United States Court of Appeals
                         FOR THE EIGHTH CIRCUIT
      ___________

      No. 03-1019
      ___________

American Travelers Life Insurance    *
Company, now known as Conseco        *
Senior Health Insurance Company,     *
                                     *
            Appellant,               *
                                     *
      v.                             *
                                     *
AIG Life Insurance Company,          *
                                     *
            Appellee.                *

      ___________                        Appeals from the United States
                                         District Court for the
      No. 03-1020                        District of North Dakota.
      ___________

American Travelers Life Insurance    *
Company, now known as Conseco        *
Senior Health Insurance Company,     *
                                     *
            Appellee,                *
                                     *
      v.                             *
                                     *
AIG Life Insurance Company,          *
                                     *
            Appellant.               *
                                ___________
                             Submitted: October 20, 2003

                                  Filed: January 7, 2004
                                   ___________

Before BYE, JOHN R. GIBSON, and MELLOY, Circuit Judges.
                             ___________

BYE, Circuit Judge.

      American Travelers Life Insurance Company n/k/a Conseco Senior Health
Insurance Company appeals the district court’s1 grant of summary judgment and order
awarding attorney’s fees to AIG Life Insurance Company. AIG appeals the district
court’s reduction of the amount claimed for attorney’s fees and the court’s refusal to
award indemnification for AIG’s $5000 settlement contribution. We affirm.

                                          I

       This case arises out of the issuance of a long-term nursing home healthcare
insurance policy sold to Arden Haley by AIG in September 1986. Coverage was to
commence only in the event the nursing home stay was preceded by a hospital stay
of at least three consecutive days. In effect on July 12, 1989, the State of North
Dakota, pursuant to N.D.C.C. § 26.1-45-07, prohibited the use of such clauses in
long-term nursing home healthcare policies. AIG did not bring the new law to
Haley’s attention or offer a different policy.

      In August 1991, AIG sold its entire book of long-term nursing home healthcare
business to Conseco. The purchase agreement is governed by Pennsylvania law and
contains the following provision,


      1
       The Honorable Rodney S. Webb, United States District Judge for the District
of North Dakota.

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      [AIG] hereby grants, transfers and assigns absolutely to [Conseco] any
      rights it has, had or may have to impose any defense, set-off or
      recoupment, whether under the terms of a Policy or otherwise, on
      account of any claim arising from a loss in respect of a Policy on and
      after the Closing Date (other than claims reserved by [AIG] under
      paragraph 2.2(a) hereof).

The purchase agreement also contained the following indemnification clause,

      Subject to the terms and conditions of this Agreement, [Conseco] hereby
      agrees for the benefit of [AIG Life] to assume, carry out, pay and
      perform, on and after the Closing Date, those duties and obligations
      required to be performed in respect of the insured under Policies,
      including all renewals. Such obligations will include the payment of all
      claims or amounts due to such persons whether or not the claim was
      made or incurred before or after the Closing Date. [Conseco] will
      indemnify [AIG Life] and save it harmless from and against all such
      duties and obligations.

      Upon assuming AIG’s policies, Conseco sent a letter to policyholders stating,

      The purpose of this letter is to inform you of an agreement reached
      between [AIG] and [Conseco]. This agreement provides that effective
      June 30, 1991, [Conseco] reinsured and assumed all of AIG’s group and
      individual nursing home and other long term care policies. Your policy
      is included in this group of policies. This ‘reinsurance and assumption’
      means that [Conseco] has assumed all responsibility for the payment of
      benefits under your policy. Similarly, [Conseco] will be responsible for
      the billing and collection of your premiums.

      Conseco’s letter to Haley advised it was in her best interests to maintain the
policy because no better long-term healthcare policy existed. Conseco did not bring
§ 26.1-45-07 to Haley’s attention or offer a policy without a three-day hospitalization
clause.


                                         -3-
      Haley continued her coverage after Conseco assumed the policy and on April
22, 1997, was admitted to a nursing home without prior hospitalization. Thereafter,
Haley submitted a claim for benefits which Conseco promptly denied. Haley
responded by suing AIG and Conseco alleging breach of contract, bad faith and
fraudulent misrepresentation. Haley argued § 26.1-45-07 applied retroactively to her
policy and the refusal to pay benefits amounted to a breach of the policy by both
Conseco and AIG. Alternatively, Haley argued AIG and Conseco acted in bad faith
and committed fraud by failing to advise her of the change in North Dakota law.
Additionally, Haley alleged fraud against Conseco based on its letter indicating her
policy was the best available.

       AIG immediately tendered defense of the suit to Conseco but the tender was
refused. AIG and Conseco then filed cross-claims alleging each had a duty under the
purchase agreement to indemnify the other for the costs of defense and any judgment
or settlement.2 Both insurers moved for summary judgment against Haley and the
district court dismissed the contract claims but allowed the other claims to proceed.
AIG and Conseco subsequently renewed their summary judgment motions on the
remaining claims but settled with Haley while those motions were pending.

        Thereafter, AIG moved for summary judgment on its cross-claim for
indemnification. The district court granted AIG’s request for attorney’s fees and
costs of defense holding the language of the purchase agreement was broad enough
to indicate the parties intended Conseco to assume responsibility for the Haley
litigation. The court, however, refused to award AIG indemnification for its $5000
settlement contribution. AIG then moved for attorney’s fees and costs in the amount
of $207,544.72. The district court calculated the reasonable value of the fees and
costs and awarded AIG $66,839.76 On appeal, Conseco argues the district court


      2
       Conseco later withdrew its cross-claim for indemnity against AIG, and the
claim is not at issue in this appeal.

                                         -4-
erred in finding the purchase agreement anticipated Conseco should be responsible
for defending AIG in the Haley litigation. AIG’s appeal argues the district court
erred in reducing the attorney’s fees and costs and in refusing to award
indemnification for its contribution to the settlement.

                                          II

      This diversity action is governed by Pennsylvania state substantive law. Erie
R.R. v. Tompkins, 

, 78 (1938). We review the district court’s grant of
summary judgment and its application of state law de novo. Lerohl v. Friends of
Minn. Sinfonia, 322 F.3d F.3d 486, 488 (8th Cir. 2003); Reimer v. City of Crookston,

, 961 (8th Cir. 2003).

      A.     Indemnification - Attorney’s Fees and Costs

       To determine whether Conseco must indemnify AIG for attorney’s fees and
costs we look to the language of the indemnification agreement. When the terms of
a contract are clear and unambiguous, the intent of the parties is gleaned from the
express language of the agreement. Kiewit E. Co. v. L & R Constr. Co., 

, 1199 (3d Cir. 1995) (applying Pennsylvania law). Conseco does not contend
the indemnification agreement is ambiguous. Rather, it argues the language of the
agreement requires indemnification only if “this [had] been an ordinary claim on a
policy for simple coverage . . . .” Conseco Reply Brief and Cross-Appeal Response,
p. 15. In other words, Conseco contends Haley did not bring a simple breach of
contract claim so as to trigger Conseco’s duty to defend.

      Count I of the complaint clearly alleges breach of contract against both AIG
and Conseco for failure to pay benefits. Conseco contends Haley’s breach of contract
claim against AIG was frivolous because benefits were denied long after AIG sold the
policy to Conseco. The merits of the allegations, however, are irrelevant. It is clear

                                         -5-
Haley sued AIG for breach of contract and the suit fell within the language of the
indemnification agreement, thereby triggering Conseco’s duty to defend.

       Notwithstanding its duty to defend against the breach of contract claim,
Conseco argues it had no duty to defend AIG against the bad faith or fraud claims.
This argument is also unpersuasive. The bad faith and fraud claims arose out of the
contractual relationship between AIG and Haley which Conseco assumed. See Birth
Ctr. v. St. Paul Cos., 

, 385 (Pa. 2001) (holding a bad faith dispute
between insurer and insured flows from the contract and “[b]reach of . . . [the]
obligation [to act in good faith] constitutes a breach of the insurance contract . . . .”)
(quoting Gray v. Nationwide Mut. Ins. Co., 

, 11 (Pa. 1966)). Conseco’s
characterization of the claims as entirely divorced from the insurance contract is
neither accurate nor complete. Because Haley’s claims arose out of the insurance
contract, we conclude Conseco was obligated to defend AIG in all aspects of the
Haley litigation.

       Having concluded the indemnification agreement required Conseco to defend
AIG against Haley’s claims, we must next determine whether indemnifying AIG for
its defense costs violates Pennsylvania’s public policy against indemnification for
negligent or fraudulent conduct. We conclude it does not.

       Conseco argues Pennsylvania law precludes a party from seeking
indemnification for its own negligence or fraud absent explicit language in the
indemnification agreement showing the parties clearly intended such an outcome.
Ruzzi v. Butler Petroleum Co., 

, 4 (Pa. 1991). Conseco’s argument is
correct so far as it goes. “[I]n order for an indemnity provision . . . cover[ing] losses
due to the indemnitee’s own negligence to be enforceable, the parties must contract
‘in clear and unequivocal language.’” IU N. Am., Inc. v. Gage Co., No. Civ. A. 00-
3361, 

, at *5 (E.D. Pa. June 4, 2002) (quoting 

).

                                           -6-
      The liability on such indemnity is so hazardous, and the character of the
      indemnity so unusual and extraordinary, that there can be no
      presumption that the indemnitor intended to assume the responsibility
      unless the contract puts it beyond doubt by express stipulation. No
      inference from words of general import can establish it.

(quoting Perry v. Payne, 

, 556 (Pa. 1907)).

       The public policy announced in Perry and reiterated in Ruzzi, however, applies
only in cases where a party is seeking indemnification for its actual negligence. Mace
v. Atl. Ref. & Mkt. Corp., 

, 496 (Pa. 2001). The prohibition does not
bar indemnification for fees and costs incurred defending against meritless allegations
of negligence or fraud. Id.; Jack Greenberg, Inc. v. Thornton, LLP, 

,
at *6 (Bankr. E.D. Pa. Dec. 12, 1997). In such cases, the losses for which the party
seeks indemnification “(i.e., the attorneys’ fees and cost which it incurred in
defending against the . . . claims) will not have been caused by its own negligence or
fraudulent conduct.” Jack Greenberg, 

, at *6.

       Conseco concedes AIG did not commit fraud. Conseco Reply Brief and Cross-
Appeal Response, p. 13 (“Indeed, there was no fraud in this case. The Complaint
against both insurers was frivolous.”). Accordingly, awarding AIG attorney’s fees
and costs will not result in indemnification for any wrongdoing. Rather, it will give
effect to the parties’ agreement which anticipated Conseco would defend AIG against
any claims brought by policyholders arising out of the denial of insurance benefits.

      B.     Amount of Attorney’s Fees and Costs

        We review awards of attorney’s fees and costs for abuse of discretion.
Pinkham v. Camex, Inc., 

, 294 (8th Cir. 1996); Borough of Bradford
Woods v. Platts, 

, 991 (Pa. 2002) (“The ‘reasonableness’ of attorney
fees . . . is a matter to be decided through the sound discretion of the trial court, and

                                          -7-
an appellate court should not alter such a decision unless there has been a clear abuse
of discretion.”). We review the district court’s factual findings for clear error, but our
review of the applicable legal principles is plenary. 

.

      AIG requested indemnification for attorney’s fees and costs in the amount of
$202,544.72. AIG argues Conseco was required to indemnify it for all attorney’s fees
and costs actually expended in defense of the Haley litigation. Pennsylvania law,
however, only permits an award of reasonable fees. See 

(remanding back to the trial court for a determination of reasonable fees after
concluding the indemnification agreement covered fees and costs expended defending
against a meritless negligence claim).

       The district court initially sought to apply a lodestar approach to AIG’s claim
for attorney’s fees. AIG, however, failed to establish the reasonableness of the hours
and hourly rate it was claiming. Accordingly, the court rejected AIG’s proffered
figure and, after considering additional factors, concluded an award of $66,839.76
was appropriate. Among the factors the court considered were 1) the case was settled
without a trial, 2) very few hearings were conducted, 3) only three depositions were
taken, 4) bills for electronic research were excessive, 5) AIG was required to remain
in the suit even if Conseco took over the defense, 6) AIG failed to meet its lodestar
burden, and 7) Conseco’s attorneys charged only $38,554.29.

       We recognize the difference between what AIG claimed and what was awarded
is substantial. The district court’s order, however, indicates it carefully considered
the issue and we conclude the court did not abuse its discretion. The court found the
attorneys on both sides of the litigation well qualified but was troubled by the
striking differences in hourly rates, i.e., AIG’s lead attorney charged $325-$345 per
hour while Conseco’s attorneys charged only $180 per hour. This difference,
combined with the other factors indicating the litigation was not overly time-



                                           -8-
consuming and AIG was required to remain in the suit, lend credence to the court’s
decision to reduce the claim for fees and costs.

      C.     Indemnification - Settlement Contribution

       AIG also contends the district court erred by refusing to award indemnification
for its $5000 contribution to the Haley settlement. We disagree. “Where a claim
against an indemnitee has been settled, the burden falls on the indemnitee to prove
that the settlement was reasonable.” County of Delaware v. J.P. Mascaro & Sons,
Inc., 

, 593 (Pa. Super. 2003). AIG has presented no argument or
evidence whatsoever showing the payment was reasonable. Accordingly, we affirm
the district court’s denial.

                                         III

      The order and judgment of the district court are affirmed.
                      ______________________________




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