Earlier this year, the United States District Court for the Western District of Washington provided a detailed analysis of the categories of damages available to a prevailing insured in a breach of contract action against an insurer, including prejudgment interest, costs and attorneys’ fees. MKB Constructors v. Am. Zurich Ins. Co., 2015 U.S. Dist. LEXIS 9325 (W.D. Wash. Jan. 27, 2015). In MKB, the insured was awarded more than $2.35 million in damages, comprised of (1) $1,083,424.24 for breach of contract, (2) $274,482.47 for violation of Washington’s Insurance Fair Conduct Act (“IFCA”), (3) $862,000 in enhanced damages under IFCA, and (4) $138,000 for failure to act in good faith (later overturned as duplicative of the IFCA damages). Following the verdict, the insured moved for prejudgment interest, nontaxable costs, and attorneys’ fees.

Prejudgment Interest

The parties did not dispute that the insured was entitled to prejudgment interest on the liquidated portions of its award. Rather, the issues were which rate to apply and when the interest began to accrue. Under Washington law, a twelve percent prejudgment interest rate is applied to contract disputes, but a lower rate of two percentage points above prime is applied to tort claims. RCW 4.56.110. The parties agreed that only one rate should apply, but disagreed as to whether the judgment was primarily based in tort or in contract. The insured asserted that the judgment was based primarily in contract because the majority of the liquidated portion of the award was for breach of contract. The insurer argued that the Court must consider the judgment as a whole and not just its liquidated components. The Court agreed with the insurer, citing Unigard Ins. Co.v. Mutual of Enumclaw Ins. Co., 160 Wn.App. 912 (Wash. Ct. App. 2011). The Court then compared the amount awarded for breach of contract to the greater total amount awarded for the tort claims based on bad faith and IFCA and concluded that the judgment was primarily based in tort. Accordingly, the Court applied the lower pre-judgment interest rate.

For the prejudgment interest accrual date, the parties agreed that under Washington law prejudgment interest should run from the date each particular invoice was paid. The insured argued, however, that the volume of invoices would make such a calculation an unreasonable burden. The Court agreed to two dates proposed by the insured for the commencement of prejudgment interest, one with respect to the invoices related to the breach of contract and another for its attorney’s invoices, based on the insured’s confirmation that these dates would not prejudice the insurer, and in fact would result in a net benefit to the insurer.

Attorney’s Fees

The insured sought a 33% increase of the total award to account for the contingent fee paid to its counsel. The Court rejected this request as unprecedented. Rather, Washington law presumes that a properly calculated lodestar figure represents reasonable compensation for counsel. A “lodestar” fee is determined by multiplying a reasonable hourly rate by the number of hours reasonably expended in the lawsuit.

The insurer disputed the reasonableness of the attorneys’ hours based on improper block-billing, unnecessary participation by a third attorney added just before trial, and for time spent on unsuccessful claims. Based on its review of the invoices, the Court reduced the block-billed entries by 20%. The Court did not deduct time for the third attorney added just before trial, because the addition of the attorney for trial was neither unusual nor excessive. The Court found that certain work related to discovery and dispositive motions were unnecessary and insufficiently related to the overall success of the litigation to warrant an award of fees. Rather than undertake an hour-by-hour analysis of the attorneys’ fees in order to excise the precise number of hours attributable to these items, the Court estimated, based on its experience with the case that an overall 20% reduction in the claimed fees would sufficiently account for the hours spent on these items.

Litigation Costs

Lastly, the insured sought reimbursement of litigation costs, totaling $160,580.50, which consisted of (1) expert witness fees; (2) travel expenses; (3) the insured’s labor costs; and (4) litigation costs advanced by counsel. The expert fees and travel expenses were uncontested. In dispute were the labor costs and litigation costs advanced by counsel.

The Court held that the insured’s recovery of wages for employees who testified or otherwise participated in the lawsuit would be an unprecedented stretch of both IFCA and case authority permitting an award of costs. On the same basis, the Court denied recovery for fees paid to secure the attendance at trial of its former employees that were in excess of the statutory amount for fact witnesses provided by RCW 2.40.010. The Court rejected the insured’s argument that the payment of these witnesses was “akin” to an expert witness fee, since Washington courts have expressly disallowed such fees to fact or occurrence witnesses.

The Court also trimmed the insured’s request for over $52,000 in costs advanced by counsel. “Actual and statutory litigation costs, including expert witness fees” may be awarded under IFCA. Additionally, Washington case authority permits the court to award “all of the expenses necessary to establish coverage” in order to make the insured “whole.” Panorama Village Condo. Owners Ass’n Bd. Of Dirs. v. Allstate Ins. Co., 26 P.3d 910, 917 (Wash. 2001) (bolding in original). The Court ruled that the following costs should be reimbursed: (1) costs associated with electronic legal research; (2) photocopying; (3) messenger and Federal Express fees; (4) court reporter and videographer fees; (5) travel to depositions; (6) telephone conference fees; (7) PACER fees; and (8) hotel rooms near the courthouse for witnesses.

However, the Court declined to award certain costs that were not “litigation costs” such as a mediation fee; costs that were part of routine daily life and would have been incurred without trial such as costs for local attorneys’ commuting, lodging and meals during trial; and costs that were excessive, such as daily trial transcriptions.

The MKB decision should serve as a useful guide in future fee award cases and as a warning that courts in Washington should not “rubber stamp” an award in favor of the insured but should carefully scrutinize all components of the insured’s demand.