Opinion ID: 2978973
Heading Depth: 4
Heading Rank: 1

Heading: Calculation of Damages Owed to Hillerich

Text: Travelers appeals the district court’s determination that it owed a duty to defend from the filing of the First Amended Complaint rather than from the date of tender by Hillerich or the date that Travelers learned of the filing of the complaint. Travelers also appeals the district court’s implicit ruling that the defense costs Hillerich alleged were reasonable, claiming that there was an issue of material fact presented as to the reasonableness of the costs that the district court failed to address. The district court ruled that Travelers owed defense costs to Hillerich beginning on the date of filing of the First Amended Complaint in the Baum litigation. In the previous section, we concluded that the district court properly determined that Travelers’ duty to defend was triggered on November 8, 1999 with the docketing of the First Amended Complaint. Kentucky law places the burden on the insurer to bring forward proof that it has been prejudiced by any delay in notification of a claim by the insured. See Jones v. Bituminous Cas., 821 S.W. 2d 798, 801-03 (Ky. 1991). On the other hand, the majority of other jurisdictions do not allow recovery for pre-tender costs because those are deemed waived by the insured, especially when an insurance contract prohibits voluntary payments without the consent of the insurer, and so no showing of prejudice is required on the part of the insurer. See Buss v. Superior Court, 939 P.2d 766, 773 (Cal. 1997); First Bank of Turley v. Fid. & Deposit Ins. Co. of Md., 928 P.2d 298, 304 (Okla. 1996); Towne Realty, Inc. v. Zurich Ins. Co., 548 N.W.2d 64, 68 (Wis. 1996); Scottsdale Ins. Co. v. Am. Empire Surplus Lines Ins. Co., 791 F. Supp. 1079, 1084 (D. Md. 1992); O’Brien Family Trust v. Glen Falls Ins. Co., 461 S.E.2d 311, 313 (Ga. App. 1995). The cases that Travelers invokes to support its view that pre-tender defense costs will not be charged to the insurance company argue that the insured must at least implicitly make Case Nos. 09-5113/5136 Travelers Prop. Cas. Co., et al. v. Page 21 Hillerich & Bradsby Co., Inc. a coverage claim by advising the insurer that it had been sued, and mere knowledge on the part of the insurer that the insured is involved in litigation is not sufficient for tender. See C.J. Duffey Paper Co. v. Liberty Mut. Ins. Co., 76 F.3d 177, 178 (8th Cir. 1996) (interpreting Minnesota law); Fireman’s Fund Ins. Co. v. Ex-Cell-O Corp., 790 F. Supp. 1318, 1329 (E.D. Mich 1992). Kentucky’s general pronouncement on late notice is very persuasive authority that Kentucky would continue to place the burden on the insurer to show prejudice due to late notice rather than assuming prejudice as many other jurisdictions have for pre-tender defense costs, but the issue need not be resolved since Hillerich did effectively tender the claim to Travelers before its duty to defend arose. Travelers argues that Hillerich’s March 19, 1999 communication regarding the Baum litigation was insufficient to constitute tender of the claim to Travelers because it merely included the draft First Amended Complaint that Baum had attached as an exhibit to its motion for reconsideration on December 4, 1998. Therefore, Travelers contends that tender did not occur until December 22, 2000 when Hillerich gave Travelers the filed version of Baum’s First Amended Complaint. Travelers argues in the alternative that it should not be held to have notice of the filing of the First Amended Complaint until March 16, 2000 when it is clear that Travelers had seen the underlying docket which references a November 8, 1999 complaint filing date. However, Travelers fails to address the fact that Hillerich is separately arguing that the December 1998 draft version of the First Amended Complaint was the actual complaint (the relevant language regarding disparagement is identical in the draft and filed versions), and it did tender that version to Travelers before November 8, 1999. Hillerich’s argument fails on the merits as discussed above. However, Hillerich had given notice to Travelers of the claim, even if that notice was ultimately defective because this Court finds that this version of the complaint was merely a draft, not the filed complaint. Hillerich also tendered the filed version of the complaint to Travelers in its communication to Travelers disputing the denial of coverage, which constructively kept Travelers abreast of the development of the litigation. Additionally, it is clear from the record that Travelers undertook an investigation into the Baum litigation that at least brought the November 1999 complaint to the attention of Travelers by March 2000. However, Travelers did not timely respond to Case Nos. 09-5113/5136 Travelers Prop. Cas. Co., et al. v. Page 22 Hillerich & Bradsby Co., Inc. Hillerich regarding its view of the tendered draft complaint, received in March 1999, until September 2000. Hillerich is still arguing that the December 1998 draft complaint is sufficient, so it appears from the record that Hillerich constructively tendered the claim to Travelers in its March 1999 tendering of the draft complaint, well in advance of the November 1999 filing that actually triggered Travelers’ duty to defend. Therefore, Travelers would owe damages from the filing of the November 8, 1999 First Amended Complaint. Travelers did not raise the issue of the reasonableness of Hillerich’s claimed damages for Travelers’ breach of the duty to defend in its Motion for Entry of Damages and Final Judgment. This argument was not raised until Travelers’ reply to Hillerich’s response to that motion. Arguments raised only in reply, and not in the original pleadings, are not properly raised before the district court, and so are also not properly preserved for appeal. See Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552-54 (6th Cir. 2008). Therefore, Travelers waived its right to contest the reasonableness of the defense costs owed to Hillerich. Only the arguments about the proper date on which Travelers’ duty to defend arose were properly preserved before the district court and this Court.