Notice: Ninth Circuit Rule 36-3 Provides That Dispositions Other Than Opinions or Orders Designated for Publication Are Not Precedential and Should Not Be Cited Except when Relevant Under the Doctrines of Law of the Case, Res Judicata, or Collateral Estoppel, 980 F.2d 737 (9th Cir. 1985)Annotate this Case
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Oct. 5, 1992.Decided Dec. 4, 1992.
Before POOLE, FERNANDEZ and T.G. NELSON, Circuit Judges.
Gulf Resources and Chemical Corporation (Gulf) and Pintlar Corporation (Pintlar) appeal the district court's grant of summary judgment in favor of Ian Buchanan Gavine and other underwriters of Lloyd's, London (Lloyd's). The district court held that Gulf and Pintlar's payment for emotional damages and attorney fees in the underlying litigation regarding Pintlar's termination of an employee benefit plan was not covered under the Lloyd's Corporate Fiduciary Insurance Policy. We affirm.
Gulf was insured under a claims made Corporate Fiduciary Insurance Policy issued by Lloyd's that was in effect from February 5, 1981 through February 5, 1984. Lloyd's failed to reimburse the emotional damages and attorney fees that Gulf paid to the plaintiffs in the underlying litigation, Bower v. Bunker Hill Co. The Bower complaint was filed against Bunker Hill (a wholly-owned subsidiary of Gulf now known as Pintlar) on June 2, 1982. The litigation arose when Bunker Hill closed its Idaho mining operation and decided to terminate the retired employees' medical benefit coverage as of May 1982. The medical benefits had been provided under a medical/surgical hospital plan established by a 1980 collective bargaining agreement. The Bower complaint alleged that Bunker Hill's termination decision breached the collective bargaining agreement in violation of the Labor Management Relations Act (LMRA), 29 U.S.C. § 301 and violated the Employment Retirement Income Security Act (ERISA), 29 U.S.C. § 1001. The plaintiffs filed a second complaint against Gulf on January 23, 1985, alleging that Gulf was liable as the alter ego of Bunker Hill. On February 25, 1985, the two Bower actions were consolidated.
Bunker Hill initially prevailed on summary judgment. However, we reversed the grant of summary judgment and remanded the case for trial. Bower v. Bunker Hill Co., 725 F.2d 1221 (9th Cir. 1984). In the first phase of the trial, the jury found that Bunker Hill violated section 301 of the LMRA and that Gulf was the alter ego of Bunker Hill. The parties then settled before the second phase of the trial began on the issues of Bunker Hill's liability under ERISA and damages. Under the consent judgment, (1) the retiree's medical benefits were reinstated; (2) $3,043,837 was awarded to cover the retirees' medical expenses during the period when the medical plan was suspended--$110,000 of that amount was for the retirees' emotional damages from the canceled plan; and (3) the retirees' attorneys were awarded $1,798,553.10 in attorney fees and costs.
Gulf did not tender the defense to Lloyd's until January 7, 1985. On May 1, 1985, Lloyd's issued a full reservation of rights. It then reimbursed Gulf for Gulf's own costs of defense and attorney fees in the amount of $750,000. When Lloyd's refused to pay the Bower attorney fees and emotional damage claims, Gulf brought this action seeking payment of those amounts. The district court granted Lloyd's motion for summary judgment. It found that there was no coverage for those fees and damages under the policy.
A. "Management and Administration" of a Plan
The emotional damages and attorney fees that Gulf was required to pay in the Bower case are not covered under the policy. Bunker Hill's decision to terminate the employees' medical benefits plan was not an "act or omission (including a violation of the Employee Retirement Income Security Act of 1974), committed or alleged to have been committed by the Insureds, or by any person for whom the Insureds are legally responsible, in the management or administration of the Employee Benefit Plan." Policy, sec. II(A) (emphasis added and omitted).
Bunker Hill itself was the insured under the policy."1 As a corporate employer Bunker Hill wore two hats when it made its decision affecting the employees' medical benefit plan. See Cunha v. Ward Foods, Inc., 804 F.2d 1418, 1432 (9th Cir. 1986); Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1416-17 (2d Cir. 1985), cert. dismissed, 474 U.S. 1113, 106 S. Ct. 1167, 89 L. Ed. 2d 288 (1986). Under one hat, Bunker Hill made business decisions for itself and its shareholders. Under the other hat, it made fiduciary decisions regarding the management and administration of the employee benefit plan. By its express terms, the Corporate Fiduciary Liability Insurance Policy only covered Bunker Hill's actions as a fiduciary in the management or administration of an employee benefit plan.
The termination of an employee benefit plan is a business decision that does not constitute a breach of a fiduciary obligation. Cunha, 804 F.2d at 1432-33; Amalgamated Clothing & Textile Workers Union v. Murdock, 861 F.2d 1406, 1419 (9th Cir. 1988); see also Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1161-62 (3d Cir. 1990). Therefore, Bunker Hill's termination of the employee medical benefit plan was not a fiduciary decision made in the management or administration of the plan. That type of corporate business decision was not covered under the Lloyd's policy.2
Lloyd's did not waive its right to deny coverage for the attorney fees. On May 1, 1985, Lloyd's issued a full reservation of rights. Under its general reservation of rights, Lloyd's preserved its right to deny coverage based on any provision of the policy. Cf. Mutual of Enumclaw v. Harvey, 772 P.2d 216, 220 (Idaho 1989); St. Paul Fire & Marine Ins. Co. v. Albany County School Dist. No. 1, 763 P.2d 1255, 1262 (Wyo.1988).
Lloyd's did not act inconsistently with this full reservation by failing to deny coverage in a response letter to Gulf's letter informing the insurer of the Bower settlement negotiations. Lloyd's and Gulf knew that Lloyd's had previously issued a full reservation of rights. Cf. Intel Corp. v. Hartford Acc. & Indem. Co., 952 F.2d 1551, 1561 (9th Cir. 1991) (California law). Moreover, Lloyd's never did indicate that it would pay the attorney fees. Cf. Tomerlin v. Canadian Indem. Co., 61 Cal. 2d 638, 642, 39 Cal. Rptr. 731, 394 P.2d 571 (1964).
Furthermore, Lloyd's payment of Gulf's defense costs was not a waiver of the insurer's right to deny coverage. Defense costs, i.e. "claim expenses," are separate from coverage under the policy. In section I(F) of the policy, Lloyd's agrees to pay claim expenses for losses that are excluded from coverage under the policy. Cf. Harvey, 772 P.2d at 220. Therefore, Lloyd's payment of Gulf's defense costs was not inconsistent with its previous full reservation of rights. Lloyd's preserved its right to deny coverage of the attorney fees.
II. Attorney Fees as "Claim Expenses"
Lloyd's is not required to pay the $1.8 million in attorney fees as "claim expenses" by virtue of its payment of Gulf's own defense costs in the amount of $750,000. When an insurer agrees to pay "all costs taxed" as part of its obligation to fund the insured's defense, then the taxed costs include the other side's attorney fees. Harvey, 772 P.2d at 218-20. However, Lloyd's did not agree to pay all costs taxed; it only agreed to pay "all other fees, costs or expenses incurred in the ... defense ... of a claim if incurred ... by the Insureds with the written consent of the Underwriters." Policy, sec. I(C) (definition of claim expenses). Moreover, Lloyd's never gave its prior written consent to the incurring of the fees and costs of the Bower plaintiffs, as required under the policy. Id. Similarly, it issued no consent later. Thus, as part of its obligation to fund the defense, Lloyd's only agreed to pay Gulf's own fees and costs as claim expenses.
Furthermore, the Lloyd's policy language indicates that the other side's attorney fees and costs are part of coverage, not part of the duty to defend. The policy specifically provides in section II(F) that for purposes of determining the limits of liability of the policy, " [a]ny allowance by a court of reasonable attorney's fees and costs to a party making claim shall be deemed part of the original claim." The policy treats the other side's costs and attorney fees as part of the single claim for coverage. The Bower plaintiffs' attorney fees were not defense costs that Lloyd's was obligated to pay independently of coverage under the policy.
Lloyd's is entitled to attorney fees as the prevailing party on appeal pursuant to Idaho Code § 12-120. Under § 12-120(3), the prevailing party may be awarded reasonable attorney fees in "any civil action to recover on an open account, account stated, note, bill, negotiable instrument, guaranty, or contract relating to the purchase or sale of goods, wares, merchandise, or services and in any commercial transaction unless otherwise provided by law...." Attorney fees for an appeal may be awarded under this section. Spidell v. Jenkins, 727 P.2d 1285, 1289 (Idaho Ct.App.1986). Section 12-120(3) defines "commercial transaction" broadly to encompass "all transactions except transactions for personal or household purposes." Certainly Gulf and Lloyd's entered into a transaction. Equally certain is the fact that it was not for "personal or household purposes." Attorney fees are thus recoverable since the gravamen of the lawsuit pertains to the terms of a commercial transaction. See Freiberger v. American Triticale, Inc., 815 P.2d 437, 441 (Idaho 1991).3
AFFIRMED, and REMANDED to the district court for determination of the amount of the fees to be awarded for this appeal.
This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3
An endorsement to the policy defined "insured" as "Gulf Resources and Chemical Corporation and any subsidiary company of the sponsor employer now in existence of hereafter created." Bunker Hill was in existence on July 1, 1981 when the endorsement went into effect. Bunker Hill was sold and became Pintlar on November 1, 1982, but remained a wholly-owned subsidiary of Gulf
Given our determination that there is no coverage for the attorney fees and emotional damages under the policy, we need not reach the issue of Gulf's breach of the policy's notice provision
Nothing in Idaho Code § 41-1839 suggests that it would preclude an award of attorney fees to Lloyd's. Section 41-1839 guarantees attorney fees to an insured who is forced to trial by an insurer. Walton v. Hartford Ins. Co., 818 P.2d 320, 324 (Idaho 1991). There is no indication that in expanding the rights of the insured, the legislature intended to limit any rights of the insurer