The District of Massachusetts has issued a decision in Vicor v. Vigilant Ins. Co. et al., after getting the case back on remand from the First Circuit.

The case involves the scope of a “loss of use” provision in a general liability policy.  Certain wireless communication network outages had been traced to the failure of a component part, manufactured by plaintiff Vicor Corporation and sold to Ericsson.  In May 2004, as a result of the network failures, Ericsson sued Vicor in California state court.  In 2007, the parties settled this lawsuit for $50 million.  Vigilant Insurance Company and Federal Insurance Company, two of Vicor's liability insurers, contributed $13 million to the settlement, while Vicor contributed the remainder.  The payments made by Vicor included both cash settlements for repair costs, payments for emergency response costs, and free equipment.

In addition to the $13 million, the insurers paid approximately $5.2 million in legal fees to reimburse Vicor for its defense costs, though Vicor had claimed a total of approximately $7.4 million.  Vicor’s primary defense attorneys had billed at rates ranging from $160/hr to $325/hr, while its local counsel billed at rates ranging from $275/hr to $690/hr.  Vigilant and Federal  reimbursed Vicor at a blended rate of $250/hr for attorney time and $75/hr of paralegal time.

Vicor then sued Vigilant and Federal, as well as Continental, an excess carrier, for the balance of its settlement with Ericsson.  The crux of the dispute was which parts of the settlement paid by Vicor constituted damages for “loss of use” under the policies.  After detailed instructions from the judge, the jury awarded a total of $17.3 million for “loss of use” damages to Vicor.  Also at the District Court level, summary judgment was granted to Vigilant and Federal on Vicor’s claim for a breach of the duty to defend, concluding that the insurers had “discharged their obligations to pay reasonable legal fees.”

Both parties appealed both the jury award, based on claimed errors in the instructions, and the grant of summary judgment regarding attorneys’ fees.  The First Circuit vacated the jury’s verdict, finding instructional error, and also vacated the summary judgment ruling, concluding that “the District Court had failed to explain how it arrived at the fee award sufficiently to allow evaluation on appeal.”

On September 28, 2012, the District Court ruled on remand on the summary judgment motions regarding the award of attorneys’ fees.  (The loss of use issue remains to be tried.)  The Court began by noting that the award of attorneys’ fees are left to the “sound discretion of the judge” and that the “party claiming attorneys’ fees has the burden of proving them.”  The judge went on to conclude that because lead counsel, which had contributed 84% of the time billed in Vicor’s defense, billed in the range of $160 to $260/hr, the blended rate of $250 was in the upper end of that range, and because there was no evidence that Vicor was not satisfied with the representation it received or with the outcome, the blended rate was reasonable.

Disputes between insurers and their insureds over whether the fees charged by defense counsel retained by the insureds are reasonable turn significantly on their individual facts.  Nevertheless, it should be encouraging to insurers that this federal district court judge viewed favorably the obvious effort by these insurers to determine what was a fair rate of reimbursement for the time spent by the defense counsel who did most of the work.  Given the history of this case, another trip to the circuit court is likely, and we will report on that decision when it is issued.

The First Circuit’s opinion remanding the case from March of this year can be found here.

The District Court’s ruling from September 28, 2012 can be found here.