UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 13-1517

ROBERT E. GRAHAM,

Plaintiff – Appellant,

v.

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,

Defendant – Appellee.

Appeal from the United States District Court for the Southern

District of West Virginia, at Bluefield. David A. Faber, Senior 

District Judge. (1:10-cv-00453)

Argued: December 10, 2013 Decided: February 3, 2014

Before KING, GREGORY, and FLOYD, Circuit Judges.

Affirmed in part, vacated in part, and remanded by unpublished 

per curiam opinion.

ARGUED: Michael W. Carey, CAREY, SCOTT, DOUGLAS & KESSLER, PLLC, 

Charleston, West Virginia, for Appellant. Don C.A. Parker, 

SPILMAN, THOMAS & BATTLE, PLLC, Charleston, West Virginia, for 

Appellee. ON BRIEF: John A. Kessler, David R. Pogue, CAREY, 

SCOTT, DOUGLAS & KESSLER, PLLC, Charleston, West Virginia, for 

Appellant. Glen A. Murphy, SPILMAN THOMAS & BATTLE, PLLC, 

Charleston, West Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
2

PER CURIAM:

This appeal presents two questions of West Virginia law 

pertaining to the enforcement of insurance contracts. The first 

is whether an insured may recover damages for aggravation and 

inconvenience where his insurer, in breach of the policy, has 

refused to defend him from potential liability arising from a 

lawsuit. The resultant need of the insured to obtain 

alternative representation leads to the second question: 

whether prejudgment interest should accrue on the attorney fees 

thereby incurred, for which the insurer is subsequently adjudged 

responsible.

The district court answered both questions in the negative, 

pursuant to which it entered judgment for the plaintiff, Robert 

E. Graham, against the defendant, National Union Fire Insurance 

Co. of Pittsburgh, Pennsylvania, for the reduced sum of 

$278,273.56. Three-quarters of the judgment was awarded to 

reimburse Graham for his attorney fees in connection with the 

precursor liability action, with the balance intended to 

compensate him for the fees earned by counsel in the litigation 

below to enforce the policy. The court entered its judgment on 

remand from our prior decision on the merits, see Graham v. 

National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, 

474 F. App’x 956 (4th Cir. 2012) (unpublished), in which we 
3

rejected National Union’s defenses to Graham’s allegations of 

breach.

In the aftermath of our remand, National Union sought a

specific demand from Graham as a catalyst for negotiations and 

possible settlement. By letter from his counsel dated September 

20, 2012, Graham asserted entitlement to the aforementioned 

attorney fees, plus $160,083.57 in prejudgment interest on that

portion of the fee award associated with the threshold liability 

proceedings. He also demanded $368,788.74 for aggravation and 

inconvenience. Though National Union acceded to the proposed 

award of attorney fees, the parties could not otherwise agree on 

the proper amount due Graham. The issue thereafter arose on 

cross-motions for summary judgment, and, by its Memorandum 

Opinion and Order of March 7, 2013, the district court ruled in 

National Union’s favor on the disputed items of damages. See

Graham v. Nat’l Union Ins. Co. of Pittsburgh, Pa., No. 1:10-cv00453 (S.D. W. Va. Mar. 7, 2013) (the “Opinion”).1

 On March 14, 

2013, the court entered the conforming judgment described above. 

Graham timely noted this appeal on March 29, 2013.

We conclude that, the district court correctly denied 

Graham prejudgment interest on his attorney fees. We therefore 

 1 The Opinion is found at J.A. 210-30. (Citations herein to 

“J.A. ___” refer to the contents of the Joint Appendix filed by 

the parties to this appeal.)
4

affirm that aspect of the court’s judgment. The court erred, 

however, in denying Graham the opportunity to prove damages for 

aggravation and inconvenience. We thus vacate that aspect of 

the court’s judgment and again remand for further proceedings.

I.

Graham was the Executive Director of two West Virginia 

nonprofit corporations that used state and federal funds to 

provide services to senior citizens. In 2004, the State of West 

Virginia sued Graham and his employers in the Circuit Court of 

Kanawha County, maintaining that Graham had manipulated the 

members of each corporation’s Board of Directors to pay himself 

exorbitant salaries and benefits. That alleged malfeasance, 

according to the State, entitled it to a writ of quo warranto 

ordering Graham’s removal and the disgorgement of his ill-gotten 

gains.2

One of the corporations, Council on Aging, Inc., was 

designated a “municipality” and named as an additional insured 

 2 At common law, the writ of quo warranto (and the attendant 

extraordinary proceeding) is “designed to test whether a person 

exercising power is legally entitled to do so.” Black’s Law 

Dictionary 1256 (6th ed. 1990). In West Virginia, “[a] writ of 

quo warranto may be awarded and prosecuted in the name of the 

State” against, inter alios, “a corporation for a misuse or 

nonuse of its corporate privileges and franchises, or for the 

exercise of a privilege or franchise not conferred upon it by 

law.” W. Va. Code § 53-2-1.
5

on a policy issued by National Union to the State. For an 

annual premium just in excess of $20,000, the policy purported 

to afford, among other things, general comprehensive liability 

coverage. Under the terms of the policy, that coverage extended 

to “[a]ny elected or appointed official, executive officer, 

commissioner, director, or member of the ‘Named Insured’ while 

acting within the scope of his duties as such.” Dist. Ct. ECF 

13-5, at 6. 

Council on Aging notified National Union’s claims agent of 

the State litigation, but the insurer denied coverage and 

refused to tender a defense. Graham thus defended himself 

against the lawsuit at his own expense. The action persisted

until 2009, when the circuit court dismissed it as moot. The 

dismissal came after the boards of both corporations voted to 

remove Graham and prohibit his future involvement in their 

affairs, in connection with which Graham and the corporations 

executed a mutual release of liability.

Victory at last in hand, Graham filed the underlying 

Complaint on March 3, 2010, in the Circuit Court of Mercer 

County, alleging that National Union had breached its duty under 

the insurance contract to provide him with a defense to the 

State action. National Union removed the matter to the Southern 

District of West Virginia, where, on February 17, 2011, the 

insurer was granted summary judgment after the district court 
6

determined that certain policy exclusions supported the denial 

of coverage. Our reversal of that judgment engendered the

proceedings on remand, which in turn led to the second appeal

now before us. The parties being citizens of different states 

and the amount in controversy exceeding $75,000, jurisdiction 

existed in the district court pursuant to 28 U.S.C. 

§ 1332(a)(1). We possess appellate final order jurisdiction as 

prescribed by 28 U.S.C. § 1291.

II.

The facts of record in this diversity proceeding are not in 

dispute, with the result that the issues on appeal are confined 

strictly to the proper interpretation of West Virginia law. As 

such, our review of the final judgment below is de novo. See

Mort Ranta v. Gorman, 721 F.3d 241, 250 (4th Cir. 2013).

III.

A.

1.

The body of law developing the remedies afforded West 

Virginia insureds for an insurer’s breach of contract traces its 

origin to Aetna Casualty & Surety Co. v. Pitrolo, 342 S.E.2d 156 

(W. Va. 1986). In that case, Aetna filed a declaratory judgment 

action to determine whether it was obliged to defend its 
7

insured, Pitrolo, who had been sued in three separate 

proceedings stemming from an automobile accident. Aetna denied 

coverage, compelling Pitrolo to retain a private attorney to 

represent him. After a jury found coverage to exist under the 

policy, the circuit court ordered Aetna to take over Pitrolo’s 

defense in the underlying matters and reimburse him for his

attorney fees.

On review of the circuit court’s order, the Supreme Court 

of Appeals of West Virginia (the “Court”) determined that Aetna 

was liable not only for the attorney fees relating to the three 

negligence proceedings, but also for the fees Pitrolo incurred 

in the declaratory judgment action. In so ruling, the Court 

deemed it irrelevant that Aetna had, perhaps, reasonably denied 

coverage and had otherwise acted in good faith: “After all, the 

insurer had contracted to defend the insured, and it failed to 

do so. It guessed wrong as to its duty, and should be compelled 

to bear the consequences thereof.” Pitrolo, 342 S.E.2d at 161 

(citation and internal quotation marks omitted).3

Aetna was not, as it happens, adjudged liable for Pitrolo’s 

aggravation and inconvenience, a circumstance seized upon by 

 3 Notwithstanding the admonition in Pitrolo that the 

insurer’s intent is typically not at issue, the category of 

common-law actions alleging the wrongful denial of coverage is, 

with some frequency, referred to in the legal vernacular as “bad 

faith” insurance litigation.
8

National Union in support of its position that the district 

court here correctly denied those damages to Graham. We do not 

ascribe great significance to this aspect of the result in 

Pitrolo, undiscussed by the Court. Given the nascency of the 

cause of action recognized in that case, we suppose it most 

likely that the insured simply failed to make an appropriate 

demand.

About nine months after Pitrolo, the Court confronted a 

similar, but more inclusive claim in Hayseeds, Inc. v. State 

Farm Fire & Casualty, 352 S.E.2d 73 (W. Va. 1986). At issue in 

Hayseeds was whether the insurer of a restaurant business was 

required to relinquish the policy proceeds after the 

establishment was burnt down by an arsonist. The insurer, State 

Farm, refused to pay, maintaining that the husband-and-wife 

principals were responsible for the fire. The business sued, 

and it obtained a jury verdict for the $150,000 proceeds, plus 

$69,000 in attorney fees and other consequential damages, 

together with a punitive damages award of $50,000.4

 

 4 In West Virginia, two categories of compensatory damages 

may be recovered by the plaintiff in a breach-of-contract

lawsuit. “Direct” damages are “those directly flowing from the 

contract breach.” Desco Corp. v. Harry W. Trushel Const. Co., 

413 S.E.2d 85, 89 (W. Va. 1991). Damages categorized as direct 

are distinguishable from “indirect or consequential damages that 

arise from the special circumstances of the contract.” Id. In 

a bad-faith action alleging an insurer’s nonperformance under a 

liability policy, such as Pitrolo, the plaintiff sustains direct 

(Continued)
9

Adhering to its analysis in Pitrolo, the Court held that 

“whenever a policyholder must sue his own insurance company over 

any property damage claims, and the policy holder substantially 

prevails in the action, the company is liable for the payment of 

the policyholder’s reasonable attorneys’ fees.” Hayseeds, 352 

S.E.2d at 80. The fee recovery compensates the insured for “net 

economic loss caused by the delays in settlement,” that is, as a 

foreseeable consequence of the breach. Id. The insured is also 

entitled to additional consequential damages in the form of “an 

award for aggravation and inconvenience.” Id. The Court thus 

affirmed the trial court’s judgment, except that it reversed the 

 

damages as the result of being compelled to retain substitute 

counsel to represent him in the proceedings with respect to 

which the insurer has abrogated its duty to defend. By 

contrast, the attorney fees incurred by the plaintiff in 

litigation with the insurer to enforce the policy are properly 

classified as consequential damages, insofar as “at the time of

the contract the parties could reasonably have anticipated that 

[such fees] would be a probable result of the breach.” Desco 

Corp., 413 S.E.2d at 89; see United States v. Arvanitis, 902 

F.2d 489, 497 (7th Cir. 1990) (payments to counsel by insurer 

investigating defendant’s fraudulent scheme not recoverable

under statute disallowing restitution for consequential damages 

such as “legal fees generated in prosecuting a claim”). The 

attorney fee award in Pitrolo comprised both categories of 

damages. Hayseeds, however, did not involve a liability policy

and its attendant predicate litigation, with the result that the 

attorney fees awarded by the jury in that case were incurred 

exclusively in enforcement of the policy, and thus wholly within 

the category of consequential damages.
10

punitive damages award as unsupported by a sufficient showing of 

actual malice. See id. at 80-81.

Hence, whether an action on the policy is instituted by the 

insurer (Pitrolo) or by the insured (Hayseeds), it is settled

that whenever a breach is proved of the insurer’s duty to 

indemnify (Hayseeds) or broader duty to defend (Pitrolo), the 

insured may recover direct damages for attorney fees expended in

any predicate proceeding (usually an adjudication of the 

insured’s liability to a third party), and also consequential 

damages for fees incurred to enforce the policy against the

insurer. The first question in this appeal is whether Graham 

may pursue additional consequential damages for aggravation and 

inconvenience, like the insured in Hayseeds, notwithstanding 

that the facts of his case are — at least superficially — more 

analogous to those in Pitrolo.5

From the insured’s perspective, he is bound to suffer the 

same aggravation and inconvenience regardless of how the insurer 

breaches the policy: either by unjustifiably refusing to 

provide a defense against liability or by wrongfully withholding 

 5 As in Pitrolo, the litigation before the district court

sought to resolve an insurer’s duty to defend its insured from 

liability. The only notable difference — albeit a legally 

immaterial one — is that the case at bar was filed by the 

insured, while Pitrolo was a declaratory judgment action 

initiated by the insurer.
11

indemnification from property loss. And there is no logical 

reason to authorize an award for one item of consequential 

damages — attorney fees in the enforcement litigation — while 

simultaneously denying recovery for aggravation and 

inconvenience, which are merely other items in the same 

category. We therefore conclude that, in West Virginia, 

insureds in Graham’s position may be compensated for aggravation 

and inconvenience (subject to adequate proof thereof), insofar 

as those items of consequential damages are permitted generally.

2.

The district court reached the contrary result by 

distinguishing between liability policies — implicating both the 

duty to defend and the duty to indemnify — and those simply 

providing indemnification from loss. The court denominated the 

former type (at issue here and in Pitrolo) “third-party 

insurance,” Opinion 13, and the latter type (discussed in 

Hayseeds) “first-party insurance,” id. at 13. Justice Benjamin 

made the same distinction, espousing the minority viewpoint in 

Loudin v. National Liability & Fire Insurance Co.: “First-party 

insurance is a contract between the insurer and the insured to 

protect the insured from its own actual losses and expenses

. . . . Third-party insurance is a contract to protect the 

insured from losses resulting from actual or potential liability 

to a third party.” 716 S.E.2d 696, 707 (W. Va. 2011) (Benjamin, 
12

J., dissenting) (quoting Couch on Insurance 3d § 198:3 (2005)

(internal quotation marks omitted)).6

Loudin is not particularly useful to our analysis, however, 

because the issue in that case was a broad one, namely, whether 

the plaintiffs had a sufficient contractual (first-party) 

relationship with the insurer such that a bad-faith action could 

be maintained to begin with. See Elmore v. State Farm Mut. 

Auto. Ins. Co., 504 S.E.2d 893, 897 (W. Va. 1998) (“[T]he common 

law duty of good faith and fair dealing . . . runs between 

insurers and insureds and is based on the existence of a 

contractual relationship. [T]here is simply nothing to support 

a common law duty of good faith and fair dealing on the part of 

insurance carriers toward third-party claimants.”). 

Here, by contrast, Graham is an acknowledged insured in 

privity with National Union under the latter’s liability policy; 

he is no stranger to the contract. Moreover, the question

presented is considerably more narrow than in Loudin, i.e., 

whether Graham is entitled to the full array of consequential 

damages ordinarily available to the insured in a breach-ofcontract proceeding. The answer is “yes,” and it depends naught 

 6 See also Marshall v. Saseen, 450 S.E.2d 791, 797 (W. Va. 

1994) (“First party insurance means that the insurance carrier 

has directly contracted with the insured to provide coverage and 

to reimburse the insured for his or her damages up to the policy 

limits.”).
13

on the characterization of the insurance as first-party or 

third-party. Rather, consequential damages are part and parcel 

of the remedies obtainable in a bad-faith action against an 

insurer, which, as set forth in the above-cited passage from

Elmore, can only be initiated and maintained by an insured, that 

is, a first-party claimant.

Indeed, the Loudin majority framed the primary issue before 

it as “whether the circuit court properly categorized the 

[plaintiffs] as third-party claimants.” 716 S.E.2d at 700. The 

Court in Loudin was asked to determine the insurer’s duties 

under a liability policy on a pickup truck. The truck had been 

backed over the insured by his brother, who was operating it

with permission. Although the insured was, in a manner akin to 

the typical third-party claimant, seeking recompense for the 

negligent operation of the covered vehicle, the Court ruled that 

he was nonetheless a first-party claimant with standing to sue 

his insurer for withholding coverage. See id. at 703 (“[W]e now 

hold that, when a named policyholder files a claim with his/her 

insurer, alleging that a nonnamed insured under the same policy 

caused him/her injury, the policyholder is a first-party 

claimant in any subsequent bad faith action against the insurer 

arising from the handling of the policyholder’s claim.”).

Neither Loudin, nor Pitrolo, nor any other West Virginia 

authority poses an impediment to the consequential damages 
14

Graham seeks. Such damages are dependent only on proof thereof 

by a preponderance of the evidence. Remand shall afford Graham 

the opportunity to develop and present his evidence of 

aggravation and inconvenience in connection with the breach 

already established.

B.

West Virginia law authorizes an award of prejudgment 

interest for “special or liquidated damages” from the date of 

their accrual. See W. Va. Code § 56-6-31(a). Special damages 

are direct in character and “include[] lost wages and income, 

medical expenses, damages to tangible personal property and 

similar out-of-pocket expenditures.” Id. If an item of damages 

is adjudged within the statute, prejudgment interest is 

mandatory. See Grove v. Myers, 382 S.E.2d 536, 540 (W. Va. 

1989). Graham maintains that the attorney fees he incurred in

defending against the State lawsuit are similar enough to 

medical expenses to be subject to prejudgment interest.

In State ex rel. Chafin v. Mingo County Commission, 434 

S.E.2d 40 (W. Va. 1993), the Court affirmed the denial of 

prejudgment interest on a county official’s legal defense 

expenses deemed reimbursable from the public fisc. In so 

ruling, the Court observed that “[w]e are not convinced that the 

lower court erred in determining that the [attorney fees] did 

not constitute ‘similar out-of-pocket expenditures’ and 
15

therefore did not qualify as an award entitling the [official] 

to prejudgment interest.” Id. at 44.

Thereafter, in Miller v. Fluharty, 500 S.E.2d 310 (W. Va. 

1997), a bad-faith action to enforce an indemnification policy, 

the Court reversed an award of prejudgment interest on 

litigation fees and expenses. The most compelling basis for the 

Court’s holding was its observation that attorney fees, 

particularly those earned on a contingency basis, are 

“unliquidated and unsettled until the circuit court issues its 

ruling. Only after the circuit court approves the 

policyholder’s attorney’s fee does the amount become liquidated 

and established.” Id. at 325. At that point, of course, postjudgment interest will begin to accrue. The Miller Court also 

noted that, because the insured is not typically liable for the 

contingent fees until after the verdict or settlement is paid by 

the insurer, such expenses are not “out-of-pocket” as set forth 

in the statute. See id. at 325-26.

Graham correctly notes that both of the pertinent West 

Virginia authorities are factually distinguishable from his 

case, in that Chafin was not an insurance case and Miller

involved only attorney fees incurred in litigation with the 

insurer. Graham has excluded that portion of his attorney fees, 

properly classified as consequential — not direct — damages, 

from his prejudgment interest claim. Further, as Graham 
16

emphasizes, he agreed to pay counsel in the State lawsuit by the 

hour, and not on a contingency basis, a circumstance not present 

in Miller and one that arguably undercuts much of the rationale 

supporting that decision.

There being no requirement that the circuit court approve 

any aspect of Graham’s private fee arrangement with his 

attorneys in the State lawsuit, it is apparent that Graham 

became liable for those hourly fees as they were incurred, up to 

the entry of judgment. Nevertheless, the claim remained 

unliquidated beyond the entry of judgment until, on remand 

following the first appeal in this enforcement action, National 

Union stipulated to the precise amount due. We conclude that, 

in accordance with Miller, the absence of liquidation is enough 

to exclude attorney fees — even those sustained as direct 

damages — from the reach of the West Virginia prejudgment 

interest statute.

IV.

Pursuant to the foregoing, the judgment on appeal is 

affirmed insofar as the court below declined to award 

prejudgment interest on Graham’s attorney fees. The judgment is 

vacated, however, to the extent that Graham was denied the 

opportunity to prove consequential damages in the form of 

aggravation and inconvenience attributable to National Union’s 
17

breach of the insurance contract. We remand the matter to the 

district court for further proceedings consistent with this 

opinion.

AFFIRMED IN PART, VACATED IN PART, 

AND REMANDED