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Fourth Circuit Holds an Insured May Recover Damages for Aggravation and Inconvenience

Blogs, Insurance Coverage

The United States Court of Appeals for the Fourth Circuit recently ruled that an insured may recover damages for aggravation and inconvenience under West Virginia law where the insurer, in breach of the policy, refused to defend its insured. Graham v. National Union Fire Ins. Co. of Pittsburgh, Pa., No. 13-1517 (4th Cir. Feb. 3, 2014). 

Robert Graham (“Graham”) was the executive director of two West Virginia nonprofit corporations when he was sued by the State of West Virginia for allegedly manipulating members of each corporation to pay him exorbitant salaries and benefits. Graham sought coverage under a commercial general liability policy issued by National Union Fire Insurance Company of Pittsburgh, Pa (“National Union”), to one of the corporations. The corporation was a named insured under the policy, and the policy extended coverage to “any elected or appointed official, executive officer, commissioner, director, or member of the corporations while acting within the scope of his duties as such.” Graham contended he qualified as an insured under the policy and demanded National Union defend him in the underlying suit. National Union denied coverage and Graham hired counsel at his own expense. The underlying suit was eventually dismissed as moot after Graham was removed as executive director from both corporations. 

Thereafter, Graham brought suit against National Union alleging National Union breached its duty to defend and sought damages for the cost of defending the claim, prejudgment interest, attorneys’ fees, and additional damages for aggravation and inconvenience. The parties filed cross-motions for summary judgment on the issue of whether Graham could recover prejudgment interest and damages for aggravation and inconvenience. The district court granted National Union’s motion for summary judgment and held Graham could not recover these damages under West Virginia law.

On appeal, the Fourth Circuit affirmed the district court’s denial of prejudgment interest, but vacated summary judgment regarding aggravation and inconvenience damages, and remanded for further proceedings to permit Graham to prove that he incurred aggravation and inconvenience due to National Union’s breach of contract. In so ruling, the Court extended West Virginia Supreme Court precedent that permits an insured to recover consequential damages in the form of an award for aggravation and inconvenience in the context of first-party coverage. The Fourth Circuit explained that an insured is entitled to the full array of consequential damages regardless of whether the coverage afforded is first-party or third-party.

For more on Graham v. National Union Fire Ins. Co. of Pittsburgh, Pa. click here