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Catlin Specialty Insurance Co. v. CBL & Associates Properties, Inc.

Superior Court of Delaware

August 9, 2018

CATLIN SPECIALTY INSURANCE COMPANY, Plaintiff,
v.
CBL & ASSOCIATES PROPERTIES, INC., CBL & ASSOCIATES LIMITED PARTNERSHIP, CBL & ASSOCIATES MANAGEMENT, INC., and JG GULF COAST TOWN CENTER, LLC, Defendants.

          Submitted: June 3, 2018

         Upon Plaintiff Catlin Specialty Insurance Company's Motion for Supplementary Relief GRANTED.

          Emily K. Silverstein, Esquire, Marks, O'Neill, O'Brien, Doherty & Kelly P.C., Wilmington, Delaware, Louis H. Kozloff, Esquire (pro hac vice) (argued), Goldberg Segalla LLP, Philadelphia, Pennsylvania, Attorneys for Plaintiff.

          John A. Sensing, Esquire, Potter Anderson & Corroon LLP, Wilmington, Delaware, Alan E. Popkin, Esquire (pro hac vice), David W. Sobelman, Esquire (pro hac vice), Melissa Z. Baris, Esquire (pro hac vice), Husch Blackwell LLP, St. Louis, Missouri, Attorneys for Defendants.

          MEMORANDUM OPINION AND ORDER

          PAUL R. WALLACE, JUDGE.

         I. INTRODUCTION

         After prevailing, in part, on its earlier Motion for Judgment on the Pleadings against defendants CBL & Associates Properties, Inc., CBL & Associates Limited Partnership, CBL & Associates Management, Inc., and JG Gulf Coast Town Center, LLC ("GCTC") (collectively, "CBL Defendants"), Catlin Specialty Insurance Company ("Catlin") now moves to collect on its win through this Motion for Supplementary Relief. Catlin seeks a reimbursement of claims expenses distributed to CBL Defendants on the underlying Florida federal suit, as well as prejudgment interest on that amount.

         II. FACTUAL AND PROCEDURAL BACKGROUND

         Catlin, an insurer, initially sought a declaratory judgment determining whether it had a duty to defend or indemnify CBL Defendants under a Contractor's Protective, Professional, and Pollution Liability Insurance Policy (the "Policy"). CBL Defendants sought coverage through the Policy for an underlying class action lawsuit brought in the United States District Court for the Middle District of Florida (the "Underlying Action").[1]

         Catlin first denied CBL Defendants coverage. After an amended complaint was filed in the Underlying Action, however, Catlin agreed to advance defense costs for CBL Defendants. The agreement letter sent told CBL Defendants that Catlin would:

provide a defense to CBL [Defendants] under a full and complete reservation of rights. Specifically, Catlin reserves the right to bring a declaratory judgment action in court against the CBL [Defendants] to obtain a judicial determination of Catlin's rights and obligations under the policy, including a determination of whether Catlin has a duty to defend and/or indemnify the CBL [Defendants] in the [Underlying Action]. In the event that it is determined that Catlin does not have a duty to defend the CBL [Defendants] in the [Underlying Action], Catlin reserves the right to be reimbursed by the CBL [Defendants] for all Claim Expenses Catlin paid in connection with the [Underlying Action].[2]

         This Court found in Catlin's favor on the duty to defend-"Because the only reasonable interpretation of the allegations in the Underlying Action sound in intentional conduct, and the Policy does not cover such acts," Catlin had no duty to defend CBL Defendants.[3]

         Although Catlin also requested a declaratory judgment finding that CBL Defendants would be, or had been, unjustly enriched by Catlin's defense in the Underlying Action, this Court did not rule on that issue at the time-"Because the Court would [have] be [en] required to consider matters outside the pleadings, the Court [could] []not rule on Catlin's unjust enrichment claim [t]here."[4]

         Catlin now moves for supplementary relief "in the form of an order requiring [CBL] Defendants to reimburse Catlin for defense costs Catlin paid, under a reservation of rights, on [CBL] Defendants' behalf in [the Underlying Action] because the Court has determined that Catlin had no duty to defend [CBL] Defendants in that litigation."[5]

IV. STANDARD OF REVIEW

         Catlin moves for this reimbursement via § 6508 of Delaware's Declaratory Judgments Act (the "DJA"), under which "[f]urther relief based on a declaratory judgment or decree may be granted whenever necessary or proper."[6]Section 6508-our DJA's supplemental relief provision-is "used to grant additional relief after a declaratory judgment or decree has been rendered."[7] It was adopted here in 1981 from the Uniform Declaratory Judgment Act.[8] Sister state courts interpreting identical provisions adopted under the same uniform Act have found that supplemental relief granted thereunder "should be designed to provide complete relief to the parties, which may include a monetary judgment or coercive relief or both"; and, "[i]n fashioning the remedy, the court is not bound by the relief requested in the complaint but may order any relief needed to effectuate the judgment."[9]

         V. DISCUSSION

         So, the question posed to the Court is whether a grant of reimbursement of Catlin's expended defense costs is necessary or proper. The Court finds that even if not the former, it certainly is the latter.

         A. Supplementary Relief: Claims Expenses

         Catlin says that under Tennessee law, [10] it is entitled to reimbursement for providing a defense to CBL Defendants, because: (1) it initially reserved its right to reimbursement in its letter notifying CBL Defendants of its intent to defend them; and (2) CBL Defendants accepted the defense under that reservation of rights.[11] CBL Defendants counter that Catlin's reimbursement claim requires a threshold showing that CBL Defendants were unjustly enriched by the defense, which showing Catlin cannot make.[12]

         Catlin relies on an Eastern District of Tennessee case, Cincinnati Ins. Co. v. Grand Pointe, LLC.[13] In Grand Pointe, the court framed the issue as a question of whether an insurer may "seek reimbursement from an insured for defense costs and settlement funds paid on behalf of the insured when it is subsequently determined the insurer owed no duty to defend or indemnify the insured, and the insurance policy does not expressly provide for a right of reimbursement[.]" Because Tennessee appellate courts had not addressed the question before, the insurer argued that the federal district court should adopt the majority position-permitting reimbursement "when it is determined the insurer has no duty to defend or indemnify, the policy does not contain an express provision regarding reimbursement, and the insurer timely reserves its right to reimbursement in a specific and adequate notice"[14]- while the insured argued in favor of the minority position, prohibiting reimbursement unless the policy expressly provides for it.[15] The majority approach had been embraced by the Sixth Circuit as well as Florida, Guam, Arkansas, and California courts; the minority view was favored by Illinois, Wyoming, and Texas courts.

         The Grand Pointe court ultimately followed the majority, grounding its holding on past Tennessee case precedent on similar, though not identical, issues.[16]The court ruled that the insurer gave timely and adequate notice of its reservation of right to seek reimbursement, and that such notice established a quasi-contract implied in law.[17] The court observed that "[f]or almost six months" after being notified that the insurer intended to reserve its rights, the insured "did not opt to utilize any alternative to acceptance of [the insurer's] offer of a defense in the [u]nderlying [l]itigation subject to its reservation of rights."[18] The court held that "[g]iven this Court's determination that [the insurer] had no duty to defend . .. with regard to the claims asserted in the [u]nderlying [l]itigation . . . the evidence before the Court establishes [that the insurer] has a right to reimbursement under a quasi-contract theory of unjust enrichment, "[19] and, further, that it would be "inequitable for [the insured] to retain the benefits of the defense without repayment of the defense costs."[20] "[The insured] received the benefit of a defense they were not paying for, . . . knew they were receiving a defense they were not funding, and . . . were aware from [the insurer's] reservation-of-rights letter that [the insurer] claimed a right to reimbursement if it was determined [the insurer] owed no duty to defend."[21]

         CBL Defendants argue that the decade-old Grand Pointe decision does not reflect the more recent trend away from the then-majority position.[22] True, most recently, the American Law Institute has revised its Restatement of the Law on Liability Insurance to reflect such a shift.[23] But just as Tennessee state courts had never before directly spoken on this reimbursement issue, they have also not yet adopted the new Restatement's rule. Moreover, the Restatements are mere persuasive authority until adopted by a court; they never, by mere issuance, override controlling case law. And this Restatement itself acknowledges that "[s]ome courts follow the contrary rule[.]"[24]

         Both parties agree that no Tennessee court has faced this issue since Grand Pointe [25] That federal district court case, therefore, remains the only authority to divine Tennessee law thereon. And this Court believes that court got it right.

         Under Grand Pointe and Tennessee Law, Catlin Establishes Its Right to Reimbursement

         A Tennessee court can impose a quasi-contract or "a contract implied in law where no contract exists under various quasi contractual theories, including unjust enrichment."[26] CBL Defendants argue that Catlin must, but cannot, establish the elements of an unjust enrichment claim, because Catlin's defense inured to its own benefit by "acknowledging] the risk of an adverse coverage decision."[27] Catlin counters that if unjust enrichment must be found, it was in Grand Pointe on facts very similar to those here.[28]

         Unjust enrichment under Tennessee law requires a showing of: (1) "[a] benefit conferred upon the defendant by the plaintiff;" (2) "appreciation by the defendant of such benefit;" and (3) "acceptance of such benefit under such circumstances that it would be inequitable for him to retain the benefit without payment of the value thereof."[29] And the Tennessee Supreme Court has long and consistently instructed that "the most significant requirement"[30] for the establishment of a quasi-contract on grounds of unjust enrichment "is that the benefit to the defendant be unjust."[31] So, unsurprisingly, the Grand Pointe court, applying Tennessee law, found that an insurer's reservation-of-rights letter "establish[es] a quasi-contract implied, at least, in law."[32]

         But CBL Defendants argue that there can be no unjust enrichment, because Catlin offered to defend CBL Defendants in its own interest, and the Tennessee Court of Appeals has ruled that the existence of "any consideration [ ] negate[s] a finding of unjust enrichment."[33] CBL Defendants propose that Catlin's payment of the claim expenses constitutes a benefit in the form of protection against the risk of an "adverse coverage decision, "[34] precluding any finding of unjust enrichment.

         Although Grand Pointe does not expressly address the issue, the Grand Pointe court cites to United Nat'l Ins. Co. v. SST Fitness Corp.,[35] where the Sixth Circuit considered the possibility of a similar benefit to the insurer but ultimately rejected that theoretical "consideration."[36] In United Nat'l Ins. Co., the defendant-insured "contend[ed] that an insurer benefits from ...


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