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Allied Property and Casualty Insurance Co. v. Bed Bath & Beyond, Inc.

United States District Court, N.D. Georgia, Atlanta Division

November 4, 2014

BED BATH & BEYOND, INC. et al., Defendants.


RICHARD W. STORY, District Judge.

On March 31, 2014, the Court entered an Order [97] concluding that any covered defense costs of Bed Bath & Beyond, Inc. ("BBB") or Arch Insurance Company ("Arch") prior to the exhaustion of the policy limits under Plaintiffs' policies would be split between the parties on a pro rata basis. The Court allowed the parties to engage in negotiations in an effort to resolve the amount of defense costs owed pursuant to the ruling, but the parties were unable to reach agreement. The parties submitted a proposed briefing schedule [99] to the Court based on their conclusion that "legal rulings from the Court are necessary to resolve the amount of defense costs owed." (Request for Scheduling Order [99] at 1.) The parties have briefed the legal issues, and the case is before the Court for consideration. The Court will address all of the issues raised by the parties. However, based on these rulings, the Court is unable, at this time, to finally resolve the amount of defense costs owed. Because further development of the record may be necessary, the Court has endeavored to provide as much direction to the parties as possible. The hope is that these rulings will provide sufficient direction to allow the parties to resolve the ultimate issue by agreement.

Friedenberg Declaration

In support of its Initial Brief Regarding Defense Costs [104], Arch submitted the Declaration of Michael R. Friedenberg ("Friedenberg") [104-1]. Plaintiffs filed an objection [106] to the declaration. In his declaration, Friedenberg states that he is employed by Arch as a Claims Account Manager. His job duties include reviewing and evaluating payments to law firms retained to defend insureds under Arch's policies. In his capacity as a Claims Account Manager, he has reviewed the legal bills of attorneys defending BBB and opines that all payments for the attorneys' services were reasonable and necessary.

Plaintiffs object to Friedenberg's testimony as inadmissible hearsay. Friedenberg relies on documents that are not in evidence to support his opinion. Apparently, the actual bills are in the custody of a third-party administrator. Plaintiffs assert that Friedenberg is offering testimony about the content of those documents to prove the truth of the matter asserted in them. As such, the testimony is hearsay. Because, he is not the custodian of the records, Friedenberg cannot satisfy the conditions for qualifying the records as "records of a regularly conducted activity." Moreover, Friedenberg's testimony involves expert opinions, and he was never disclosed as an expert at any point during the discovery process. Even if Friedenberg were qualified as an expert, he has failed to provide the data on which he relies for his opinions.

In its response, Arch asserts that Friedenberg's testimony is not hearsay because he is simply testifying as to the total paid out as defense costs, and this amount is within his personal knowledge. According to Arch, Friedenberg does not purport to offer testimony about the truth of any matter asserted in the bills. Also, Arch points out that inadmissible hearsay may be considered at the summary judgment stage if the court is satisfied that the statement can be reduced to admissible form. Arch argues that Friedenberg's opinions were not offered as an expert, but are proper under Federal Rule of Evidence 701.

The Court does not doubt that Arch could reduce the evidence of expenditures for defense costs to an admissible form. However, Friedenberg's opinion that the defense costs were reasonable and necessary is not admissible. His opinion is based on his experience as a Claims Account Manager. Experience and knowledge acquired in his field are necessary to qualify him to offer that opinion. His opinion is not a "lay opinion" as contemplated by Rule 701. Friedenberg was not identified as an expert and has not been subjected to an inquiry regarding his qualifications or the bases for his opinion. Thus, Plaintiffs' objection is SUSTAINED to the extent it challenges Friedenberg's opinion as to the defense costs being reasonable and necessary.

Arch bears the burden of proving that the expenses were reasonable and necessary. Plaintiffs are not liable for all expenses paid, only those that are reasonable and necessary. See St. Paul Fire and Marine Ins. Co. v. Valley Forge Ins. Co., Case No. 1:06-CV-2074-JOF, 2009 WL 789612, at *11 (N.D.Ga. March 23, 2009); Mutual Service Ins. Co. v. Frit Indus., Inc. , 358 F.3d 1312, 1323 (11th Cir. 2004); Avondale Shipyards, Inc. v. Emp'rs Mut. Liab. Ins. Co., 458 F.2d 900, 902 (5th Cir. 1972). Without Friedenberg's opinion testimony, Arch is unable to establish the amount it is entitled to recover. Thus, while Arch has established that it is entitled to recover defense costs from Plaintiffs, the Court is unable to calculate those damages on the present record.

Legal Questions Posed by Parties

Though the Court is unable to calculate the damages on the present record, the Court will address the legal questions posed by the parties to assist them in trying to resolve this issue by agreement. The parties identified the following as questions that the Court must resolve in order for the defense cost issue to be decided:

(1) whether Plaintiffs are liable for defense costs that fall within the deductible applicable under the Arch policy;
(2) when BBB elected coverage so as to make Plaintiffs liable for defense costs;
(3) whether the fees of BBB's coordinating counsel, SNR Denton, constitute defense costs;
(4) whether fees incurred in investigating a claim prior to suit being ...

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