Mlekush v. Farmers Ins. Exch.

389 Mont. 99

404 P.3d 704

2017 MT 256

Tanya L. MLEKUSH, Plaintiff and Appellant,

v.FARMERS INSURANCE EXCHANGE, Respondent and Appellee.

DA 16-0670

Supreme Court of Montana.

Argued and Submitted: July 26, 2017

Decided: October 24, 2017

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

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."

¶ 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 and informed her that if she did not accept this offer Farmers would seek attorney fees after it won at trial due to Mlekush's refusal to accept. 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.

¶ 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.

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 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 Mut. Auto. Ins. Co ., 2008 U.S. Dist. LEXIS 47734 *17, 2008 WL 2512023 *6 (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"

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