Driver Music Co. v. Commercial Union Insurance

94 F.3d 1428, 35 Fed. R. Serv. 3d 1150, 1996 U.S. App. LEXIS 21932
CourtCourt of Appeals for the Tenth Circuit
DecidedAugust 26, 1996
Docket95-6171, 95-6202 and 95-6203
StatusPublished
Cited by47 cases

This text of 94 F.3d 1428 (Driver Music Co. v. Commercial Union Insurance) is published on Counsel Stack Legal Research, covering Court of Appeals for the Tenth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Driver Music Co. v. Commercial Union Insurance, 94 F.3d 1428, 35 Fed. R. Serv. 3d 1150, 1996 U.S. App. LEXIS 21932 (10th Cir. 1996).

Opinion

*1430 ENGEL, Circuit Judge.

Driver Music Company, Inc. (“Driver”) appeals, and Commercial Union Insurance Company (“CUIC”) cross-appeals, from various decisions of the district court in this fire-related insurance ease. At issue is whether the court erred in (1) holding that Driver was the “prevailing party” in this action within the meaning of Okla. Stat. tit. 36 § 3629(B); (2) awarding prejudgment interest based on the entire verdict without deducting for a court-awarded setoff; (3) setting off the verdict by the amount CUIC paid Driver’s mortgagee on a mortgage and promissory notes; and (4) limiting Driver’s attorney fees to $100,000. For the reasons set out below, we affirm.

FACTS

On or about June 9, 1992, property owned by Driver in Bethany, Oklahoma (the “Property”), was destroyed by fire. The Property was insured by CUIC for policy limits of $819,000-$824,000. 1 Driver gave CUIC timely notice of the loss in order to recover on its policy, but CUIC declined to make payment on the ground that coverage was precluded by conditions to coverage.

Although it refused to make payment to Driver under the policy, on or about January 7, 1993, CUIC paid $125,030 to the First National Bank of Bethany (“FNBB”), as mortgagee of Driver, for a “release of all claims” to the Property. The payment represented the then-due principal and interest on three promissory notes relating to the Property and the mortgage securing them. On January 11, 1993, FNBB canceled and discharged the notes and mortgage by affixing to them the bank’s “paid in full” stamp. The next day, pursuant to CUIC’s request, FNBB hand-wrote “stamped in error” across the “paid in full” imprint and backdated an assignment of the notes and mortgage to CUIC “without recourse in any and all events.”

Driver initiated this diversity action against CUIC by filing suit in federal court on May 24,1993, alleging breach of the insur-anee contract between Driver and CUIC. On December 30, 1993, Driver amended its complaint, adding a cause of action for bad faith regarding CUIC’s handling of Driver’s claim for loss by fire.

CUIC raised an array of defenses to Driver’s complaint, including misrepresentation, failure to state a claim, failure to meet conditions precedent, and arson, which was added after Driver’s president was acquitted of arson and mail fraud in federal criminal proceedings. However, CUIC did not file as a counterclaim a cause of action to recover its payment to FNBB on the mortgage and the promissory notes.

On May 26, 1994, CUIC made a written offer of judgment to settle the case pursuant to Federal Rule of Civil Procedure 68 for $400,000, inclusive of costs then accrued and attorney fees. But Driver rejected the offer, and the case proceeded to trial on September 12, 1994. That same day, CUIC again offered to settle the case, though not under Rule 68, which requires that an offer of judgment under that rule be made more than ten days before trial begins. This time the offer was made orally in chambers. CUIC offered to settle for “their [Driver’s] policy limits in exchange for full, final and complete release of settlement.” The court urged Driver’s counsel to talk to his client about the offer, which he agreed to do. However, Driver opted not to accept the offer, and the trial proceeded.

On September 23, 1994, the jury returned a verdict in favor of Driver on its claim for breach of contract in the amount of $400,000. The jury returned a verdict in favor of CUIC on Driver’s bad faith claim, finding no breach by CUIC of its implied duty of good faith and fair dealing.

Thereafter, CUIC moved for an order of credit against the judgment in the amount it paid on the mortgage and the promissory notes. The court considered the request to be a compulsory counterclaim, but granted the motion to prevent unjust enrichment. It ruled that Driver’s $400,000 verdict would, upon presentment by CUIC of proof that the *1431 mortgage and the notes had been canceled, be set off by the $125,030 that CUIC paid FNBB.

Driver in turn moved for attorney fees, costs, and interest pursuant to Okla. Stat. tit. 36 § 3629(B). Section 3629(B) provides,

It shall be the duty of the insurer, receiving a proof of loss, to submit a written offer of settlement or rejection of the claim to the insured within ninety (90) days of receipt of that proof of loss. Upon a judgment rendered to either party, costs and attorneys fees shall be allowable to the prevailing party. For purposes of this section, the prevailing party is the insurer in those cases where judgment does not exceed written offer of settlement. In all other judgments the insured shall be the prevailing party. If the insured is the prevailing party, the court in rendering judgment shall add interest on the verdict at the rate of fifteen percent (15%) per year from the date the loss was payable pursuant to the provisions of the contract to the date of the verdict.

According to Driver, it was the “prevailing party” under § 3629(B), because CUIC’s pretrial offer of judgment (made under Rule 68) was not in excess of the verdict. While CUIC’s in-chambers offer was in excess of the verdict, Driver further argued, that offer was not a “written offer of settlement” within the meaning of § 3629(B).

Over CUIC’s objection, the district court held that Driver was the “prevailing party” in this litigation within the meaning of § 3629(B) and was therefore entitled to an award of attorney fees, costs, and interest. It indicated that while it was in writing, CUIC’s pretrial offer of judgment (made under Rule 68) did not qualify as a “written offer of settlement” under § 3629 because, with the appropriate deductions, it was not in excess of . the judgment. While CUIC’s in-chambers offer of settlement in fact exceeded Driver’s judgment, it did not qualify, the court reasoned, because it was not “written” as required by § 3629(B) and because it was ambiguous.

After an evidentiary hearing, the district court rejected Driver’s request for attorney fees in the amount of $276,682 and awarded it fees in the amount of $100,000. The court reasoned that under the circumstances, including Driver’s failure to prevail on its bad faith claim, $100,000 was an appropriate award of attorney fees, more proportionate to the verdict than Driver’s request. The court also awarded Driver prejudgment interest (at the statutory rate of 15%) in the amount of $117,534. Finding little guidance in identifying the basis on which to compute prejudgment interest, the court “straightforwardly applie[d] the plain language of Section 3629(B),” which, it concluded, required interest on the entire verdict as opposed to the amount of the verdict after setoff. “Computing prejudgment interest on the verdict amount,” it said, “is also more consistent with the Court’s prior orders in this case.”

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Cite This Page — Counsel Stack

Bluebook (online)
94 F.3d 1428, 35 Fed. R. Serv. 3d 1150, 1996 U.S. App. LEXIS 21932, Counsel Stack Legal Research, https://law.counselstack.com/opinion/driver-music-co-v-commercial-union-insurance-ca10-1996.