Opinion ID: 7489
Heading Depth: 2
Heading Rank: 2

Heading: Apportionment of Defense Costs

Text: 33 We have concluded that Hartford is liable for a portion (although a smaller portion than determined by the district court) of Lafarge's defense costs. Hartford argues that the district court erred in its determination of Hartford's liability for those costs. Specifically, Hartford contends that (1) it should not be held responsible for a percentage of all defense costs, but rather for only those costs attributable to covered claims, (2) it is not responsible for costs incurred on behalf of non-insured co-defendants in the underlying suit, and (3) it is not liable for defense costs incurred prior to Lafarge's tender of the amended petition to Hartford. 34 Hartford first claims that, despite the general rule that an insurer who has a duty to defend as to one claim must defend as to all claims, it should have been allowed to apportion defense costs between covered and non-covered claims. It is true that, when there is a clear distinction between covered and non-covered claims, an insurer may apportion defense costs. EEOC v. Southern Publishing Co., 894 F.2d 785, 791 (5th Cir.1990). However, even though some of the claims were not covered under the policy, apportionment of costs would be not be feasible in this case because the claims all arose from a single accident. See Insurance Company of North America v. Forty-Eight Insulations, 633 F.2d 1212, 1224 (6th Cir.1980), clarified, 657 F.2d 814 (6th Cir.), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981). 35 Hartford claims, however, that it should have been allowed further discovery to support such an apportionment between covered and non-covered claims. Similarly, Hartford argues that discovery was wrongfully denied with respect to its claim that it should not be responsible for defense costs incurred on behalf of the seven non-insured co-defendants in the underlying litigation. Although Hartford does not specify how further discovery would assist it in making the proposed allocation, we take it to be arguing that the district court should have allowed it to discover Lafarge's counsels' itemized bills and time records. We will thus examine these two claims together. 36 Our review of the record shows the following series of events. By its order of December 7, 1991, the district court granted Lafarge's motion for partial summary judgment and ordered the parties to conduct further discovery on the amount of defense costs in the underlying litigation. On February 4, 1992, in response to Hartford's motion for clarification of the December 7 order, the district court noted that it 37 intentionally did not rule on Hartford's argument that it should not be responsible for the defense costs incurred by Lafarge's counsel with regard to uninsured corporations. If, during the damages stage of this litigation, Hartford is able to convince the Court that specific expenses were incurred by Lafarge's counsel solely for the defense of uninsured corporations, the Court may deduct those expenses from the final total of defense costs. 38 In an effort to produce such evidence, on March 26, 1992, Hartford took the deposition of Eugene W. Chip Brees (Brees), the attorney who represented Canada Cement Lafarge and Lafarge Corporation, both Hartford insureds, in the underlying litigation. 14 With respect to each expenditure, 15 Brees averred that the same costs would have been incurred regardless of the participation of non-insured corporations. In its final motion asking the district court to set the amount of damages, Lafarge asserted that none of the defense costs were attributable solely to the defense of non-insureds and that all the costs would have been incurred had Lafarge been the only defendant in the underlying suit. Attached affidavits supported this assertion. 39 On April 3, 1992, Lafarge moved for the entry of an award in the case. In its objections to that motion, filed April 23, Hartford complained that, because of Lafarge's failure to produce itemized bills, it could not determine whether it was being asked to pay for the cost of Lafarge evaluating coverage under other insurance policies or the costs of negotiating Lafarge's settlement with Nationwide [another Lafarge insurer]. Hartford did not argue, however, that it should be allowed to discover the bills in order to parse covered and non-covered claims in the pipeline litigation itself, nor did it argue that such discovery was needed to help it determine what portion of defense costs were attributable to the defense of non-insureds. In its response to Hartford's supplemental response of January 26, 1993, 16 Lafarge stated that it was claiming attorney-client and work product privileges over the itemized bills and would only produce them for an in camera inspection by the district court. 40 Between the date of that response, February 4, 1993, and the date of the district court's final memorandum and order of January 5, 1994, the issue of production of itemized bills never surfaced again in the parties' numerous filings before the district court. So far as the record reveals, Hartford never filed a motion to compel production of the documents or submit them to an in camera review. Indeed, it was Hartford that first stepped forward, on November 8, 1993, and requested the entry of final judgment in this case. 17 During this entire period, Hartford never intimated to the district court that further discovery was required. The district court's memorandum and order granting Lafarge's motion for summary judgment did not address the issue of itemized bills, and although final judgment was entered on the basis of that memorandum and order, Hartford never filed a motion to reopen the evidence or reconsider this issue. 41 Given these circumstances, we must conclude that Hartford has waived whatever argument it had that the district court erred in not requiring Lafarge to produce more detailed billing statements. Whatever help particularized statements might have provided in rebutting Lafarge's claims, 18 Hartford did not take appropriate steps to ensure that judgment was not rendered without that information. Lafarge's evidence was sufficient to establish that the costs it requested were all attributable to the defense of Lafarge and would have been incurred regardless of the involvement of non-insureds in the suit. We must therefore reject Hartford's claims in these respects. 42 We agree, however, with Hartford's contention that it should not be liable for any defense costs incurred prior to the date Lafarge tendered the amended petition because the voluntary payment provision of the policy precludes liability for such pre-tender defense costs. 19 As noted in the previous section, under Texas law, the duty to defend does not arise until a petition alleging a potentially covered claim is tendered to the insurer. Members Insurance Co. v. Branscum, 803 S.W.2d 462, 466-67 (Tex.App.--Dallas 1991, no writ). The cases on which the district court relied to support its determination that pre-tender costs were recoverable are inapposite. 20 The terms of the policy are unambiguous and therefore must be enforced as written. 21 Ranger Insurance Co. v. Estate of Mijne, 991 F.2d 240, 243 (5th Cir.1993); see also Northern Insurance Co. of New York v. Allied Mutual Insurance Co., 955 F.2d 1353, 1360 (9th Cir.) (noting that California courts have consistently honored [voluntary payment] provisions, and will not require insurers to pay for voluntarily incurred pre-tender costs), cert. denied, --- U.S. ----, 112 S.Ct. 3033, 120 L.Ed.2d 903 (1992). 43 Accordingly, on remand, the district court should modify the judgment, reducing Hartford's liability to reflect only those defense costs incurred after tender of the amended petition. As Hartford has waived its other arguments respecting the apportionment of costs, however, no other modification is necessary. 44