Capella University, Inc. v. Executive Risk Specialty Lines Ins. Co., No. 06-CV-607 (JMR/FLN), 2008 WL 4602087 (D. Minn. Oct. 14, 2008)
The court, adopting Magistrate Noel’s reported recommendation, denied an award of pre-judgment and post-judgment interest but otherwise affirmed the award for attorneys’ fees and costs in the underlying and coverage action as recommended.
The court found, however, that there was no right to recovery for attorneys’ fees and costs incurred in prosecuting disability discrimination counterclaims where the complaint’s defamation claims triggered a defense.
Following operative Minnesota law, the court observed:
“The duty to defend does not include bearing the costs associated with an insured’s affirmative counterclaims ‘to the extent it is possible to separate the fees associated with an insured’s affirmative counterclaim from other defensive fees.’ ” Sullivan v. Am. Family Mut. Ins. Co., No. A06-1285, 2007 WL 2106142, at *2 (Minn.Ct.App. July 24, 2007) (quoting St. Paul Fire & Marine Ins. Co. v. Nat'l Computer Sys., Inc., 490 N.W.2d 626, 632 (Minn.Ct.App .1992), review denied (Minn. Nov. 17, 1992)).
Id. at *3.
The insured argued that the counterclaims for disability discrimination arose from the same set of operative facts as the underlying defamatory and tortious actions, but the court found otherwise, agreeing that the claims were “severable” as Executive Risk argued.
Executive Risk should not have to pay for the prosecution of Capella’s counterclaims. No amount of success on the counterclaims would have any impact on the liability of Capella for disability discrimination. While it may be true that success on the counterclaims could result in an award of damages that would offset an award of damages on the disability discrimination-related claims, these claims are not inter-related on the issue of liability; therefore, attorneys’ fees and costs incurred prosecuting counterclaims are not defensive costs. The different litigation tracks taken by La Marca’s claims and Capella’s counterclaims make it possible to separate the attorneys’ fees and costs associated with each [party’s] claims. Capella should not be allowed to recover attorneys’ fees and costs incurred in the prosecution of its counterclaims.
Id. at *4.
The court did not evaluate the strategic value of the counterclaim’s pursuit. Nor did the court explain why pre-judgment interest is not recoverable. Nor does the insured receive any benefit from the fact that the insurer denied a defense. Minnesota law is thus far less hospitable to recovery of prosecution fees than many other jurisdictions, including California, Pennsylvania, New York, and even New Jersey.
