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Home Loan Inv. Co. v. St. Paul Mercury Ins. Co.

United States District Court, D. Colorado

November 25, 2014

THE HOME LOAN INVESTMENT COMPANY, a Colorado corporation, Plaintiff,
THE ST. PAUL MERCURY INSURANCE COMPANY, d/b/a or a/k/a TRAVELERS, a Connecticut corporation, Defendant

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For The Home Loan Investment Company, a Colorado Corporation, Plaintiff: Laurin D. Quiat, Nathan Andrew Schacht, LEAD ATTORNEYS, Baker & Hostetler, LLP-Denver, Denver, CO.

For The St. Paul Mercury Insurance Company, doing business as Travelers, a Connecticut Corporation, Defendant: Gregory Steve Hearing, II, John Roger Mann, John M. Palmeri, Gordon & Rees, LLP-Denver, Denver, CO.

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CHRISTINE M. ARGUELLO, United States District Judge.

The parties, Home Loan Investment Company (" Home Loan" ) and St. Paul Mercury Insurance Co., d/b/a Travelers (" Travelers" ), tried this insurance-related matter to a jury in June of 2014. The jury found in favor of Home Loan as to both of its claims. Specifically, the jury determined that Travelers (1) breached its insurance contract with Home Loan, and (2) unreasonably denied payment of Home Loan's insurance claim pursuant to Colo. Rev. Stat. § § 10-3-1115 and -1116 (Doc. # 77.) Home Loan now requests damages, attorney fees and costs, a pre-judgment interest award, and an entry of final judgment (Doc. # 78.) As explained below, this Motion is GRANTED IN PART and DENIED IN PART.

The parties do not dispute the amount of the covered benefit ($466,483), but do dispute the amount of permissible statutory damages. Home Loan contends that an insured party may recover two times the covered benefit as statutory damages under Colo. Rev. Stat. § 10-3-1116 in addition to the covered benefit itself. Travelers counters that Home Loan may only recover a total amount of two times the covered benefit, and that this recovery is inclusive of the covered benefit. As explained below, the Court adopts the decision of the Colorado Court of Appeals in Hansen v. American Family Mutual Ins. Co., 2013 COA 173, ¶ 61, and holds that Home Loan may recover the covered benefit as well as statutory damages of twice the covered benefit, pursuant to Colo. Rev. Stat. § 10-3-1116(1).

As for attorney fees, the Court may award reasonable attorney fees under Colo. Rev. Stat. § 10-3-1116(1). With a single exception, Travelers concedes that Home Loan's counsel spent a reasonable number of hours litigating this case. However, Travelers argues that Home Loan's hourly rates for work are unreasonable. The Court agrees, and approves modified attorney fees.

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Regarding costs, the Court holds that Home Loan may recover some of its costs, with several exceptions (including its expert witness fees and mediation costs), as detailed below.

As for prejudgment interest, Home Loan may recover 8% interest on its unpaid covered benefits as of November 21, 2011 -- i.e., the date of Travelers' denial of its insurance benefits. Home Loan also may recover postjudgment interest after the date of final judgment at the federal postjudgment interest rate.


Colorado law provides that when an insurer unreasonably delays or denies a claim for a covered benefit, an insured party " may bring an action in a district court to recover reasonable attorney fees and court costs and two times the covered benefit." Colo. Rev. Stat. § 10-3-1116(1) (" Section 1116(1)" ) (emphasis added). State law also provides that such an action " is in addition to, and does not limit or affect, other actions available by statute or common law, now or in the future. Damages awarded pursuant to this section shall not be recoverable in any other action or claim." Id. § 10-3-1116(4) (" Section 1116(4)" ).

In the instant action, Home Loan argues that it is entitled to damages equal to $1,399,449.00, consisting of: (1) the covered benefit itself ($466,483.00), i.e., the damages from its breach of contract claim, and (2) the statutory damages authorized under Section 1116(1), i.e., two times the covered benefit ($932,966.00). In contrast, Travelers interprets Section 10-3-1116(4) as effectively limiting an insured's total recovery, such that Home Loan's recovery of two times the covered benefit under Section 1116(1) is inclusive of the recovered benefit itself. ( Id. at 6-7.) Both parties point to the plain language of the statute in support of their respective interpretations.

As a preliminary matter, the Court notes that in cases arising under diversity jurisdiction, as here, the Court's task is not to reach its own judgment regarding the substance of the common law, but simply to " ascertain and apply the state law." Wade v. EMCASCO Ins. Co., 483 F.3d 657, 665-66 (10th Cir. 2007) (internal quotation marks omitted). Where no controlling state law exists, the federal court must endeavor to predict what the state's highest court would do if it were faced with the same facts and issues. Stickley v. State Farm Mut. Auto. Ins. Co., 505 F.3d 1070, 1077 (10th Cir. 2007). In making that prediction, a court considers " analogous decisions by the [state] Supreme Court, the decisions of the lower courts in [the state], the decisions of the federal courts and of other state courts." Phillips v. State Farm Mut. Auto. Ins. Co., 73 F.3d 1535, 1537 (10th Cir. 1996); see also Johnson v. Riddle, 305 F.3d 1107, 1118 (10th Cir. 2002) (noting that a federal court applies what it finds to be the state law after giving " proper regard" to the relevant rulings of other courts in the state). In particular, the decision of an intermediate appellate state court " is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise." Stickley, 505 F.3d at 1077 (emphasis added) (quoting West v. Am. Tel. & Tel. Co., 311 U.S. 223, 237, 61 S.Ct. 179, 85 L.Ed. 139 (1940)).

Although there is no controlling Colorado Supreme Court authority, the Colorado Court of Appeals recently held that an insured party may recover the amount of an unreasonably delayed or denied covered benefit as well as two times the amount of

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that covered benefit in statutory damages under Section 1116(1). Hansen, 2013 COA 173, ¶ 61. Citing traditional standards of statutory interpretation, the Court of Appeals rejected the precise argument Travelers makes here, explaining that Section 1116(1) expressly created a new right of action with a concomitant remedy of " reasonable attorney fees and court costs and two times the covered benefit." Id., ¶ 60 (quoting Section 1116(1)). Accordingly, an insured party's total recovery (excluding attorney fees and costs) could amount to three times the covered benefit, consisting of " awards aris[ing] from different claims: one-third . . . from the claimant's breach of contract claim, and two thirds from her statutory claim under [S]ection 10-3-1116." Id., ¶ 61.

The Court of Appeals reasoned that Section 1116(4)'s plain language -- providing that the cause of action was " in addition to, and does not limit or affect, other actions available by statute or common law, now or in the future" -- clearly anticipated that an insured party could simultaneously bring both a common-law breach of contract claim to recover any unpaid benefits to which he or she was entitled, and a Section 1116(1) claim for either delay or denial of those benefits. Id., ¶ 62 (citing Rabin v. Fid. Nat. Prop. & Cas. Ins. Co., 863 F.Supp.2d 1107, 1110-12 (D. Colo. 2012) (concluding that although an insured's " total receipt" of damages from a combined breach of contract claim and a 1116(1) claim could amount to three times the benefits at issue in his or her Section 1116 claim, that " receipt would derive from multiple sources . . . . which is different from receiving three times the covered benefit directly and entirely from the [S]ection 1116 claim" ).[1]

Travelers argues that the second sentence of Section 1116(4) -- providing that " [d]amages awarded pursuant to this section shall not be recoverable in any other action or claim" -- indicates that an insured party is precluded from also recovering the covered benefit amount. (Doc. # 87 at 7) (quoting Section 1116(4)) (emphasis added). Although the Court of Appeals did not explicitly analyze the import of this second sentence in Hansen, Travelers' interpretation contravenes the plain language of the statute, because damages awarded pursuant to a breach of contract claim would not be awarded " pursuant to this section" (i.e., Section 1116(1)), but rather, would be awarded for an entirely different claim (i.e., a successful breach of

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contract claim). Additionally, Colorado law provides that this Court must give effect to the intent of the legislature by construing the plain language of the statute as a whole and giving " consistent, harmonious, and sensible effect" to all of its parts -- including both of the sentences in Section 10-3-1116(4). See St. Vrain Valley Sch. Dist. RE-1J v. A.R.L., 2014 CO 33, ¶ 10, 325 P.3d 1014, 1019 (Colo. 2014); see also Frazier v. People, 90 P.3d 807, 811 (Colo. 2004) (" A statutory interpretation leading to an illogical or absurd result will not be followed" ). Travelers' interpretation is directly at odds with the first sentence in Section 1116(4), which provides that a claim for damages under Section 10-3-1116 is " in addition to, and does not limit or affect other actions available by statute or common law, now or in the future." Accordingly, the Court concludes that Section 1116(4) does not bar traditional, " benefit of the bargain" damages for a breach of contract claim (such as that brought here), but rather, bars a plaintiff from recovering both the penalty damages under 1116(1) and other, separate penalty damages derived from different claim, such as a violation of the Colorado Consumer Protection Act. Etherton v. Owners Ins. Co., No. 10-CV-00892-PAB-KLM, 2013 WL 5443068, at *2-3 (D. Colo. Sept. 30, 2013).

The Court of Appeals' decision in Hansen is not only well reasoned and sound, but Travelers has also failed to convince the Court that the Colorado Supreme Court would decide this issue differently than the Court of Appeals.[2] See Stickley, 505 F.3d at 1077. Indeed, the handful of federal cases interpreting Section 10-3-1116 have carefully and cogently rejected Travelers' arguments.[3] See Etherton, 2013 WL 5443068 at *3; Rabin, 863 F.Supp.2d at 1110-12; D.R. Horton, Inc. Denver v. Mountain States Mut. Cas. Co., No. 12-CV-01080-RBJ, 2013 WL 6169120, at *6-7 (D. Colo. Nov. 25, 2013). Although Travelers cites several state district court cases supporting its interpretation of Section 10-3-1116, see (Doc. # 87 at 4), the Court has fully reviewed and considered these decisions, and disagrees with the statutory interpretation therein, for the reasons provided above.

Accordingly, Home Loan is entitled to recover $1,399,449.00 in damages, consisting of: the covered benefit itself ($466,483.00), and two times the covered benefit ($932,966.00).


A. Legal Standard

Colo. Rev. Stat. 10-3-1116(1) authorizes an insured party whose claim for

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payment of benefits has been unreasonably delayed or denied to recover " reasonable attorney fees and court costs." As a general rule in diversity cases, if " state law does not run counter to a valid federal statute or rule of court, and usually it will not, state law denying the right to attorney's fees or giving a right thereto, which reflects a substantial policy of the state, should be followed." Garcia v. Wal-Mart Stores, Inc., 209 F.3d 1170, 1177 (10th Cir. 2000) (quoting Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 259 n. 31, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975)). Accordingly, although both parties assessed the reasonableness of a fee award under federal law, the Court applies state law in determining the reasonableness of the attorney fees in this case.

A party seeking attorney fees bears the burden of proving by a preponderance of the evidence that it is entitled to such an award. Kinsey v. Preeson, 746 P.2d 542, 551-52 (Colo. 1987). A court makes an initial estimate of a reasonable attorney fee by calculating the lodestar amount. Tallitsch v. Child Support Servs., Inc., 926 P.2d 143, 147 (Colo.App. 1996). The lodestar amount represents the number of hours reasonably expended on the case, multiplied by a reasonable hourly rate. Id. The court's calculation of the lodestar carries with it a strong presumption of reasonableness. Payan v. Nash Finch Co., 310 P.3d 212, 2012 COA 135, ¶ 18 (citing Hensley v. Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)). The court may then adjust this amount based on the factors outlined in Colo. RPC 1.5,[4] including: (a) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (b) the experience, reputation, and ability of the lawyer or lawyers performing the services; and (c) the fee customarily charged in the locality for similar legal services. People v. Shifrin, 2014 COA 14, ¶ 113. When, as here, a statute providing for a fee award does not furnish a specific definition of " reasonableness," the amount must be determined in light of all the circumstances, based upon the time and effort reasonably expended by the prevailing party's attorney. Tallitsch, 926 P.2d at 147.

B. The Lodestar Calculation in the Instant Case

The Court begins by determining the reasonable number of hours expended by counsel working on the case. Payan v, 2012 COA, ¶ 21 (citing Hensley, 461 U.S. at 434). Here, Home Loan's attorneys and staff have submitted timekeeping records that provide specific, detailed descriptions of their ...

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