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Travelers Property Casualty Insurance Co. v. National Union Insurance Co. of Pittsburgh

United States Court of Appeals, Eighth Circuit

November 1, 2013

Travelers Property Casualty Insurance Company of America, formerly known as Travel Indemnity Company of Illinois Plaintiff- Appellant
v.
National Union Insurance Company of Pittsburgh, Pennsylvania Defendant-Appellee Kansas City Power & Light; Reliance National Insurance Company Defendant's, Travelers Property Casualty Insurance Company of America, formerly known as Travel Indemnity Company of Illinois Plaintiff- Appellee
v.
National Union Insurance Company of Pittsburgh, Pennsylvania Defendant-Appellant Kansas City Power & Light; Reliance National Insurance Company Defendant's,

Submitted: January 15, 2013

Appeals from United States District Court for the Western District of Missouri - Kansas City

Before BYE, MELLOY, and SMITH, Circuit Judges.

MELLOY, Circuit Judge.

In a prior appeal, we held that Travelers Property Casualty Insurance Company of America ("Travelers"), who paid $10 million to settle claims on an excess policy, was entitled to receive $10 million from a primary insurer who had obtained a larger judgment through subrogation litigation against a third party. Travelers Prop. Cas. Ins. Co. of Am. v. Nat. Union Ins. Co. of Pittsburgh (Travelers I), 621 F.3d 697 (8th Cir. 2010). We expressly declined to rule on the issues of attorneys' fees, litigation expenses, and prejudgment or postjudgment interest.

On remand, the district court interpreted our prior opinion as already having decided the attorneys' fee issue and as requiring a common-fund offset against the $10 million award to reflect an apportionment to Travelers of a share of expenses from the subrogation litigation. The district court also held that our prior opinion precluded the possibility of awarding prejudgment or postjudgment interest to Travelers.

The district court erred in holding that we had decided the attorneys' fee issue in our prior opinion. That error was harmless because we now hold that the equitable common-fund doctrine applies. We also hold, however, that it is necessary to amend the amount of the common-fund offset.

Further, the district court erred in holding that our prior opinion precluded prejudgment and postjudgment interest. That error was not harmless, and we reverse. We hold that the award to Travelers must be increased to reflect prejudgment and postjudgment interest, and we direct the district court to enter judgment as detailed below.

I. Background

As described in greater detail in Travelers I, the current dispute between insurance companies and Kansas City Power and Light Company ("KCPL") arises from an explosion at a KCPL facility that caused more than $450 million in insured and uninsured losses. Travelers settled a claim on its excess insurance policy for $10 million after abstaining from participation in an agreement between KCPL and primary insurer National Union Insurance Company of Pittsburgh, Pennsylvania ("National Union"). The agreement between National Union and KCPL that Travelers elected not to join was an allocation agreement (the "Allocation Agreement") in which National Union and KCPL agreed to coordinate their pursuit of recoveries from potentially responsible third parties. The Allocation Agreement identified funds recovered through subrogation litigation as representing 55% insured losses and 45% uninsured losses. Subrogation litigation pursuant to the Allocation Agreement resulted in the recovery of $126 million through a settlement with several third parties and in a later recovery of a separate $97 million judgment against Rockwell Automation (the "Rockwell judgment"). Travelers did not participate in any of these recovery efforts.

In Travelers I, with a judgment entered on September 2, 2010, we held: (1) Travelers expressly preserved its right to recover subrogation proceeds only from the Rockwell judgment and not from the earlier-recovered $126 million settlement; (2) by failing to participate in the Allocation Agreement, Travelers waived the right to control underlying litigation decisions en route to National Union and KCPL obtaining the $97 million judgment; (3) Travelers also waived the right to contest the allocation of subrogation proceeds as between insured and uninsured losses; (4) amounts allocated to KCPL pursuant to the Allocation Agreement were proceeds permissibly identified as uninsured losses and were not subject to Travelers's claims for subrogation; (5) Travelers, as a true excess insurer, held a priority $10 million claim but only as against National Union's 55% portion of the $97 million Rockwell judgment; and (6) National Union, through its contract of insurance with KCPL, was required to recognize Travelers's $10 million priority interest in the Rockwell judgment.

In that appeal, the parties asked us to interpret Missouri's equitable common-fund doctrine relating to attorneys' fees and to determine whether that doctrine applies in the present case. We identified the issue but expressly declined to rule upon it:

We note that Missouri law holds parties sharing in a common fund must share in the expenses laid out to create that fund. See Keisker[v. Farmer], 90 S.W.3d 71, 75 (Mo. 2002) ("Where one litigates to create a fund for others, those sharing must contribute a proportional part of the expenses."). We also note, however, that the Travelers policy provides that Travelers's subrogation rights extend to interest and fees. Regardless, the parties have not fully briefed, and we express no opinion regarding, how subrogation expenses should be allocated between Travelers and the parties to the Allocation Agreement. We note only that—regardless of whether and how expenses might ultimately be shared—the underlying decisions by National Union and KCPL to incur those fees and expenses are examples of the litigation-related tactical decisions Travelers left solely to the discretion of National Union and KCPL.

Travelers I, 621 F.3d at 708 n.6 (emphasis added). And, in our instructions to the district court on remand, we stated:

We conclude that National Union . . . was bound to recognize Travelers's priority interest and must now disgorge $10 million from its 55% share of the $97 million judgment against Rockwell Automation.FN8
FN8. Subject to any adjustments for interest, fees, expenses, etc., as to be determined.

Id. at 723 & n.8 (emphasis added).

On remand, Travelers moved for fees, expenses and interest, asserting an entitlement to prejudgment and postjudgment interest at the Missouri statutory rate of 9%, citing Mo. Rev. Stat. § 408.020. Travelers also argued that National Union must reimburse Travelers for fees and expenses that Travelers incurred in pursuing the subrogation priority claim against National Union and KCPL. In addition, Travelers argued that it was entitled to a share of interest that National Union received from Rockwell Automation in association with the Rockwell judgment (National Union and KCPL had received over $18 million in interest and expenses from Rockwell Automation above and beyond the $97 million award).

National Union responded, arguing that prejudgment interest was not appropriate because the sum at issue was not a liquidated sum, Travelers had not made a sufficiently specific demand, and the issues raised in Travelers I and in proceedings leading up to Travelers I were novel. National Union also argued that Travelers was not entitled to postjudgment interest because Travelers cited only state law regarding postjudgment interest whereas the entitlement to such interest is determined as a matter of federal law. Finally, National Union argued that Travelers was not entitled to a reimbursement of any fees or litigation expenses or to share in interest payments received on the Rockwell judgment. Rather, National Union argued it was entitled to a credit against the $10 million judgment for an attorney fee amount determined through application of the common-fund doctrine. In asserting the common-fund theory, National Union presented estimates of fees and expenses that National Union and KCPL incurred en route to obtaining both the $126 million settlement from third parties and the $97 million Rockwell judgment. National Union argued that, even though the Rockwell judgment and the earlier settlement involved different parties, much of the expense and effort in obtaining these two separate recoveries was essentially indivisible given the overlap of technical and legal issues.

Combining these arguments, Travelers asserted that National Union owed Travelers over $17 million, with interest continuing to accrue at a rate of more than $4, 000 per day. National Union, in contrast, asserted that the total offsets or credits at issue should reduce its liability towards Travelers from $10 million to approximately $6 million.

The district court, in a first order on remand, rejected Travelers's claims for prejudgment and postjudgment interest, deeming Travelers I to have resolved the issue. The district court stated:

The Eighth Circuit Court of Appeals stated that plaintiff was entitled to $10, 000, 000 from National Union "subject to" adjustments for interest, fees and expenses. "Subject to" clearly applies to the $10, 000, 000 - - it does not mean "in addition to."

The district court then addressed the issue of fees and the common-fund doctrine by quoting footnote 6 from Travelers I (set forth at length above). In doing so, however, the district court truncated the footnote and omitted the reference to policy language arguably in conflict with the common-fund doctrine. The district court also omitted the language that stated the issue had not been fully briefed and in which the prior panel expressly declined to resolve "whether or how" expenses might be shared. Travelers I, 621 F.3d at 708 n.6. Citing only the beginning of the footnote, the district court stated that the Court of Appeals had already determined that the common-fund doctrine applied and had determined that Travelers was required to share in the costs of obtaining the $97 million Rockwell judgment. The district court concluded by ordering KCPL and National Union to "determine the amount of fees and expenses incurred in collecting the $97 million judgment." ...


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