Posted In: Insurance Recovery
Recovering Your Attorneys' Fees in an Insurance Recovery Action Is Easier Than You Might Think
By Amanda M. Leffler on June 27, 2014
A denial of insurance coverage has immediate and sometimes severe consequences for a policyholder. A wrongful denial by the insurer leaves the policyholder to fend for itself, requiring the policyholder to cover the costs of loss, as well as any attorneys’ fees associated with defending actions brought against the policyholder by third parties. Adding insult to injury, the policyholder then must incur attorneys’ fees and costs in prosecuting a coverage action against its insurer in order to obtain the insurance coverage for which it paid. The total costs of loss when an insurer wrongfully denies coverage can place substantial financial strain upon a policyholder.
Unfortunately for policyholders, actions for bad faith against insurers may provide them with little protection. Although a policyholder can recover for bad faith claim handling regardless of whether a court ultimately finds in favor of coverage, a policyholder likely will be unable to recover for bad faith denial as long as an insurer can articulate some reasonable justification for denial, even if such basis ultimately proves to be inadequate as a reason for denying the claim. In Ohio, however, policyholders have a powerful weapon available to them to fight against insurers that deny covered claims: policyholders may recover from their insurers costs and attorneys’ fees incurred in successfully prosecuting coverage actions, even in the absence of bad faith.
Ohio follows the American Rule with regard to the recovery of attorneys’ fees in civil actions—a prevailing party in a civil suit generally may not recover its fees and costs associated with the litigation. In the context of insurance coverage cases, however, Ohio recognizes two exceptions to the general rule.
Exceptions to the “American Rule” in Insurance Coverage Cases
Ohio follows the American Rule with regard to the recovery of attorneys’ fees in civil actions—a prevailing party in a civil suit generally may not recover its fees and costs associated with the litigation. In the context of insurance coverage cases, however, Ohio recognizes two exceptions to the general rule.
Breach of Contract Exception
An insurance policy is a contract and most disputes between policyholders and insurance companies present possible claims for breach-of-contract. Actions for breach of insurance contracts differ from other breach-of-contract actions, however, in certain respects. One difference is that Ohio law requires an award of attorneys’ fees to a policyholder that prevails against its insurer in a breach-of-contract action. Motorists Mutual Insurance Company v. Trainor (1973), 33 Ohio St. 2d 41, 47 (policyholders may recover attorneys’ fees when they must litigate with their insurers to enforce policy rights).
The rationale for allowing recovery of attorneys’ fees under these circumstances is that “the insured must be put in a position as good as that which he would have occupied if the insurer had performed its duty.” Id. This basis for recovering attorneys’ fees is significant in that it does not require the policyholder to demonstrate any impropriety on the insurer’s part—the insurer’s good or bad faith in reaching its coverage decision is irrelevant.
Bad Faith Exception
Policyholders may also recover the attorneys’ fees incurred in prosecuting a bad faith action. Contrary to the claim of some insurers, in order to recover its attorneys’ fees as compensatory damages, a policyholder is not required to prove the existence of any additional compensatory damages separate and distinct from those fees. Therefore, the fact that a jury may not award any additional damages will not preclude a policyholder from recovering its attorneys’ fees as compensatory damages. Nor is a policyholder required to prove actual malice in order to recover its attorneys’ fees.
Declaratory Judgment Actions
In 1999, the Ohio Declaratory Judgment Act was amended by enacting §2721.16, which provides, “A court of record shall not award attorney’s fees to any party on a claim for declaratory relief,” except in narrow circumstances that typically would not include insurance coverage actions. Because insurance coverage actions typically include claims for declaratory relief, insurers sometimes will argue that this amendment nullifies the right of policyholders to recover their attorneys’ fees when they prevail against their insurers in coverage disputes. These arguments have been rejected by Ohio courts.
When a policyholder has a claim for breach of contract or anticipatory breach of contract, in addition to the claim for declaratory relief, the policyholder will still be able to recover attorneys’ fees if the policyholder prevails on the contract claim. The reason for this is simple. On its face, §2721.16 applies only to claims for declaratory relief.
Policyholders and their counsel maintain a strong argument that policyholders are entitled to attorneys’ fees, even in the absence of insurer bad faith, when insurers breach their policies of insurance. As a result, policyholders are wise to assert breach-of-contract claims, or anticipatory breach of contract claims, whenever appropriate to do so, and to request attorneys’ fees in conjunction with those claims.
This blog is intended to provide information generally and to identify general legal requirements. It is not intended as a form of, or as a substitute for legal advice. Such advice should always come from in-house or retained counsel. Moreover, if this Blog in any way seems to contradict advice of counsel, counsel's opinion should control over anything written herein. No attorney client relationship is created or implied by this Blog. © 2024 Brouse McDowell. All rights reserved.