Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ared-3_06-cv-00083/USCOURTS-ared-3_06-cv-00083-3/pdf.json

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

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1

 Each of the two policies had a $1million limit. 

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 IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ARKANSAS

JONESBORO DIVISION

TRANSCONTINENTAL INSURANCE

COMPANY, ET AL. PLAINTIFFS

vs. CASE NO. 3:06CV83GH

RAINWATER CONSTRUCTION

COMPANY, ET AL. DEFENDANTS

ORDER

On December 12, 2006, the Court entered judgment in favor of defendants and

against plaintiff on plaintiff’s action for a declaratory judgment. The Court found that

plaintiff had a duty to defend and/or indemnify Rainwater in actions filed against

Rainwater in state court by state court plaintiffs, Michael and Charlotte New and Scottie

and Debbie Lane.. The Court further awarded attorney’s fees for defendant Rainwater

pursuant to Ark. Code Ann. § 23-79-209.. Rainwater was directed to file its specific

request within eleven days.

On December 22, 2006, defendants Rainwater Construction, LLC, Timothy

rainwater, and Arthur D. Rainwater (collectively “Rainwater”) filed its petition for attorney’s

fees. It suggests that it is entitled to $240,000 based on 12% of the policies.1

 Rainwater

posits this amount as a middle ground based on a 1/3 contingency fee basis, and an

hourly rate plus a 12% penalty based on the language Ark. Code Ann. § 23-79-208. 

Plaintiffs Transcontinental Insurance Company and Transportation Insurance

Company (collectively “CNA”) objects to the fee request because of a settlement

agreement Rainwater executed with CNA. In that agreement, CNA agreed to pay two

million dollars (the policies’ limits) to the News and Lanes, plaintiffs in the underlying state

court action. 

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Exhibit A to Motion for Attorney’s Fees (document no. 40). 

3

Document no. 41.

4

Exhibit 2 to Response in Opposition to Motion for Attorney’s Fees (document no. 42).

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 The December 20, 2006, letter from CNA to counsel for the Lanes, News and

Rainwater states that CNA accepts the joint settlement “in exchange for a full release and

dismissal with prejudice of all claims against CNA and its insureds . . . “ asserted in the

underlying state court action and this declaratory judgment action and that each party was

to bear their own costs and fees. Counsel for CNA also stated in the letter that he would

immediately advise the Court that the cases have settled and would file a motion to vacate

and dismiss the appeal in the Eighth Circuit.2

On December 26, 2006, after Rainwater filed its petition for attorney’s fees, counsel

for CNA wrote the Court to advise it that the case had settled and that CNA would be

opposing the request for attorney’s fees. 3

Rainwater argues that there is ambiguity in the settlement and that it never intended

to settle its claim for attorney’s fees as provided by the Court order. Rainwater submitted

a subsequent release by the News, which Rainwater contends clarifies the intent of the

parties as it does not include the proposed language that the News reimburse CNA in the

event attorneys’ fees are awarded to the Rainwaters. 

The Court is not so convinced that the release itself supports Rainwater’s position

because the omitted language of reimbursement of attorney’s fees to the Rainwaters

indicates that the attorney’s fee claim survives the settlement. 

In any event, the Court finds that the settlement did not extinguish the claim of

Rainwater for attorney’s fees from CNA. The December 20th letter stating that a

settlement was reached was in response to a letter of counsel for the News and Lanes.4

The December 20, 2006, letter states that CNA accepts “your clients’ joint settlement

demand of $2 million . . . “ The Rainwaters had not made a settlement demand and had

not been involved in that settlement demand of the News and Lanes. It appears that

CNA was acting on behalf of its insureds in settling the case. However, CNA did not have

Case 3:06-cv-00083-JLH Document 51 Filed 02/08/07 Page 2 of 5
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authority to extinguish Rainwater’s separate claim for fees against it in general boilerplate

language that each party would bear its own costs and fees. Rainwater in prevailing on

the declaratory judgment action had its own claim for attorney’s fees against CNA based

on the statute. Thus, the Court finds that the Rainwater’s claim for attorney’s fees is not

extinguished by the settlement agreement.

Ark. Code Ann. § 23-79-209 provides:

(a) In all suits in which the judgment or decree of a court is against a life,

property, accident and health, or liability insurance company, either in a suit

by it to cancel or lapse a policy or to change or alter the terms or conditions

thereof in any way that may have the effect of depriving the holder of the

policy of any of his or her rights thereunder, or in a suit for a declaratory

judgment under the policy, or in a suit by the holder of the policy to require

the company to reinstate the policy, the company shall also be liable to pay

the holder of the policy all reasonable attorney's fees for the defense or

prosecution of the suit, as the case may be.

(b) The fees shall be based on the face amount of the policy involved.

(c) The attorney's fees shall be taxed by the court where the suit is heard

on original action, by appeal or otherwise, and shall be taxed up as a part

of the costs therein and collected as other costs are or may be by law

collected.

In Arkansas, there is no fixed formula for determining the reasonableness of the

attorney’s fee. The Arkansas Supreme Court has “recognized factors such as the

experience and ability of the attorney; the time and work required; the amount involved

in the case and the results obtained; the novelty and difficulty of the issues involved; the

fee customarily charged in the locality for similar legal services; whether the fee is fixed

or contingent; the time limitations imposed upon the client or the circumstances; and the

likelihood, if apparent to the client, that the acceptance of the particular case will preclude

other employment by the lawyer.” Shepherd v. State Auto Prop. & Cas. Ins. Co. , 312

Ark. 502, 514 (1993).

Rainwater asks the Court to go outside these factors to make an award. It makes

a number of arguments as to why it should be entitled to a fee greater than just the

number of hours reasonably expended by the hourly rate. Rainwater first argues that it

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is entitled to a contingency fee of 33% of the $2 million, analogizing this case to a

personal injury action. The Court disagrees. This is not a case where counsel assumes

the risk of representing an injured party on the possibility that the party will recover

damages in which counsel will share a percentage. Here, counsel for Rainwater

represented Rainwater in a claim by its insurer that it was not liable to Rainwater under

the policies. Rainwater wasn’t going to recover damages. It would only prevail on a

declaration that its insurance policies covered the accident. Thus, an award based on a

contingency fee is not appropriate in this instance. 

Rainwater next points to Ark. Code Ann. § 23-79-208 which provides that when an

insured is required to sue its insurance company to recover a first party claim, they are

awarded a reasonable attorney’s fees and twelve percent penalty The Court is not

convinced that the 12% penalty applies to claims under Section 23-79-209, and the

Arkansas Supreme Court has so held. Shelter Mut. Ins. Co. v. Smith, 300 Ark. 348, 353

(1989). Certainly, had the Arkansas legislature wanted to include such a penalty it

would have done so. In not doing so, the Arkansas legislature distinguished between first

party claims and third party claims. 

Rather than a 12 percent penalty, Section 23-79-209 contains language that the

fees “shall be based on the face amount of the policy involved.” In an attempt to interpret

legislative intent, Rainwater contends that language means that a bigger policy should

merit an enhancement of the fee award. The Court doesn’t agree. An alternative

interpretation is that the legislature put in the language to serve as a limiter; that is that

the award of fees should not be excessive in comparison to the face value of the policy.

In the absence of clear legislative intent, the Court is persuaded that the

appropriate award is based on the factors set forth in Shepherd. This is a relatively

straightforward case where counsel is retained on an hourly rate to defend a declaratory

judgment action. Rainwater’s counsel has not provided any information to warrant

deviation from the lodestar amount, that is, number of hours reasonably expended times

hourly rate. Counsel states that he expended 135.3 hours. CNA does not contest the

reasonableness of the hours, and the Court finds that 135.3 hours were reasonably

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expended. 

Rainwater has submitted the affidavit of an attorney practicing in the Jonesboro,

Arkansas area who states that the prevailing rate for complex insurance and commercial

litigation in the area is $175.00 to $200.00 per hour for experienced attorneys. The Court

finds that counsel for Rainwater is entitled to any hourly rate of $175.00.

Thus, the Court finds that Rainwater’s counsel is entitled to an attorney’s fee in the

amount of $23,667.50. 

Accordingly, the motion for attorney’s fees (document no. 40) is granted as set

forth above. the motion to file an additional brief (document no. 48) is granted.

Rainwater is hereby awarded $23,667.50 in attorney’s fees from plaintiff. 

IT IS SO ORDERED this 8th day of February, 2007. 

___________________________________ UNITED STATES DISTRICT JUDGE

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