Mlekush v. Farmers Insurance Exchan

11/14/2017
DA 16-0670
Case Number: DA 16-0670
IN THE SUPREME COURT OF THE STATE OF MONTANA
2017 MT 256A
TANYA L. MLEKUSH,
Plaintiff and Appellant,
v.
FARMERS INSURANCE EXCHANGE,
Defendant and Appellee.
APPEAL FROM: District Court of the First Judicial District,
In and For the County of Lewis And Clark, Cause No. ADV-2013-57
Honorable Mike Menahan, Presiding Judge
COUNSEL OF RECORD:
For Appellant:
Rick J. Pyfer, Patrick T. Fox (argued), Doubek, Pyfer & Fox, PC,
Helena, Montana
For Appellee:
Paul R. Haffeman (argued), Davis, Hatley, Haffeman & Tighe, P.C.,
Great Falls, Montana
For Amicus Montana Trial Lawyers Association:
Justin P. Stalpes, Beck, Amsden & Stalpes, PLLC, Bozeman, Montana
For Amicus Montana Defense Trial Lawyers:
Nicholas J. Pagnotta (argued), Peter B. Ivins, Williams Law Firm, P.C.,
Missoula, Montana
Argued and Submitted: July 26, 2017
Decided: October 24, 2017
Amended: November 14, 2017
Filed:
__________________________________________
Clerk
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Justice Michael E Wheat delivered the Opinion of the Court.
¶1 This appeal arises from a November 3, 2016 District Court order denying a motion
for attorney fees.
¶2 We restate the sole issue on appeal as follows:
Whether an injured first party insured who is compelled to sue for UIM benefits
and recovers more at trial than the last insurance company offer is entitled to
recover his or her attorney fees.
FACTUAL AND PROCEDURAL BACKGROUND
¶3 On January 15, 2011, Tanya L. Mlekush (Mlekush) was injured in a two-vehicle
collision. At the time, Farmers Insurance Exchange (Farmers) insured Mlekush under a
policy that provided underinsured motorist (UIM) coverage. After the accident, Mlekush
retained counsel.
¶4 On January 22, 2011, Farmers sent Mlekush a letter regarding the collision and her
options for repair of her vehicle. In August 2012, the other driver admitted liability and
tendered the liability insurance policy limits of $50,000. On October 2, 2012, Mlekush’s
counsel sent Farmers a letter requesting a UIM claim be opened and to have the assigned
adjuster contact counsel. Farmers and Mlekush exchanged information regarding
Mlekush’s claim and medical expenses over the next few months.
¶5 In January 2013, Farmers had not yet made a determination regarding Mlekush’s
claim. Farmers sent Mlekush a letter informing her that it needed more information
regarding her claimed injuries because “at this time it is not clear if the [injuries] are
causally/directly related to the accident in question.”
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¶6 On January 24, 2013, Mlekush filed a complaint in District Court for “all sums
due and owing” from Farmers. Mlekush stated her reason for initiating litigation at this
point was that Farmers questioned causation on a clear medical record and denied
advance payment of surgical costs. For the next seventeen months, the parties exchanged
settlement offers, requests for advanced payment for medical procedures, and additional
medical information.
¶7 On June 26, 2013, Farmers offered Mlekush $18,831.25 to settle her claim;
however, Farmers suggested it might be too early to settle because Mlekush’s medical
condition had not stabilized. The letter did not specify if acceptance required a full and
final release of Farmers based on this claim. Mlekush responded by demanding her UIM
policy limits. Farmers denied Mlekush’s demand. Mlekush agreed to mediation.
Mediation occurred on September 27, 2013, but was unsuccessful.
¶8 On October 7, 2013, Farmers offered Mlekush $60,000 to settle her claim.
Mlekush counteroffered for $187,500. Farmers refused the offer. The parties continued
to exchange information. On March 18, 2014, Farmers offered Mlekush $75,000 to settle
the claim; Mlekush refused and demanded her UIM policy limits. Farmers refused the
offer. On July 1, 2014, Farmers extended its final offer of $77,500 to settle the claim.
¶9 A jury trial took place July 7-9, 2014. All information and documentation
concerning Mlekush’s injuries that had been provided to Farmers was admitted into
evidence at trial. The jury returned a verdict of $450,000 in favor of Mlekush.
Judgement was entered for the policy limit amount of $200,000.
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¶10 Mlekush then filed a memorandum of costs and a motion for attorney fees and
nontaxable costs under the insurance exception to the American Rule. On January 12,
2015, the District Court denied Mlekush’s motion for attorney fees, finding the insurance
exception did not apply to Mlekush’s claim because Mlekush initiated the action
prematurely; she was therefore not “forced to assume the burden of legal action.”
Mlekush appealed.
¶11 This Court in Mlekush v. Farmers Ins. Exch., 2015 MT 302, 381 Mont. 292, 358
P.3d 913, concluded that the District Court’s exclusive reliance on when Mlekush
initiated her action was error; “the determination of whether an insured is entitled to
attorney fees under the insurance exception, though a matter of law, necessitates factual
findings that take into consideration both parties’ actions during the entire process
leading up to the ultimate resolution of the claim.” Mlekush, ¶ 13. This Court remanded
the issue to the District Court for development of the factual record to determine if
Mlekush was entitled to attorney fees because Farmers forced her to assume the burden
of legal action to obtain the full benefit of her UIM policy.
¶12 The parties then filed a joint statement of undisputed facts and presented
arguments on August 19, 2016. On November 3, 2016, the District Court denied
Mlekush’s motion for attorney fees. The District Court found that an exception to the
American Rule does not apply to disputes over the value of an insurance claim, that
Farmers did not deny her claim, and that Farmers’ conduct during the claim investigation
and in negotiations was in good faith and reasonable. Mlekush appeals. This Court
heard oral argument on July 26, 2017.
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STANDARD OF REVIEW
¶13 A district court’s determination whether legal authority exists for an award of
attorney fees is a conclusion of law, which we review for correctness. Mlekush v.
Farmers Ins. Exch., 2015 MT 302, ¶ 8, 381 Mont. 292, 358 P.3d 913. We apply de novo
review to mixed questions of law and fact. Mlekush, ¶ 8. Thus, although we review a
district court’s factual determinations for clear error whether those facts satisfy the legal
standard is reviewed de novo. Mlekush, ¶ 8. This bifurcated standard of review “affords
appropriate deference to the trial court’s fact-finding role and responsibility, while
providing this Court with the opportunity to review legal conclusions and the application
of legal standards de novo.” Mlekush, ¶ 8 (quoting State v. Kaufman, 2002 MT 294, ¶ 12,
313 Mont. 1, 59 P.3d 1166).
DISCUSSION
¶14 Whether an injured first party insured who is compelled to sue for UIM benefits
and recovers more at trial than the last insurance company offer is entitled to
recover his or her attorney fees.
¶15 Montana follows the American Rule regarding attorney fees: each party is
ordinarily required to bear his or her own expenses absent a contractual or statutory
provision to the contrary. Mt. W. Farm Bureau Mut. Ins. Co. v. Brewer, 2003 MT 98,
¶ 14, 315 Mont. 231, 69 P.3d 652. However, this Court recognizes several equitable
exceptions to this rule, including in the area of insurance. Winter v. State Farm Mut.
Auto. Ins. Co., 2014 MT 168, ¶ 31, 375 Mont. 351, 328 P.3d 665.
¶16 This Court has determined that an exception exists where a first party insured has
incurred attorney fees based on an insurer’s breach of the duty to defend. See Goodover
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v. Lindey’s Inc., 255 Mont. 430, 448, 843 P.2d 765, 776 (1992); Truck Ins. Exchange v.
Woldstad, 212 Mont. 418, 423, 687 P.2d 1022, 1025 (1984); Lindsay Drilling v. U.S.
Fidelity & Guar., 208 Mont. 91, 97, 676 P.2d 203, 206 (1984); Home Ins. Co. v. Pinski
Brothers, Inc., 160 Mont. 219, 500 P.2d 945 (1972).
¶17 In Brewer, we expanded the exception to include cases when the insurer disputed
coverage and the first party insured incurred attorney fees litigating the dispute and was
successful in proving coverage existed. After reviewing case law from other
jurisdictions, the Court in Brewer reasoned as follows:
We find the above cited authority compelling to hold an insurer liable for
attorney fees when the insurer breaches its duty to indemnify. We decline
to further propagate the arbitrary legal fiction that a substantive distinction
exists between a breach of the duty to defend and the breach of the duty to
indemnify. It seems inherently inconsistent that courts universally afford
attorney fees incurred to establish a contested duty to defend and yet,
simultaneously, reject such an award incurred in coverage disputes brought
to preserve or eviscerate the obligatory defense. As Appleman indicates,
this notion appears nothing more than an a [sic] mere exercise in semantics.
Accordingly, we hold that an insured is entitled to recover attorney fees,
pursuant to the insurance exception to the American Rule, when the insurer
forces the insured to assume the burden of legal action to obtain the full
benefit of the insurance contract, regardless of whether the insurer’s duty
to defend is at issue.
Brewer, ¶ 36 (emphasis added).
¶18 Faced with facts similar to this case, the United States District Court for the
District of Montana in Riordan v. State Farm Mut. Auto. Ins. Co., adopted the reasoning
in Brewer to hold that “the insurance exception to the American Rule applies to a
first-party claim for UIM benefits” when the first party insured is compelled to
commence legal action to obtain bargained-for UIM benefits. Riordan v. State Farm
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Mut. Auto. Ins. Co., 2008 U.S. Dist. LEXIS 47734, *17, 2008 WL 2512023 (D. Mont.
June 20, 2008). The court in Riordan rejected a narrow reading of Brewer, as advocated
by the insurer, when it stated:
[T]he [Brewer] Court made clear that whenever an insurer forces its insured
to assume the burden of litigation to obtain what the insured is entitled to
under an insurance contract, the insured is entitled to recover attorney fees.
The Court forcefully declared that it will not embrace any “arbitrary legal
fiction” that would allow an insurer to evade paying attorney fees, when the
insurer has forced the insured to assume the burden of litigation. The
language of paragraph 36 leaves no room for State Farm to suggest that a
“substantive distinction” exists between a first-party insured seeking to
recover UIM benefits from a first-party insured seeking indemnification
under a liability policy. State Farm’s argument to the contrary is “nothing
more than a mere exercise in semantics.”
Riordan, *11-12 (citing Brewer, ¶ 36).
¶19 Mlekush argues that the insurance exception to the American Rule for attorney
fees applies in her case as well, because if she had not initiated litigation and proceeded
to a jury trial, she would not have received the full value of her UIM insurance coverage.
Farmers argues, just as State Farm did in Riordan, the insurance exception has not been
extended to cases where the value of an underinsured motorist claim is in dispute but
insurance coverage is not disputed. Farmers urges this Court to uphold the District
Court’s decision. We decline to do so.
¶20 A contract of insurance is one of adhesion, created by the insurance company and
offered to the consumer on a “take it or leave it” basis. Modroo v. Nationwide Mut. Fire
Ins. Co., 2008 MT 275, ¶ 61, 345 Mont. 262, 191 P.3d 389. The insurance company has
all the bargaining power and the consumer has no ability to bargain for better rates or
coverage. Modroo, ¶ 61. However, insurance contracts are a necessary commodity for
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consumers seeking personal liability and injury protection. Thus, when a first party
insured buys insurance, like UIM protective coverage in this case, he or she does so with
the reasonable expectation that they will be treated fairly and will not have to resort to
expensive, time-consuming litigation in order to recover what they are rightfully entitled
to under the terms of their insurance policy. Brewer, ¶ 33. But, when they are compelled
to sue for their benefits and they recover more at trial than was offered by the insurance
company, they are entitled to recover their attorney fees.
¶21 Farmers argues that a legitimate dispute about value of a UIM claim should not
penalize the insurer with threat of attorney fees. But the Insurance exception is not a bad
faith concept; it simply recognizes that the insured should not bear the expense when she
has to resort to litigation in order to recover the benefits for which the insured has
contracted and paid premiums. Brewer, ¶ 36. Further, Farmers’ suggestion that the trial
court conduct a post-judgment “objective view” of the entire case to determine whether
the Insurance exception applies inevitably would result—as it did here—in another round
of legal proceedings. Such a review, in addition to imposing additional expense and
litigation burden on the insured, often will require inquiry into the insurer’s basis of
knowledge—including the claims file—and possible disclosure of confidential mediation
communications. Section 26-1-813, MCA; Kluver v. PPL Mont., LLC, 2012 MT 321,
¶¶ 52-60, 368 Mont. 101, 293 P.3d 817. Forcing a first party insured to bear the burden
of attorney fees, when the insured seeks only the full benefit of her insurance claim,
defeats the purpose of having an insurance exception.
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¶22 Based on the rationale expressed in Brewer, centered on an insured’s expectations
when she purchases coverage, we conclude that the solution we announce today
implements a workable standard for administering the Insurance exception to the
American Rule. The question of reasonableness, importantly, is still in play, as the trial
court must determine the reasonableness of the fees to be awarded. See Chase v.
Bearpaw Ranch Ass’n, 2006 MT 67, ¶ 38, 331 Mont. 421, 133 P.3d 190. Through this
determination—similar to the process used any time a court considers a fee award—the
court can account for a plaintiff’s actions that unreasonably multiply the litigation or
increase costs.
¶23 Therefore, we hold that, 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 insured’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 benefit 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.” Mlekush, ¶ 11; see also Riordan v. State Farm Mut. Auto. Ins. Co.,
2008 U.S. Dist. LEXIS 47734, 2008 WL 2512023. To the extent this Opinion is
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inconsistent with our previous holding in Mlekush v. Farmers Ins. Exch., 2015 MT 302,
381 Mont. 292, 358 P.3d 913, it is overruled.
¶24 In the case at hand, Mlekush was compelled to sue and the jury returned a verdict
higher than the amount of the last offer made by Farmers to settle her underinsured
motorist claim. Farmers is required to pay Mlekush’s attorney fees.
¶25 Accordingly, the District Court Order denying fees is reversed and the case is
remanded for further proceedings consistent with this Opinion. Upon remand, the
District Court will consider a reasonable amount of fees, costs, and interest to which
Mlekush is entitled.
/S/ MICHAEL E WHEAT
We Concur:
/S/ MIKE McGRATH
/S/ JAMES JEREMIAH SHEA
/S/ LAURIE McKINNON
/S/ BETH BAKER
/S/ DIRK M. SANDEFUR
/S/ JIM RICE
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