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Illinois National Insurance Company v. Wyndham Worldwide Operations

March 21, 2011

ILLINOIS NATIONAL INSURANCE COMPANY, PLAINTIFF,
v.
WYNDHAM WORLDWIDE OPERATIONS, INC., WYNDHAM WORLDWIDE CORPORATION; WYNDHAM VACATION OWNERSHIP, INC.; AND WYNDHAM RESORT DEVELOPMENT CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Brown, Chief Judge

NOT FOR PUBLICATION

MEMORANDUM OPINION

This matter comes before the Court upon the motion of Defendants Wyndham Worldwide Operations, Inc., Wyndham Worldwide Corporation, Wyndham Vacation Ownership, Inc., and Wyndham Resort Development Corporation (collectively "Defendants" or "Wyndham") for attorneys' fees and expenses under Rule 4:42-9(a)(6). For the reasons that follow, the Court will grant Defendants' motion and award attorneys' fees and expenses.

I. BACKGROUND

This insurance dispute arises from the August 4, 2008 crash of a Cessna 172 aircraft into a residence in or around Gearhart, Oregon, resulting in the deaths of five people and significant property damage. Plaintiff Illinois National Insurance Company ("Plaintiff" or "Illinois National") had issued an insurance policy to Defendants that, on its face, provided coverage to Defendants for loss resulting from the accident. Plaintiff filed suit seeking a declaration of non-coverage or, alternatively, reformation of the underlying insurance policy, and Defendants filed a counterclaim seeking a declaration of coverage. Defendants moved for summary judgment and dismissal of Plaintiff's complaint. The Court granted Defendants' motions. Illinois Nat'l Ins. Co. v. Wyndham Worldwide Operations, Inc., Civ. No. 09-1724, 2010 WL 3326709, at *5--7 (D.N.J. Aug. 23, 2010). The matter is now on appeal. Presently before this Court is Defendants' motion to award attorneys' fees and expenses under New Jersey Court Rule 4:42-9(a)(6).

Attorneys' fees are inherently linked to the underlying legal dispute, but awards of fees do not speak to the merits of such claims. Therefore, this court retains jurisdiction to award or deny attorneys' fees and expenses. E.g., Tancredi v. Metro. Life Ins. Co., 378 F.3d 220, 225 (2d Cir. 2004); Lancaster v. Independent Sch. Dist. No. 5, 149 F.3d 1228, 1237 (10th Cir. 1998).

II. ANALYSIS

The "American Rule" is the default rule governing payment of attorneys' fees. Under the American Rule, "[e]ach litigant pays his own attorney's fees, win or lose, unless a statute or contract provides otherwise." Hardt v. Reliance Std. Life Ins. Co., 130 S. Ct. 2149, 2157, 176 L. Ed. 2d 998 (2010). Therefore, a party seeking attorneys' fees must have statutory or contractual support. Here, the New Jersey Court Rules have provided an exception to the American Rule, permitting an award of fees "[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant." R. 4:42-9(a)(6). The issue then is whether Defendants are successful claimants in an action upon a covered policy of insurance within the meaning of the Rule and therefore eligible for attorneys' fees. If Defendants are eligible for attorneys fees, this Court must then determine whether the attorneys fees requested are reasonable.

Plaintiff contends Defendants are not "successful claimants" within the meaning of Rule 4:42-9(a)(6). (Pl.'s Opp'n Br. at 8.) Supporting this contention, Plaintiff argues (1) the purpose and intent of Rule 4:42-9(a)(6) counsels against Defendants' motion because Defendants' legal fees and costs have been paid by a third-party, and (2) Rule 4:42-9(a)(6) is inapplicable to the present matter because Plaintiff has not been found to have an active duty to defend or indemnify Defendants. (Id.) Plaintiff further contends that the billing rate and the hours billed by defense counsel are unreasonable. (Id.)

A. Successful Claimants

The Court looks to New Jersey law in determining the scope of the New Jersey Court Rules. In Sears Mortgage Co. v. Rose the New Jersey Supreme Court held that the purpose and intent of Rule 4:42-9(a)(6) is "to discourage groundless disclaimers and to provide more equitably to an insured the benefits of the insurance contract without the necessity of obtaining a judicial determination that the insured, in fact, is entitled to such protection." 134 N.J. 326, 356, (1993) (quoting Guarantee Ins. v. Saltman, 217 N.J. Super. 604, 610 (App. Div. 1987)). There, a closing attorney in a real estate transaction absconded with the buyer's closing funds. The buyer and seller were successful in seeking redress from the title-insurance carrier through litigation. The New Jersey Supreme Court determined the litigation was an action upon an indemnity policy (a title insurance policy) and affirmed the trial court's award of attorneys' fees under the Rule. In doing so, the Sears Mortgage court held that "to deny [the buyer and seller] their counsel fees would be to deny them the benefits of the insurance contract that they achieved as successful litigants." Id.

Here, Defendants successfully litigated their case before this Court. Illinois National brought an action for declaratory judgment on an indemnity insurance policy. Wyndham was successful in defeating Illinois National's claims, and this Court recognized that "Wyndham is entitled to insurance coverage as a matter of law." Wyndham, 2010 WL 3326709, at *6. It makes no difference, for purposes of Rule 4:42-9(a)(6), that the prevailing party insured was the defendant. N.J. Guar. Ass'n on Behalf of Midland Ins. Co., 242 N.J. Super. 164, 167 (App. Div. 1990); N.J. Mfrs. Ins. Co. v. Consol. Mut. Ins., 124 N.J. Super. 598, 601--602 (L. Div. 1973). Nor does it matter that the insurer acted in good faith in denying the claim. E.g., Baughman v. U.S. Liab. Ins. Co., 723 F. Supp. 2d 741, 747 (D.N.J. 2010) (collecting cases). The groundless disclaimer advanced by Plaintiff and rejected by this Court falls within the purpose and intent of Rule 4:42-9(a)(6), and Wyndham is a successful claimant.

B. Financing of Expenses

Plaintiff next contends that Defendants' motion should be denied because Defendants "have not been funding their own defense of this action." (Pl.'s Opp'n Br. at 9.) Defendants do not dispute this assertion, but argue that the source of payment for legal fees is immaterial to a ...


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