Opinion ID: 751690
Heading Depth: 1
Heading Rank: 3

Heading: the third edition's obligation to indemnify interstate

Text: 23 Interstate seeks indemnification from The Third Edition for all costs incurred in defending against Ms. Williams' suit, including $99,412 in attorneys' fees and the $275,000 paid in settlement of her claim. Interstate claims it is entitled to indemnification because it has satisfied the procedures set forth in Central Armature Works, Inc. v. American Motorists Ins. Co., 520 F.Supp. 283, 288 (D.D.C.1980), which it asserts an [329 U.S.App.D.C. 96] insurer must follow in order to contest its obligation to pay a settlement reached between an insured and a third party. In the alternative, Interstate claims that it is due compensation for the damages it incurred as a consequence of the allegedly fraudulent settlement between Ms. Williams and The Third Edition. 24 The procedures described in Central Armature are not relevant to this case. Unlike the insurance company in Central Armature, which was defending a claim for indemnification and damages by its insured, see id. at 285, Interstate was being sued by the third party, Ms. Williams, who was seeking to collect the amount for which she had settled her claim against The Third Edition. Because her claim was entirely derivative, Interstate had no greater obligation to pay Ms. Williams than it had to indemnify The Third Edition. By the same token, because Ms. Williams stood in the place of The Third Edition, Interstate's settlement of her derivative claim was tantamount to a settlement with The Third Edition. By settling the claim, Interstate extinguished its right to challenge its contractual obligation to cover the settlement between Ms. Williams and The Third Edition. 25 Interstate also advances two tort theories of recovery, neither of which is availing. According to the first theory, Interstate was entitled to indemnification because, in failing to disclose to the district court that the settlement underlying its $1 million consent judgment was entered collusively, The Third Edition had committed a fraud upon the court. The problem with that theory is that, even assuming that the settlement was exorbitant and collusive, Interstate fails to allege a tort. Upon a showing by an insurer that the settlement for which a plaintiff is seeking to hold it liable is exorbitant and was entered collusively, a court may vacate the judgment into which the settlement was incorporated. See, e.g., Spence-Parker v. Maryland Ins. Group, 937 F.Supp. 551, 562-63 (E.D. Va.1996) (holding that failure to disclose collusive nature of settlement negotiations amounted to constructive fraud on court and that consent judgment must therefore be set aside). Such an action is premised upon the insurer's proving a fraud upon the court. Although the act complained of is styled a fraud, the remedy lies within the court's equitable discretion, see, e.g., Carlin v. McKean, 823 F.2d 620, 624-25 (D.C.Cir.1987) (stating that the 'historic power of equity' ... [is a] narrow[ ] power to revise a judgment that was obtained by perpetrating a fraud upon the court); cf. Synanon Found., Inc. v. Bernstein, 503 A.2d 1254, 1264 (D.C.1986) (The claim of 'fraud on the court' is similar in effect to the equitable defense of unclean hands.). Because such an action does not sound in tort, the only remedy available to an insurer is vacatur of the consent judgment. In this case, Interstate's liquidation of that judgment through its settlement with Ms. Williams moots its present attack upon it. 26 Interstate's second theory is that The Third Edition's misrepresentations to the trial court and its exorbitant and collusive settlement with Ms. Williams tortiously embroiled Interstate in litigation to which it otherwise would not have been a party. In making its claim for indemnification, Interstate relies on the following dicta from Brem v. United States Fidelity & Guaranty Co., 206 A.2d 404 (D.C.1965): 27 [A] plaintiff [may] seek[ ] in a separate action to recover attorney['s] fees incurred by him in earlier litigation with a third person arising out of the tortious act of the defendant, ... if the natural and proximate consequences of the defendant's tortious act were to involve the plaintiff in litigation with a third person.... 28 Id. at 407. Assuming that this rule is recognized in the District of Columbia and that it is applicable here, it would permit Interstate to recover its attorney's fees but not the $275,000 it paid Ms. Williams. Although The Third Edition's settlement agreement with Ms. Williams and the resulting consent judgment caused Interstate to retain a lawyer to defend against Ms. Williams' suit, they did not require Interstate to settle a derivative claim that it insists was worthless. 29 But regardless of the amount that Interstate reasonably could anticipate securing were it to prevail on this theory, its claim suffers a more fundamental inadequacy. Interstate [329 U.S.App.D.C. 97] alleges that The Third Edition committed two predicate torts which, considered alone or in conjunction, wrongfully entangled it in litigation: The Third Edition entered into a collusive and exorbitant settlement, and it fraudulently failed to disclose the existence of the insurance contract's exclusion clauses to Ms. Williams. Assuming, for the purposes of this analysis, that The Third Edition's conduct was in fact tortious, Interstate is entitled to a remedy only if The Third Edition's wrongful acts caused Interstate to become a party to litigation in which it otherwise would not have been involved. See Nepera Chem., Inc. v. Sea-Land Serv., Inc., 794 F.2d 688, 697 (D.C.Cir.1986) (defendant's conduct tortious only if plaintiff's being haled into court flow[ed] from the defendant's malfeasance). Interstate could have anticipated defending this action either because it was actually bound to indemnify The Third Edition or because it was contractually obligated to defend it. Cf. Potomac Residence Club v. Western World Ins. Co., --- A.2d ----, 1997 WL 746362 at  4-5 (D.C. Dec. 4, 1997) (holding that insured that prevails in suit for reimbursement of legal expenses incurred in defending claim for which insurer had duty to defend is entitled to compensation for legal fees expended in suit against insurer). Because Interstate was required to defend The Third Edition, see supra Part II, Interstate's involvement in the litigation did not aris[e] out of the tortious act of the defendant. Brem, 206 A.2d at 407.