Scottsdale Insurance v. City of Hazleton , 400 F. App'x 626 ( 2010 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 09-4176
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SCOTTSDALE INSURANCE COMPANY
v.
THE CITY OF HAZLETON; PEDRO LOZANO;
CASA DOMINICANA OF HAZLETON, INC.;
HAZLETON HISPANIC BUSINESS ASSOCIATION;
PENNSYLVANIA STATEWIDE LATINO COALITION
THE CITY OF HAZLETON,
Appellant
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Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civil No. 3-07-cv-01704)
District Judge: Honorable A. Richard Caputo
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Submitted Under Third Circuit LAR 34.1(a)
November 4, 2010
Before: SCIRICA, RENDELL and ROTH, Circuit Judges
(Filed: November 5, 2010)
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OPINION OF THE COURT
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RENDELL, Circuit Judge.
In Lozano v. City of Hazleton, a group of individuals and organizations challenged two
Hazleton, Pennsylvania ordinances regulating the employment and housing of aliens who
lack lawful immigration status. After a bench trial, the Lozano District Court enjoined
the City of Hazleton from enforcing those ordinances. In this case, Hazleton appeals a
final order of the District Court for the Middle District of Pennsylvania granting
summary judgment to Scottsdale Insurance Company on various insurance coverage
claims arising out of the Lozano litigation. Having thoroughly reviewed the parties’
briefs and the record, we will affirm the grant of summary judgment substantially for the
reasons set forth in the District Court’s well reasoned memorandum opinion.1
The primary questions on appeal, as in the District Court, are whether Scottsdale is
obligated to pay for any attorneys’ fees assessed against Hazleton in the Lozano
litigation; whether Scottsdale is obligated to reimburse Hazleton for payments to an
attorney it retained to represent it alongside counsel provided by Scottsdale; and whether
Scottsdale acted in bad faith when it purportedly failed timely to advise Hazleton of a
conflict of interest.
On the first question, regarding attorneys’ fees, the District Court held that the
policy’s exclusion of “fees, costs or expenses which the insured may become obligated to
pay as a result of any adverse judgment for declaratory relief or injunctive relief”
1
The District Court exercised diversity jurisdiction under 28 U.S.C. § 1332. Our
jurisdiction arises under 28 U.S.C. § 1291.
2
unambiguously encompasses any attorneys’ fee award incident to the Lozano judgment
and rejected Hazleton’s argument that attorneys’ fees may be considered a form of
“monetary damages,” rather than “costs,” under the policy. We agree with, and adopt,
the District Court’s analysis.
On appeal, Hazleton raises three additional issues regarding the attorneys’ fee
award, all of which lack merit. First, we need not speculate whether the allegations in the
Lozano plaintiffs’ Second Amended Complaint could have supported a claim for
damages because plaintiffs specifically amended their complaint to remove the prayer for
compensatory damages and because the litigation concluded without plaintiffs seeking, or
being awarded, such damages. Second, the “supplementary payments” clause that
Hazleton invokes does not alter the District Court’s analysis because the policy language
makes clear that the exclusions, including the exclusion that incorporates attorneys’ fees
awards incident to the Lozano judgment, supersede the obligations to defend or to
indemnify that arise out of other policy provisions. Third, Scottsdale does not owe
Hazleton coverage for attorneys’ fees incurred before the Lozano plaintiffs amended their
complaint to remove the damages claim. Regardless of why the attorneys’ fees were
incurred, Hazleton will only “become obligated to pay” them “as a result of an[] adverse
judgment for declaratory relief or injunctive relief.” Thus, the policy’s exclusion covers
the entire amount of the attorneys’ fee award.2
2
Although Hazleton does not specifically identify it as an “issue presented,” Hazleton
also argues in its brief that Scottsdale must pay any attorneys’ fee award as part of its
3
On the second major point, concerning Scottsdale’s obligation to reimburse
Hazleton for fees and expenses it paid to its independent attorney, the District Court
found that Hazleton failed to present any evidence to support its argument that it was
entitled to choose its own counsel because of a conflict between it and Scottsdale’s
appointed counsel. The District Court also held that, under the policy’s plain language,
Scottsdale has no obligation to pay for services provided by the independent attorney
because Hazleton retained him without Scottsdale’s consent. Here again, we agree with
the District Court’s assessment. Hazleton presents no new arguments or facts related to
this point on appeal.
On the last major issue, the bad faith claim, the District Court concluded that
Hazleton failed to carry its burden in opposing summary judgment. It found that
Scottsdale properly put Hazleton on notice of the grounds for its potential denial of
coverage through a November 9, 2006 reservation of rights letter and that Scottsdale’s
three-month delay in issuing the letter was not unreasonable as a matter of law. The
District Court also rejected Hazleton’s assertion that Scottsdale pursued a trial strategy in
the Lozano case that was intended to avoid coverage. Hazleton does not raise any new
arguments or point to any facts that the District Court failed to consider. We adopt the
District Court’s cogent analysis on this point, as well.
duty to defend on the theory that “coverage is uncertain.” We reject this argument in
light of our conclusion that the policy unambiguously excludes coverage for attorneys’
fees in this case .
4
For the foregoing reasons, and for the reasons set forth in the District Court’s
memorandum accompanying its summary judgment order, we will affirm the order of the
District Court.
5