Charla Aldous, P.C. v. Darwin National Assu
2017 U.S. App. LEXIS 4707
| 5th Cir. | 2017Background
- Charla Aldous (part of BAM) represented Albert Hill III on contingency; BAM obtained large attorney-fee awards and prevailed on counterclaims, but Hill sued BAM for malpractice/breach, triggering Aldous’s insurer Darwin’s duty to defend.
- Darwin agreed to cover one-third of defense costs and approved retention of Loewinsohn as counsel subject to billing guidelines; dispute arose over which fees were covered and how much Darwin paid.
- In prior litigation declarations, Loewinsohn itemized fees; a supplemental declaration stated $668,068.31 was reasonably expended for defense between May 1–June 24, 2011, but earlier declarations showed larger total fees including defense work before May 1.
- District court granted summary judgment for Darwin after finding Aldous judicially estopped from claiming defense costs above $668,068.31, granted Darwin equitable recovery for overpayments, and dismissed several of Aldous’s extra-contractual claims; Aldous appealed.
- Fifth Circuit reversed the judicial estoppel ruling (holding it was misapplied), rejected Darwin’s equitable reimbursement claim under Texas law, and held that material fact issues precluded summary judgment on Aldous’s breach-of-contract claim (Darwin had not shown a genuine, contract-based reasonableness determination).
Issues
| Issue | Plaintiff's Argument (Aldous) | Defendant's Argument (Darwin) | Held |
|---|---|---|---|
| Judicial estoppel bars Aldous from claiming defense costs > $668,068.31 | Declarations do not limit BAM’s total defense costs to that figure; supplemental declaration was time‑limited and consistent with prior filings | District court previously accepted the $668,068.31 figure as BAM’s defense amount | Reversed: judicial estoppel misapplied; record shows no clear, accepted prior position limiting all defense costs to $668,068.31 |
| Breach of contract — did Darwin have discretion to reduce payments as it did? | Darwin failed to make a genuine, contractually binding reasonableness determination; its reductions (billing-guideline cuts and a 50/50 haircut) were arbitrary | Policy gives Darwin conclusive authority to determine reasonableness of claim expenses; reductions were within that discretion | Reversed summary judgment for Darwin; fact issues exist whether Darwin actually performed a reasonable, contract-based determination and whether its actions rendered Policy illusory |
| Declaratory relief for fees prosecuting affirmative claims that are "inextricably intertwined" with defense | Aldous seeks coverage for affirmative‑claim fees to the extent they were inextricably intertwined with defense | Policy only covers defense of covered claims; duty to defend does not obligate insurer to pay for prosecution of affirmative claims | Affirmed district court: no Texas authority extends duty to defend into a duty to prosecute insured’s affirmative claims; declaratory relief denied |
| Money had and received / equitable reimbursement for overpayments | No equitable right exists under Texas law for an insurer to recover alleged overpayments absent policy language or consent | Darwin may recoup overpayments as equitable restitution when it paid more than contract required | Reversed: Texas law (Matagorda County, Frank’s Casing) disfavors implied equitable reimbursement outside policy terms; Darwin not entitled to equitable recovery |
| Duty of good faith & statutory extra-contractual claims | Aldous: failure to adequately pay defense may give rise to insurer duty of good faith and statutory claims | Darwin: insured’s claim is third‑party defense; Texas law forecloses common-law good-faith claim for third-party defense handling; statutory claims require independent injury | Affirmed dismissal: no common-law duty of good faith for handling third-party defense; Insurance Code/DTPA claims barred absent independent injury |
Key Cases Cited
- Cal‑Dive Int’l, Inc. v. Seabright Ins. Co., 627 F.3d 110 (5th Cir.) (summary judgment standard)
- Morgan v. Plano Indep. Sch. Dist., 589 F.3d 740 (5th Cir.) (cross-motions for summary judgment standard)
- Reed v. City of Arlington, 650 F.3d 571 (5th Cir. en banc) (judicial estoppel considerations)
- New Hampshire v. Maine, 532 U.S. 742 (U.S. 2001) (judicial estoppel doctrine guidance)
- Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) (contract construction and avoiding illusory policy readings)
- Texas Ass’n of Cntys. Risk Mgmt. Pool v. Matagorda County, 52 S.W.3d 128 (Tex. 2000) (no equitable reimbursement outside policy absent consent)
- Excess Underwriters at Lloyd’s v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42 (Tex. 2008) (declining an implied equitable reimbursement right for insurers)
- Lamar Homes, Inc. v. Mid‑Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) (first‑party vs. third‑party claim distinction for certain statutes)
- Head Indus. Coatings & Servs., Inc. v. Maryland Ins. Co., 938 S.W.2d 27 (Tex. 1996) (no common‑law good‑faith duty for third‑party defense handling)
- Fortis Benefits v. Cantu, 234 S.W.3d 642 (Tex. 2007) (subrogation and contractual reimbursement provisions)