merely achieves

reversal of an unfavorable interim order resulting in remand for further proceedings).

Accordingly, section 12-241.01 does not require a “successful party” obtain a favorable

judgment on the merits before becoming eligible for attorneys' fees.

The Arizona supreme court has listed six factors to be considered in determining

whether attorneys' fees should be awarded under section 12-341.01(A). Associated Indemnity

Corporation v. Warner, 694 P.2d 1181, 1184 (1985). These factors are: (1) the merits of the

unsuccessful party's claim or defense; (2) whether the litigation could have been avoided or

settled and the successful party's efforts were completely superfluous in achieving the result;

(3) whether assessing fees against the unsuccessful party would cause extreme hardship; (4)

whether the successful party prevailed with respect to all of the relief it sought; (5) the

novelty of the legal question presented; and (6) whether the award in any particular case

would discourage other parties from litigating tenable claims or defenses for fear of incurring

liability for substantial amounts of attorneys' fees. Id.

Turning to the Warner factors, first the Court notes the precise issue of whether an

injured party lacks standing to bring a declaratory judgment against a tortfeasor's insurer had

not been addressed by Arizona courts. While Arizona courts had concluded for purposes of

the statute of limitations a cause of action accrues between an injured party and the

tortfeasor's insurer only after judgment is entered against the tortfeasor, other jurisdictions

have concluded such a cause of action presents a justiciable controversy. See Bankers Trust

Co. v. Old Republic Ins. Co., 959 F.2d 677 (7th Cir. 1992) (holding plaintiff bringing

declaratory judgment action seeking a determination insurer would indemnify insured raised

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a justiciable controversy even though plaintiff had yet to obtain a favorable judgment in

underlying suit). Accordingly, although the Court ultimately rejected Plaintiffs' arguments,

they were not without merit.

Second, the Court finds the issue of settlement does not favor either party because the

case was decided before discovery on motions to dismiss. Third assessing fees against the

unsuccessful party would cause extreme hardship. The claimants in this litigation are Kelly

Mikkelsen's four surviving minor children and Kelly's Mikkelsen's retired father, who has

minimal assets and depends on a fixed social security income. Furthermore, the vast majority

of Arch's fee request is in relation to its motion to set-aside default. Although Arch contends

Plaintiff should have agreed to set-aside the default, it was Arch's error, which resulted in the

default. When comparing the actions of Plaintiff to the failure of a sophisticated corporation

to timely reply to a complaint, it was aware of, due to interoffice confusion, the Court finds

the Defendants actions far more culpable and Defendant is not entitled to $43,000 in fees

incurred in attempting to set aside the entry of default.

Fifth, as noted above, although Arizona Courts had concluded for purposes of the

statute of limitations a cause of action accrues between an injured party and the tortfeasor's

insurer only after judgment is entered against the tortfeasor, the issue of whether an injured

party may sue a tortfeasor's insurer prior to obtaining a judgment tortfeasor had not been

determined in Arizona. Sixth and finally, the Court finds awarding Defendants' considerable

attorneys' fee request (over $60,000) in this case would discourage other parties from

litigating tenable claims or defenses for fear of incurring liability for substantial amounts of

attorneys' fees. Id.

In conclusion, Plaintiff's claims were meritorious, other jurisdictions have found

similar claims presented a justiciable controversy, and Arizona courts had only determined

for purposes of the statute of limitations a cause of action accrues between an injured party

and the tortfeasor's insurer after judgment is entered. Furthermore, an attorney fee award

would pose a substantial hardship on Plaintiffs. In addition, a significant amount of Arch's

fee request, $43,000, resulted in its own failure to timely respond to the Complaint.

Case 2:04-cv-00368-MHM Document 80 Filed 11/02/05 Page 4 of 5
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Although ultimately excusable, a sophisticated corporations failure to timely respond, can

hardly be attributed to the Plaintiffs' in this action.

Accordingly,

IT IS HEREBY ORDERED that Defendant Arch Specialty Insurance Company's

Motion for Attorney Fees is DENIED. (Dkt. #69)

IT IS FURTHER ORDERED that Defendant Lexington Insurance Company's

Motion for Attorney Fees is DENIED. (Dkt. #70)

DATED this 2nd day of November, 2005.

Case 2:04-cv-00368-MHM Document 80 Filed 11/02/05 Page 5 of 5