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Trammell Crow Residential Co. v. Virginia Surety Co., Inc.
Posted 2/19/09 Lee Shidlofsky, Visser Shidlofsky LLP
In Trammell Crow Residential Company v. Virginia Surety Company, Inc., 2008 WL 5062132 (N.D. Tex. 2008), the United States District Court for the Northern District of Texas considered whether an insured was entitled to recovery under the Prompt Payment of Claims Act where no legal bills or invoices for expenses had been submitted to the insurer. Applying Lamar Homes, the Court held that the amount of attorneys' fees was relevant only to the calculation of damages, not liability under the Act. Thus, the determination that Virginia Surety violated the Prompt Payment of Claims Act by wrongfully denying Trammell Crow's claim for defense costs could be made without Trammell Crow having forwarded their legal bills or invoices for expenses to Virginia Surety.
Trammell Crow was sued in the underlying lawsuit by the Equal Rights Center for alleged violations of the Fair Housing Act and the Americans with Disabilities Act. The underlying lawsuit asserted that these violations occurred between 1995 and 2006. Trammell Crow had a commercial general liability policy written by Virginia Surety which covered the period from February 15, 2002 to February 15, 2003. Virginia Surety denied Trammell Crow's tender of the underlying lawsuit, stating that the underlying lawsuit did not allege facts that brought the lawsuit within the scope of coverage. Trammell Crow filed an action against Virginia Surety, seeking a declaration that there was a duty to defend in the underlying lawsuit. The declaratory judgment action additionally made a claim for damages pursuant to the Prompt Payment of Claims Act.
Applying the eight-corners rule, the Court held that Virginia Surety had a duty to defend Trammell Crow in the underlying lawsuit, and that it had breached that duty. After finding that Trammell Crow had suffered damages as a result of Virginia Surety's breach of the insurance policy, the Court considered whether Trammell Crow was entitled to recover under the Prompt Payment of Claims Act. Virginia Surety asserted that Trammell Crow could not recover under the Act because the insured had not submitted any legal bills or invoices for expenses incurred in defending the underlying lawsuit. The Court disagreed.
"Although the court agrees that proof of the insured's defense costs are necessary to calculate the damages for which the insurer is liable, it disagrees with the premise that the insurer cannot be liable under the Prompt Payment of Claims Act unless the insured has submitted statements of its defense costs to the insurer." Id. at *10. Interpreting Lamar Homes, the Court held that an insurer becomes liable under the Prompt Payment of Claims Act when it wrongfully rejects its defense obligation, but that attorneys' fees cannot be awarded and prejudgment interest does not begin accruing until the insured actually incurs the defense costs. Id. at *11. In sum, consistent with the Supreme Court's decision in Lamar Homes and the Prompt Payment of Claims Act, the Court found liability could be determined without a calculation of damages. Thus, Virginia Surety was liable to Trammell Crow under the Prompt Payment of Claims Act. The amount of defense costs Trammell Crow is entitled to as damages remained to be determined at trial.