                              UNPUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT


                              No. 13-1517



ROBERT E. GRAHAM,

                Plaintiff – Appellant,

           v.

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,

                Defendant – Appellee.



Appeal from the United States District Court for the Southern
District of West Virginia, at Bluefield. David A. Faber, Senior
District Judge. (1:10-cv-00453)


Argued:   December 10, 2013                 Decided:   February 3, 2014


Before KING, GREGORY, and FLOYD, Circuit Judges.


Affirmed in part, vacated in part, and remanded by unpublished
per curiam opinion.


ARGUED: Michael W. Carey, CAREY, SCOTT, DOUGLAS & KESSLER, PLLC,
Charleston, West Virginia, for Appellant.      Don C.A. Parker,
SPILMAN, THOMAS & BATTLE, PLLC, Charleston, West Virginia, for
Appellee.   ON BRIEF: John A. Kessler, David R. Pogue, CAREY,
SCOTT, DOUGLAS & KESSLER, PLLC, Charleston, West Virginia, for
Appellant.    Glen A. Murphy, SPILMAN THOMAS & BATTLE, PLLC,
Charleston, West Virginia, for Appellee.


Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

      This appeal presents two questions of West Virginia law

pertaining to the enforcement of insurance contracts.                      The first

is whether an insured may recover damages for aggravation and

inconvenience where his insurer, in breach of the policy, has

refused to defend him from potential liability arising from a

lawsuit.       The   resultant   need       of     the        insured    to    obtain

alternative     representation      leads     to        the     second     question:

whether prejudgment interest should accrue on the attorney fees

thereby incurred, for which the insurer is subsequently adjudged

responsible.

      The district court answered both questions in the negative,

pursuant to which it entered judgment for the plaintiff, Robert

E. Graham, against the defendant, National Union Fire Insurance

Co.   of    Pittsburgh,   Pennsylvania,          for     the     reduced      sum   of

$278,273.56.      Three-quarters     of     the    judgment       was    awarded    to

reimburse Graham for his attorney fees in connection with the

precursor     liability   action,    with         the    balance        intended    to

compensate him for the fees earned by counsel in the litigation

below to enforce the policy.         The court entered its judgment on

remand from our prior decision on the merits, see Graham v.

National Union Fire Insurance Co. of Pittsburgh, Pennsylvania,

474 F. App’x 956 (4th Cir. 2012) (unpublished), in which we



                                      2
rejected National Union’s defenses to Graham’s allegations of

breach.

      In the aftermath of our remand, National Union sought a

specific demand from Graham as a catalyst for negotiations and

possible settlement.       By letter from his counsel dated September

20,   2012,   Graham    asserted     entitlement    to     the    aforementioned

attorney fees, plus $160,083.57 in prejudgment interest on that

portion of the fee award associated with the threshold liability

proceedings.     He also demanded $368,788.74 for aggravation and

inconvenience.        Though National Union acceded to the proposed

award of attorney fees, the parties could not otherwise agree on

the proper amount due Graham.              The issue thereafter arose on

cross-motions    for    summary    judgment,     and,    by      its   Memorandum

Opinion and Order of March 7, 2013, the district court ruled in

National Union’s favor on the disputed items of damages.                      See

Graham v. Nat’l Union Ins. Co. of Pittsburgh, Pa., No. 1:10-cv-

00453 (S.D. W. Va. Mar. 7, 2013) (the “Opinion”). 1                On March 14,

2013, the court entered the conforming judgment described above.

Graham timely noted this appeal on March 29, 2013.

      We   conclude    that,   the    district     court      correctly   denied

Graham prejudgment interest on his attorney fees.                  We therefore

      1
       The Opinion is found at J.A. 210-30. (Citations herein to
“J.A. ___” refer to the contents of the Joint Appendix filed by
the parties to this appeal.)



                                       3
affirm that aspect of the court’s judgment.                        The court erred,

however, in denying Graham the opportunity to prove damages for

aggravation and inconvenience.                   We thus vacate that aspect of

the court’s judgment and again remand for further proceedings.



                                            I.

     Graham      was    the   Executive      Director       of    two   West   Virginia

nonprofit    corporations           that   used    state    and    federal     funds   to

provide services to senior citizens.                 In 2004, the State of West

Virginia sued Graham and his employers in the Circuit Court of

Kanawha    County,      maintaining        that    Graham    had    manipulated        the

members of each corporation’s Board of Directors to pay himself

exorbitant    salaries        and    benefits.       That    alleged       malfeasance,

according to the State, entitled it to a writ of quo warranto

ordering Graham’s removal and the disgorgement of his ill-gotten

gains. 2

     One    of    the    corporations,           Council    on    Aging,     Inc.,     was

designated a “municipality” and named as an additional insured

     2
       At common law, the writ of quo warranto (and the attendant
extraordinary proceeding) is “designed to test whether a person
exercising power is legally entitled to do so.”       Black’s Law
Dictionary 1256 (6th ed. 1990). In West Virginia, “[a] writ of
quo warranto may be awarded and prosecuted in the name of the
State” against, inter alios, “a corporation for a misuse or
nonuse of its corporate privileges and franchises, or for the
exercise of a privilege or franchise not conferred upon it by
law.” W. Va. Code § 53-2-1.



                                            4
on a policy issued by National Union to the State.                                  For an

annual premium just in excess of $20,000, the policy purported

to afford, among other things, general comprehensive liability

coverage.       Under the terms of the policy, that coverage extended

to    “[a]ny     elected     or     appointed      official,     executive       officer,

commissioner, director, or member of the ‘Named Insured’ while

acting within the scope of his duties as such.”                          Dist. Ct. ECF

13-5, at 6.

        Council on Aging notified National Union’s claims agent of

the    State     litigation,        but     the    insurer    denied     coverage      and

refused    to    tender      a     defense.        Graham    thus     defended     himself

against the lawsuit at his own expense.                        The action persisted

until 2009, when the circuit court dismissed it as moot.                               The

dismissal came after the boards of both corporations voted to

remove    Graham      and    prohibit       his    future     involvement      in    their

affairs, in connection with which Graham and the corporations

executed a mutual release of liability.

       Victory      at     last    in     hand,    Graham     filed    the    underlying

Complaint      on    March    3,    2010,     in   the    Circuit     Court   of    Mercer

County, alleging that National Union had breached its duty under

the insurance contract to provide him with a defense to the

State action.        National Union removed the matter to the Southern

District    of      West    Virginia,      where,    on     February    17,   2011,    the

insurer was granted summary judgment after the district court

                                              5
determined that certain policy exclusions supported the denial

of   coverage.       Our     reversal      of     that    judgment    engendered    the

proceedings on remand, which in turn led to the second appeal

now before us.        The parties being citizens of different states

and the amount in controversy exceeding $75,000, jurisdiction

existed     in     the     district        court         pursuant     to   28   U.S.C.

§ 1332(a)(1).       We possess appellate final order jurisdiction as

prescribed by 28 U.S.C. § 1291.



                                           II.

      The facts of record in this diversity proceeding are not in

dispute, with the result that the issues on appeal are confined

strictly to the proper interpretation of West Virginia law.                          As

such, our review of the final judgment below is de novo.                            See

Mort Ranta v. Gorman, 721 F.3d 241, 250 (4th Cir. 2013).



                                           III.

                                            A.

                                            1.

      The   body    of     law    developing       the     remedies    afforded     West

Virginia insureds for an insurer’s breach of contract traces its

origin to Aetna Casualty & Surety Co. v. Pitrolo, 342 S.E.2d 156

(W. Va. 1986).       In that case, Aetna filed a declaratory judgment

action    to     determine       whether    it     was     obliged    to   defend   its

                                            6
insured,     Pitrolo,    who   had    been      sued    in   three     separate

proceedings stemming from an automobile accident.                Aetna denied

coverage, compelling Pitrolo to retain a private attorney to

represent him.       After a jury found coverage to exist under the

policy, the circuit court ordered Aetna to take over Pitrolo’s

defense in     the   underlying   matters      and   reimburse   him   for    his

attorney fees.

     On review of the circuit court’s order, the Supreme Court

of Appeals of West Virginia (the “Court”) determined that Aetna

was liable not only for the attorney fees relating to the three

negligence proceedings, but also for the fees Pitrolo incurred

in the declaratory judgment action.               In so ruling, the Court

deemed it irrelevant that Aetna had, perhaps, reasonably denied

coverage and had otherwise acted in good faith:              “After all, the

insurer had contracted to defend the insured, and it failed to

do so.     It guessed wrong as to its duty, and should be compelled

to bear the consequences thereof.”             Pitrolo, 342 S.E.2d at 161

(citation and internal quotation marks omitted). 3

     Aetna was not, as it happens, adjudged liable for Pitrolo’s

aggravation    and   inconvenience,       a   circumstance   seized    upon    by

     3
        Notwithstanding the admonition in Pitrolo that the
insurer’s intent is typically not at issue, the category of
common-law actions alleging the wrongful denial of coverage is,
with some frequency, referred to in the legal vernacular as “bad
faith” insurance litigation.



                                      7
National   Union     in   support   of    its    position      that    the    district

court here correctly denied those damages to Graham.                         We do not

ascribe    great    significance    to        this   aspect    of    the    result   in

Pitrolo, undiscussed by the Court.                   Given the nascency of the

cause of action recognized in that case, we suppose it most

likely that the insured simply failed to make an appropriate

demand.

     About nine months after Pitrolo, the Court confronted a

similar, but more inclusive claim in Hayseeds, Inc. v. State

Farm Fire & Casualty, 352 S.E.2d 73 (W. Va. 1986).                         At issue in

Hayseeds was whether the insurer of a restaurant business was

required     to     relinquish      the        policy       proceeds       after     the

establishment was burnt down by an arsonist.                   The insurer, State

Farm,    refused    to    pay,   maintaining         that   the     husband-and-wife

principals were responsible for the fire.                     The business sued,

and it obtained a jury verdict for the $150,000 proceeds, plus

$69,000    in     attorney   fees    and       other    consequential         damages,

together with a punitive damages award of $50,000. 4


     4
       In West Virginia, two categories of compensatory damages
may be recovered by the plaintiff in a breach-of-contract
lawsuit. “Direct” damages are “those directly flowing from the
contract breach.”   Desco Corp. v. Harry W. Trushel Const. Co.,
413 S.E.2d 85, 89 (W. Va. 1991). Damages categorized as direct
are distinguishable from “indirect or consequential damages that
arise from the special circumstances of the contract.” Id. In
a bad-faith action alleging an insurer’s nonperformance under a
liability policy, such as Pitrolo, the plaintiff sustains direct
(Continued)
                                          8
    Adhering to its analysis in Pitrolo, the Court held that

“whenever a policyholder must sue his own insurance company over

any property damage claims, and the policy holder substantially

prevails in the action, the company is liable for the payment of

the policyholder’s reasonable attorneys’ fees.”       Hayseeds, 352

S.E.2d at 80.   The fee recovery compensates the insured for “net

economic loss caused by the delays in settlement,” that is, as a

foreseeable consequence of the breach.   Id.   The insured is also

entitled to additional consequential damages in the form of “an

award for aggravation and inconvenience.”      Id.   The Court thus

affirmed the trial court’s judgment, except that it reversed the




damages as the result of being compelled to retain substitute
counsel to represent him in the proceedings with respect to
which the insurer has abrogated its duty to defend.           By
contrast, the attorney fees incurred by the plaintiff in
litigation with the insurer to enforce the policy are properly
classified as consequential damages, insofar as “at the time of
the contract the parties could reasonably have anticipated that
[such fees] would be a probable result of the breach.”     Desco
Corp., 413 S.E.2d at 89; see United States v. Arvanitis, 902
F.2d 489, 497 (7th Cir. 1990) (payments to counsel by insurer
investigating defendant’s fraudulent scheme not recoverable
under statute disallowing restitution for consequential damages
such as “legal fees generated in prosecuting a claim”).      The
attorney fee award in Pitrolo comprised both categories of
damages. Hayseeds, however, did not involve a liability policy
and its attendant predicate litigation, with the result that the
attorney fees awarded by the jury in that case were incurred
exclusively in enforcement of the policy, and thus wholly within
the category of consequential damages.



                                9
punitive damages award as unsupported by a sufficient showing of

actual malice.         See id. at 80-81.

       Hence, whether an action on the policy is instituted by the

insurer (Pitrolo) or by the insured (Hayseeds), it is settled

that       whenever    a    breach   is    proved         of    the   insurer’s    duty    to

indemnify (Hayseeds) or broader duty to defend (Pitrolo), the

insured may recover direct damages for attorney fees expended in

any    predicate        proceeding        (usually         an    adjudication      of     the

insured’s liability to a third party), and also consequential

damages      for     fees   incurred      to   enforce         the    policy   against    the

insurer.        The first question in this appeal is whether Graham

may pursue additional consequential damages for aggravation and

inconvenience,         like    the   insured         in    Hayseeds,      notwithstanding

that the facts of his case are — at least superficially — more

analogous to those in Pitrolo. 5

       From the insured’s perspective, he is bound to suffer the

same aggravation and inconvenience regardless of how the insurer

breaches       the    policy:        either         by    unjustifiably        refusing    to

provide a defense against liability or by wrongfully withholding


       5
       As in Pitrolo, the litigation before the district court
sought to resolve an insurer’s duty to defend its insured from
liability.    The only notable difference — albeit a legally
immaterial one — is that the case at bar was filed by the
insured, while Pitrolo was a declaratory judgment action
initiated by the insurer.



                                               10
indemnification from property loss.                    And there is no logical

reason    to    authorize      an     award    for   one     item    of   consequential

damages — attorney fees in the enforcement litigation — while

simultaneously           denying        recovery        for         aggravation          and

inconvenience,         which    are     merely       other    items       in     the    same

category.         We    therefore       conclude      that,     in    West       Virginia,

insureds in Graham’s position may be compensated for aggravation

and inconvenience (subject to adequate proof thereof), insofar

as those items of consequential damages are permitted generally.

                                              2.

     The       district     court       reached       the     contrary         result    by

distinguishing between liability policies — implicating both the

duty to defend and the duty to indemnify — and those simply

providing indemnification from loss.                   The court denominated the

former     type    (at    issue       here     and    in     Pitrolo)      “third-party

insurance,”       Opinion      13,    and     the    latter    type       (discussed     in

Hayseeds) “first-party insurance,” id. at 13.                        Justice Benjamin

made the same distinction, espousing the minority viewpoint in

Loudin v. National Liability & Fire Insurance Co.:                          “First-party

insurance is a contract between the insurer and the insured to

protect    the    insured      from    its    own    actual    losses      and    expenses

. . . .        Third-party insurance is a contract to protect the

insured from losses resulting from actual or potential liability

to a third party.”          716 S.E.2d 696, 707 (W. Va. 2011) (Benjamin,

                                              11
J., dissenting) (quoting Couch on Insurance 3d § 198:3 (2005)

(internal quotation marks omitted)). 6

       Loudin is not particularly useful to our analysis, however,

because the issue in that case was a broad one, namely, whether

the    plaintiffs        had        a    sufficient           contractual       (first-party)

relationship with the insurer such that a bad-faith action could

be maintained to begin with.                          See Elmore v. State Farm Mut.

Auto. Ins. Co., 504 S.E.2d 893, 897 (W. Va. 1998) (“[T]he common

law duty of good faith and fair dealing . . . runs between

insurers        and   insureds          and    is     based    on   the    existence      of   a

contractual relationship.                     [T]here is simply nothing to support

a common law duty of good faith and fair dealing on the part of

insurance carriers toward third-party claimants.”).

       Here, by contrast, Graham is an acknowledged insured in

privity with National Union under the latter’s liability policy;

he    is   no    stranger      to       the    contract.        Moreover,        the   question

presented       is    considerably            more    narrow     than     in    Loudin,   i.e.,

whether Graham is entitled to the full array of consequential

damages     ordinarily      available            to    the     insured     in    a   breach-of-

contract proceeding.            The answer is “yes,” and it depends naught

       6
       See also Marshall v. Saseen, 450 S.E.2d 791, 797 (W. Va.
1994) (“First party insurance means that the insurance carrier
has directly contracted with the insured to provide coverage and
to reimburse the insured for his or her damages up to the policy
limits.”).



                                                 12
on    the       characterization    of    the       insurance      as    first-party     or

third-party.         Rather, consequential damages are part and parcel

of    the   remedies      obtainable     in    a    bad-faith       action    against    an

insurer, which, as set forth in the above-cited passage from

Elmore, can only be initiated and maintained by an insured, that

is, a first-party claimant.

       Indeed, the Loudin majority framed the primary issue before

it    as    “whether      the   circuit       court       properly      categorized     the

[plaintiffs] as third-party claimants.”                        716 S.E.2d at 700.       The

Court      in    Loudin   was   asked    to    determine         the    insurer’s    duties

under a liability policy on a pickup truck.                        The truck had been

backed over the insured by his brother, who was operating it

with permission.          Although the insured was, in a manner akin to

the    typical      third-party     claimant,           seeking    recompense    for    the

negligent operation of the covered vehicle, the Court ruled that

he was nonetheless a first-party claimant with standing to sue

his insurer for withholding coverage.                     See id. at 703 (“[W]e now

hold that, when a named policyholder files a claim with his/her

insurer, alleging that a nonnamed insured under the same policy

caused      him/her       injury,   the       policyholder         is     a   first-party

claimant in any subsequent bad faith action against the insurer

arising from the handling of the policyholder’s claim.”).

       Neither Loudin, nor Pitrolo, nor any other West Virginia

authority         poses   an    impediment         to    the    consequential       damages

                                              13
Graham seeks.         Such damages are dependent only on proof thereof

by a preponderance of the evidence.                          Remand shall afford Graham

the   opportunity         to        develop          and     present      his       evidence      of

aggravation      and     inconvenience               in     connection       with     the   breach

already established.

                                                    B.

      West      Virginia       law        authorizes          an     award    of      prejudgment

interest for “special or liquidated damages” from the date of

their accrual.          See W. Va. Code § 56-6-31(a).                         Special damages

are direct in character and “include[] lost wages and income,

medical    expenses,          damages          to    tangible       personal       property       and

similar out-of-pocket expenditures.”                         Id.      If an item of damages

is    adjudged        within        the        statute,          prejudgment        interest       is

mandatory.        See Grove v. Myers, 382 S.E.2d 536, 540 (W. Va.

1989).     Graham maintains that the attorney fees he incurred in

defending       against       the    State           lawsuit       are   similar      enough       to

medical expenses to be subject to prejudgment interest.

      In State ex rel. Chafin v. Mingo County Commission, 434

S.E.2d    40    (W.     Va.    1993),          the       Court     affirmed     the    denial      of

prejudgment       interest          on     a        county    official’s        legal       defense

expenses       deemed    reimbursable                from    the    public      fisc.        In   so

ruling, the Court observed that “[w]e are not convinced that the

lower court erred in determining that the [attorney fees] did

not    constitute         ‘similar              out-of-pocket            expenditures’            and

                                                    14
therefore did not qualify as an award entitling the [official]

to prejudgment interest.”              Id. at 44.

       Thereafter, in Miller v. Fluharty, 500 S.E.2d 310 (W. Va.

1997), a bad-faith action to enforce an indemnification policy,

the     Court     reversed       an     award       of       prejudgment           interest    on

litigation fees and expenses.                 The most compelling basis for the

Court’s       holding      was    its        observation            that     attorney        fees,

particularly           those     earned       on        a    contingency           basis,      are

“unliquidated and unsettled until the circuit court issues its

ruling.           Only     after        the        circuit          court     approves        the

policyholder’s attorney’s fee does the amount become liquidated

and established.”          Id. at 325.             At that point, of course, post-

judgment interest will begin to accrue.                             The Miller Court also

noted that, because the insured is not typically liable for the

contingent fees until after the verdict or settlement is paid by

the insurer, such expenses are not “out-of-pocket” as set forth

in the statute.          See id. at 325-26.

       Graham     correctly       notes      that       both    of    the    pertinent        West

Virginia      authorities        are    factually            distinguishable          from    his

case,    in     that    Chafin    was     not      an       insurance       case    and   Miller

involved      only     attorney       fees    incurred         in    litigation       with    the

insurer.      Graham has excluded that portion of his attorney fees,

properly classified as consequential — not direct — damages,

from    his     prejudgment       interest          claim.           Further,        as   Graham

                                              15
emphasizes, he agreed to pay counsel in the State lawsuit by the

hour, and not on a contingency basis, a circumstance not present

in Miller and one that arguably undercuts much of the rationale

supporting that decision.

       There being no requirement that the circuit court approve

any    aspect       of     Graham’s       private         fee        arrangement         with    his

attorneys      in    the    State      lawsuit,          it    is    apparent          that   Graham

became liable for those hourly fees as they were incurred, up to

the    entry    of       judgment.         Nevertheless,               the    claim       remained

unliquidated        beyond       the     entry      of    judgment       until,          on   remand

following the first appeal in this enforcement action, National

Union stipulated to the precise amount due.                              We conclude that,

in accordance with Miller, the absence of liquidation is enough

to    exclude    attorney         fees    —      even     those       sustained          as   direct

damages    —    from       the    reach     of      the       West    Virginia         prejudgment

interest statute.



                                               IV.

       Pursuant      to     the    foregoing,            the    judgment          on    appeal    is

affirmed       insofar       as     the       court       below        declined          to     award

prejudgment interest on Graham’s attorney fees.                               The judgment is

vacated,    however,        to    the     extent         that       Graham    was       denied    the

opportunity         to    prove    consequential               damages       in    the    form    of

aggravation and inconvenience attributable to National Union’s

                                               16
breach of the insurance contract.        We remand the matter to the

district   court   for   further   proceedings   consistent   with   this

opinion.

                                   AFFIRMED IN PART, VACATED IN PART,
                                   AND REMANDED




                                    17
