Montana Supreme Court Rules That Fee Shifting Applies To Favorable Rulings As To Amount Of Coverage
11.28.17
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(Article from Insurance Law Alert, November 2017)
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The Montana Supreme Court ruled that a first-party insured is entitled to attorney’s fees if he is compelled to sue for benefits and recovers more than the insurer’s final settlement offer. Mlekush v. Farmers Ins. Exch., 2017 WL 4785359 (Mont. Oct. 24, 2017). Mlekush sought benefits under a Farmers policy after sustaining injuries in an automobile accident. After receiving some claim information, Farmers stated that it had not yet made a determination about coverage. Thereafter, Mlekush sued, seeing “all sums due and owing” under the policy. The parties exchanged numerous settlement offers and engaged in mediation, but were unable to reach an agreement. Farmers’ final offer was $77,500. Following a trial, a jury returned a verdict in favor of Mlekush for $450,000. Mlekush sought attorney’s fees under Montana’s insurance exception to the “American Rule” prohibiting fee shifting.
A trial court denied the motion, finding that Mlekush was not “forced to assume the burden of legal action” to obtain the benefit of an insurance contract. The trial court reasoned that Farmers had not denied coverage and that Mlekush had initiated litigation prematurely. The Montana Supreme Court reversed, explaining that “the determination of whether an insured is entitled to attorney fees under the insurance exception . . . necessitates factual findings that take into consideration both parties’ actions during the entire process leading up to the ultimate resolution of the claim.” On remand, the trial court again denied Mlekush’s attorney’s fee motion, reasoning that the insurance fee-shifting exception does not apply to disputes over the value of an insurance claim, but rather is limited to situations in which an insurer denies coverage altogether. The Montana Supreme Court again reversed.
The Court ruled that the insurance exception extends to cases where the value of the first-party claim is in dispute, even if coverage is not disputed. The court stated:
when a first-party insured is compelled to pursue litigation and a jury returns a verdict in excess of the insurer’s last offer to settle an underinsured motorist claim, the insurer must pay the first-party’s attorney fees in an amount subsequently determined by the district court to be reasonable. To be clear, if a first-party insured goes to trial and obtains a verdict in excess of the insurer’s last offer, this constitutes prima facie proof that the insured was forced to assume the burden of legal action to obtain the full benefits of the policy, thus obviating the need for an inquiry as to whether or not the insurance exception applies. However, in cases in which the policy limits are tendered prior to a verdict being returned, the district court may consider the entirety of the litigation to determine “whether, and to what extent, [the] insured was forced to assume the burden of legal action in order to recover the full benefits of the insurance contract.”