(August 15, 2018, 11:21 AM EDT) -- MINNEAPOLIS — An architecture firm is entitled to $361,923.25, plus prejudgment interest of $57,671.16, from its insurer for the insurer’s breach of its duty to defend the architecture firm from a lawsuit arising from construction defects that resulted from a subcontractor’s negligence, a Minnesota federal judge held Aug. 13 (Westfield Insurance Co. v. Miller Architects & Builders Inc., No. 17-400, D. Minn., 2018 U.S. Dist. LEXIS 136237).
(Memorandum and order available. Document #69-180907-033Z.)
IRET-Cardinal Point LLC retained Miller Architects & Builders Inc. to design and build a two-building luxury apartment complex in Grand Forks, N.D., in 2013. IRET later terminated its agreement with Miller due to faulty construction and poor design and eventually sued Miller for breach of contract. IRET’s suit against Miller is currently in arbitration.
In March 2015, Miller, who has a commercial general liability insurance policy from Westfield Insurance Co., asked the insurer to defend it in the arbitration proceeding. Westfield declined coverage and filed the present declaratory judgment suit in the U.S. District Court for the District of Minnesota, seeking an order stating that it has no duty to defend Miller.
Duty To Defend
On Jan. 19, 2018, Judge Paul A. Magnuson granted summary judgment to Miller, finding that Westfield breached its duty to defend Miller. The judge held that the damages were not excluded under the business risk doctrine and a products-completed operations hazard clause. Rather, he found that the damages were covered because they arose from the subcontractor’s work.
Judge Magnuson granted Miller’s motion for partial summary judgment seeking attorney fees the firm incurred in defending the action. The judge found that Westfield should pay the fees Miller incurred because it breached its duty to defend. Subsequently, Miller moved for partial entry of judgment and a stay, pending the outcome of arbitration, and for attorney fees and costs.
Judge Magnuson granted the motion, awarding $361,923.25 to Miller, plus prejudgment interest of $57,671.16 as of the date of the order, accruing at an additional $45.88 per day until paid. The judge entered judgment as to Westfield’s duty to defend Miller in the underlying arbitration. The also judge stayed the remaining issue pending the outcome of the underlying arbitration.
Without the entry of judgment as to Westfield’s duty to defend, the judge found that Miller has been unable to recoup its attorney fees of more than $360,000 plus prejudgment interest.
“The hardship to Miller if partial judgment is not entered is undeniable. And an appeal on the duty to defend would not necessarily result in piecemeal appeals, because that issue may be dispositive of all coverage issues in the case,” the judge said, noting that the parties agree that judgment on the duty to defend will help move settlement discussions in the arbitration.
Westfield argued that a judgment that it is obligated to defend Miller is not appropriate because Miller did not move for summary judgment on its declaratory-judgment counterclaim. However, Judge Magnuson held that Westfield’s argument “elevates form over substance” because it was already determined that Westfield has a duty to defend Miller.
As for staying the case on the indemnification claim, the judge noted that ongoing discovery is unnecessary. The judge explained that Miller acknowledged its duty to keep Westfield aware of information regarding the arbitration. If Miller is not providing Westfield with sufficient information about the arbitration, the judge said Westfield can seek appropriate relief.
Finally, Judge Magnuson ruled that Miller is entitled to its attorney fees and to prejudgment interest on the fees. The judge found that prejudgment interest is calculated from the date Miller tendered its defense to Westfield, not the date of each attorney’s invoice. Thus, the judge held that interest is due from March 2015 to the present on the fees Miller reasonably incurred.
“Westfield urges the Court to give Miller only 60% of the fees it requests but offers very little in the way of specifics regarding which fees it believes are excessive. And even Westfield’s specific examples are not particularly persuasive. Westfield notes that Miller spent 48 hours on responses to discovery, while Westfield only spent 12. But Miller bore the brunt of discovery here, and it is unsurprising that its attorneys spent more time on that discovery,” the judge said.
Thus, the judge concluded that Miller is entitled to the fees it claims: $167,465.07 for defense of the underlying arbitration from inception until January 2017, and $194,458.18 for defense of the instant litigation. The judge also found that prejudgment interest on the arbitration-defense fees is also due, in the amount of $45.88 per day, from March 6, 2015, to the date of the order.