The Oregon Supreme Court Again Offers Expansive View of the Fee-Shifting Statute But Provides Clarity to Insurers on Minimizing Fee Awards

By and on March 14, 2017
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In Oregon, ORS 742.061 authorizes an award of attorney fees to an insured that prevails in an action against an insurer. While there have been several Court of Appeals cases addressing this statute in the UIM context, the Oregon Supreme Court last ruled on ORS 742.061 in 2012, holding that the statute is not limited to actions on policies issued in Oregon, but that it applies broadly, to “any policy of insurance of any kind or nature.” Morgan v. Amex Assurance Co., 287 P.3d 1038 (Or. 2012).

Under a similar analysis, consisting of an examination of the statute’s text and context, along with any useful legislative history, the Oregon Supreme Court addressed another aspect of ORS 742.061 in Long v. Farmers Ins. Co. of Oregon, 360 Or. 791 (2017).  Specifically, the Oregon Supreme Court addressed whether an insurer’s voluntary mid-litigation payments can eliminate the right to attorneys’ fees under the fee-shifting statute.

In Long, Plaintiff discovered a leak under her kitchen sink that caused extensive damage to her home. She filed a claim with Farmers, and on January 17, 2012, and Farmers voluntarily paid $3,300.45 to Plaintiff for the actual cash value of the loss. Around that time, Farmers also paid $2,169.22 to Plaintiff for mitigation expenses. However, the Plaintiff submitted a proof of loss that exceeded the sum that Farmers had paid. The parties had not resolved Plaintiff’s claims a year later, so she commenced a lawsuit against Farmers. After appraisal, Farmers made two additional voluntary payments to Plaintiff – one payment in the amount of $2,467.09 on July 11, 2013 and another payment in the amount of $4,766.80 on August 14, 2013 – for the actual cash value that the appraisers had assigned to certain of Plaintiff’s claimed losses and mitigation costs.

Six months later, in February 2014, shortly before trial, Plaintiff submitted proof of loss for the replacement cost of her losses. Three days later, Farmers voluntarily paid $4,214.18 to Plaintiff for the replacement cost of Plaintiff’s undisputed losses. Farmers subsequently prevailed at trial. Nonetheless, Plaintiff filed a petition for attorney fees under ORS 742.061.

Under ORS 742.061, an insurer must pay the insured’s attorney fees if, in the insured’s action against the insurer, the insured obtains a recovery that exceeds the amount of any tender made by the insurer within six months from the date that the insured first filed proof of a loss. In Long, the issue before the Court was the meaning of the word “recovery.” The insured argued that the word “recovery” means any kind of restoration of a loss, i.e. judgment, settlement, voluntary payment or some other means, after an action on an insurance policy has been filed. Accordingly, any post-complaint payments made by an insurer would support an insured’s claim for fees under the statute. On the other hand, Farmers argued that the word “recovery” means a money judgment in the action in which attorney fees are sought. Farmers argued that attorney fees may be awarded only if the insured obtains a money judgment that exceeds any tender made by the insurer within the first six months after proof of loss.

Because this dispute is a matter of statutory interpretation, the Oregon Supreme Court examined ORS 742.061’s text and context, as well as any useful legislative history. The Court noted that it has repeatedly instructed that the terms of ORS 742.061 and its predecessors should be interpreted in light of their function within the statute’s overall purpose, and if it heeded that instruction in this case, “it becomes evident that the term ’recovery‘ must be read to include mid-litigation payments such as the ones that Farmers made.”

The Oregon Supreme ultimately concluded that the fact that Plaintiff did not obtain a “judgment” memorializing Farmers’ mid-litigation payments did not make ORS 742.061 inapplicable. The Court further clarified that a “declaration of coverage is not sufficient to make ORS 742.061 applicable; an insured must obtain a monetary recovery after filing an action, although that recovery need not be memorialized in a judgment.” Id. at 805.

Based upon that clarification, the Court held that Plaintiff was entitled to attorney fees for the work performed by her attorney up until the time that Farmers made voluntary payments to Plaintiff in July and August of 2013. This is because by then, Plaintiff had brought an action on her insurance policy and, by virtue of Farmers’ July and August payments, Plaintiff had “recovered” more in that action than Farmers had tendered in the first six months after proof of loss.

The Court continued, however, that Plaintiff was not entitled to her attorney fees that accrued after the July and August 2013 payments. First, the voluntary payments made by Farmers in February 2014 were payments for the replacement value of Plaintiff’s loss, for which Plaintiff filed her proof of loss. That proof of loss for replacement value triggered the six-month period for settlement of Plaintiff’s claim for the replacement value of her losses under ORS 742.061, and Farmers made payments for the replacement cost within the six-month period, as mandated by the statute.

Second, except for the two replacement cost payments that Farmers made in February 2014, Plaintiff did not recover, after August 2013, any amount over and above what Farmers had already paid. At trial, Plaintiff sought but was unsuccessful in obtaining any greater sum. Thus, because Plaintiff’s recovery after Farmers’ August 2013 payment did not exceed Farmers’ timely tender, Plaintiff was not entitled to attorney fees under ORS 742.061 for work performed by her attorney after that date.

This case demonstrates how important it is for insurance companies to keep track of when voluntary payments are made and the potential impact of those payments on their ability to minimize an insured’s entitlement to attorney’s fees under ORS 742.061.

Filed under Appraisal, Attorneys’ Fees, First Party Policy, Property Damage

Oregon Courts Protect Insurers from Attorney’s Fee Awards in Uninsured/Underinsured Motorist Claims in Trio of Recent Cases

By and on May 9, 2016
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The issue of attorney’s fees in cases involving uninsured/underinsured motorist (“UM” or “UIM”) benefits has been a hot topic in Oregon recently, with the Oregon Court of Appeals issuing a decision on this issue once a month for first three months in 2016. In Oregon, an insurer is entitled to a so-called “safe harbor” from the obligation to pay attorney’s fees in UIM cases if “the only issues are the liability of the uninsured or underinsured motorist and the damages due the insured.” ORS 742.061(3). However, if an insurer raises any issues beyond the scope of ORS 742.061(3), the insured is entitled to attorney’s fees.

In January of 2016, the Oregon Court of Appeals addressed what is meant by the phrase “damages due the insured” in ORS 742.061(3). In Spearman v. Progressive Classic Ins. Co., 276 Or. App. 114 (2016), the insured was involved in an accident with an uninsured motorist and sought recovery from his UIM insurer for only “unreimbursed accident-related medical expenses,” i.e. only those expenses for which the insured had not already been reimbursed under other coverage. In its Answer to the Complaint, the insurer admitted that the insured sustained “some” injury in the collision but disputed the “nature and extent” of the insured’s alleged injuries and disputed the “reasonableness and necessity” of some of the insured’s accident-related medical expenses.

The insured argued that he was entitled to attorney’s fees because the phrase “damages due to the insured” meant “the amount of the benefits due the insured,” and a dispute suggesting that the insurer owes no benefit, or that the insured had no unreimbursed accident-related medical expenses, exceeded the scope of the safe harbor in ORS 742.061(3). In other words, the insurer’s challenge to the “reasonableness and necessity” of medical expenses, and the resulting argument that the insured was otherwise fully compensated for his injuries, would allow the fact finder to determine that the insured was not entitled to any award in the UIM action, thereby raising an issue beyond those permitted by ORS 742.061(3).

However, after examining the purpose of UM/UIM benefits and the statutory context of ORS 742.061, the Court of Appeals rejected the insured’s contention and held that the phrase “damages due the insured” refers to what the insured could recover from the uninsured motorist, not from the insurer. Consequently, even though the insurer’s pleadings put at issue the possibility that plaintiff would recover no benefit in the UIM action, such allegations raised issues only as to the damages that the insured would be entitled to recover from the uninsured motorist, as permitted by ORS 742.061(3). As a result, the insured was not entitled to attorney’s fees.

Then, in February of 2016, the Oregon Court of Appeals again held that where an insurer challenged the existence of an insured’s alleged injuries caused by an underinsured motorist, the safe harbor provision applied. Kelley v. State Farm Mutual Automobile Ins. Co., 276 Or. App. 553 (2016). The court noted that in Spearman, it had concluded “that the issues that are within the scope of ORS 742.061(3) are the issues of liability and damages that an insured would have to establish in an action against the uninsured or underinsured motorist.” Therefore, the insurer’s denial that the insured injured his shoulder in the collision raised only an issue “of liability and damages that an insured would have to establish in an action against the uninsured or underinsured motorist.” The Court concluded that the insured was within the safe harbor scope of ORS 742.061(3) and the insured was not entitled to attorney’s fees.

Finally, in March of 2016, the Oregon Court of Appeals issued yet another decision favorable to insurers on the safe harbor provision. Robinson v. Tri-County Metropolitan Transportation Dist. of Oregon, 277 Or. App. 60 (2016). In Robinson, the plaintiff suffered injuries as passenger in a Tri-County Metropolitan Transportation District (“Tri-Met”) vehicle when it stopped suddenly to avoid a collision with a “phantom vehicle.” In her subsequent lawsuit, the plaintiff argued that she was entitled to attorney’s fees from Tri-Met, a self-insurer, because Tri-Met asserted affirmative defenses that went beyond the scope of ORS 742.061(3). Specifically, Tri-Met allegedly went beyond the safe harbor provision by (1) asserting the possibility of the insured recovering nothing based on offset; (2) alleging the collateral source offset issue; and (3) alleging the insured had failed to state a claim for Tri-Met’s negligence.

The Court of Appeals rejected the first argument based on Spearman, holding that “[i]n the determination of damages, a zero recovery can be a permissible outcome in a UM/UIM claim as a simple matter of fact or evidence, and, as such, it is a permissible outcome within the bounds of the fee exemption in ORS 742.061(3).”

With respect to the second issue, plaintiff argued that Tri-Met’s allegation of collateral source offset automatically disqualified Tri-Met from the fee exemption. However, the affirmative defense was pled as a matter of course, as a contingency, and there was no actual dispute about the existence, enforceability, or applicability of an offset. By looking to the dictionary definition of the term “issue,” the court noted that “[b]ecause the word is used here in the adversarial context of arbitration or litigation, an ‘issue’ is a matter of live controversy, active contest, or actual dispute.” The Court of Appeals concluded that “an insurer’s boilerplate reference to such a matter is a nonissue.” Because nothing in the record showed that the collateral source allegation was actually developed, disputed, or decided, Tri-Met’s reference to a “nonissue” did not disqualify it from the fee exemption.

The Court of Appeals dispensed with the insured’s third argument by stating that UIM claims turn on the fault of the uninsured driver, not Tri-Met. As a result, any response by Tri-Met regarding the negligence of its driver was a “non sequitur” in a UIM claim.

The Court of Appeals attempted to reconcile the Robinson decision with its prior decision in Kiryuta v. Country Preferred Insurance Co., 273 Or. App. 469 (2015), where the court ruled that the affirmative defenses of “Offset” and “Contractual Compliance” destroyed the insurer’s safe harbor protection. The court explained that in Kiryuta, the insurer accepted coverage in the safe harbor letter but then reserved the prospect to deny coverage by asserting that UIM benefits “are subject to all terms and conditions of the policy of insurance.” The Robinson court observed that the Kiryuta decision “did not consider the question here involving an insurer’s reference to a particular provision, one which did not develop into an actual dispute and especially one that was potentially necessary to calculate sums ultimately payable, such as a policy limit or an offset against damages.” The court so held, despite the fact that the insurer argued that the affirmative defenses were not in dispute, i.e. the affirmative defenses were not intended to assert that some term in the policy prevented plaintiff from recovering any damages and only the damages due to the insured was raised and litigated in the arbitration.

The Kiryuta decision has been accepted for review by the Oregon Supreme Court.

Filed under Attorneys’ Fees, Auto

Cumis Counsel Rule Adopted by Nevada Supreme Court

By on October 6, 2015
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In response to certified questions from the U.S. District Court for the District of Nevada, the Nevada Supreme Court has adopted the Cumis independent counsel rule established by California courts requiring an insurer to provide independent counsel for its insured when a conflict of interest arises between the insurer and insured. State Farm Mut. Auto Ins. Co. v. Hansen, 131 Nev. Adv. Op. 74 (Sept. 24, 2015). The court also rejected application of a standard that creates a per se conflict of interest to every case in which there is a reservation of rights. Instead, Nevada courts must ask, on a case-by-case basis, whether an actual conflict exists.

In the underlying litigation, State Farm’s insured was sued for negligence and various intentional torts following an altercation at a house party and subsequent auto collision. State Farm agreed to defend under a reservation of rights, but did not agree to provide independent counsel to its insured. In subsequent coverage litigation, the federal district court initially found that State Farm breached its contractual duty to defend because it had not provided independent counsel to its insured.  The court then reconsidered and asked the Nevada Supreme Court to resolve questions concerning the state’s conflict of interest rules in insurance litigation.

Recognizing that Nevada, like California, is a dual-representation state – meaning that insurer appointed counsel represents both the insurer and insured – the Nevada Supreme court held that “counsel may not represent both the insurer and the insured when their interests conflict and no special exception applies.” This justified application of the Cumis rule in Nevada.

The Court then considered what circumstances created a conflict of interest and, in particular, whether a reservation of rights created a per se right to independent counsel. The Court concluded that even when there is a reservation of rights and insurer-appointed counsel has control over an issue in the case that will also decide the coverage issue, courts must still determine whether there is an actual conflict of interest. Relying on Nevada’s Rule of Professional Conduct 1.7, the Court explained, “[t]his means that there is no conflict if the reservation of rights is based on coverage issues that are only extrinsic or ancillary to the issues actually litigated in the underlying action.”

The decision provides useful guidance to Nevada litigants and trial courts for resolving conflict of interests in insurance litigation. However, the opinion leaves unaddressed other Cumis-type issues such as the reasonable amount of fees for independent defense counsel. As such, more litigation and possible legislation to clarify the rule should be expected.

Filed under Attorneys’ Fees, Duty to Defend, Independent Counsel, Reservation of Rights

Oregon’s Safe-Harbor Provision in the Insurance Fee-Shifting Statute Not as Safe as it Seems

By and on September 30, 2015
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The Oregon insurance fee-shifting statute, ORS 742.061, continues to be a popular topic in the Oregon courts. Our last entry on this subject discussed whether the statute’s reference to “any court of this state” included federal court actions. More recently, the Oregon Court of Appeals strictly construed the safe-harbor provision of ORS 742.061 in holding that an insured could recover attorney’s fees in a UIM arbitration because the insurer had pled – although it did not pursue – other policy-based defenses. Kiryuta v. Country Preferred Insurance Company, 273 Or. App. 469 (2015)

Subsection (3) of the statute states that an insured is not entitled to attorney’s fees under subsection (1) in actions to recover uninsured or underinsured motorist benefits “if, in writing, not later than six months from the date proof of loss is filed with the insurer:

(a) The insurer has accepted coverage and the only issues are the liability of the uninsured or underinsured motorist and the damages due the insured; and

(b) The insurer has consented to submit the case to binding arbitration.”

A letter issued by an insurance company under ORS 742.061(3) is referred to as a “safe-harbor” letter. In Kiryuta, the Court of Appeals addressed whether a safe-harbor letter is effective when an insurance company’s responsive pleading sets forth affirmative defenses that are not litigated but raise issues other than the liability of the uninsured or underinsured driver and the damages to which the insured is entitled. After an injured motorist made a claim for underinsured motorist benefits to Country Preferred, the insurer denied the claim and issued a safe-harbor letter that complied with the requirements of ORS 742.061(3). The insured filed a civil action and the matter was arbitrated. Despite the safe-harbor letter, the arbitrator awarded attorney’s fees to the insured. On review, the trial court reversed the award of attorney’s fees based on the safe-harbor letter.

In its subsequent appeal, the insured argued that Country Preferred’s affirmative defenses of “Contractual Compliance” and “Offset” raised issues other than liability of the driver and the damages due to him, rendering the safe harbor-letter ineffective. Country Preferred argued that because it only litigated the issue of damages owed in the arbitration, the safe-harbor letter was effective. The Court of Appeals agreed with the insured.

In Oregon, a party’s pleadings “declare and control the issues to be determined and the relations that the parties bear to each other.” The Court of Appeals noted that because Country Preferred’s pleading provided a foundation to litigate issues other than the amount of plaintiff’s damages or liability of the underinsured driver, Country Preferred’s litigation strategy was potentially broader than that contemplated by the legislature in ORS 742.061(3). Consequently, the insured had to be prepared at the arbitration to meet any proof that Country Preferred might offer consistent with its pleadings. Therefore, Country Preferred’s conduct was inconsistent with the safe-harbor provision; it was immaterial that Country Preferred did not follow through with its potential litigation strategy. The Court of Appeals reversed the trial court and held that the insured is entitled to reasonable attorney’s fees under ORS 742.061.

In its opinion, the Court of Appeals noted that Country Preferred was in control of its pleading and could have conformed its pleading to the limitations the safe-harbor provision. However, in a footnote, the Court of Appeals sent mixed messages by hinting that insurer could retain the protection of the safe-harbor provision by timely amending its pleading to conform to the requirements of ORS 742.061(3). Accordingly, in uninsured or underinsured claims involving safe-harbor letters in Oregon, insurance companies should consider amending responsive pleadings to reflect only those affirmative defenses that pertain to the liability of the uninsured or underinsured driver and the damages to which the insured is entitled.

Filed under Attorneys’ Fees, Auto

Oregon State and Federal District Courts Interpret Insurance Fee Shifting Statute Broadly

By and on August 6, 2015
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In Oregon, ORS 742.061 authorizes an award of attorney fees to an insured that prevails in “an action…in any court of this state upon any policy of insurance of any kind or nature…” The Oregon Supreme Court, in Morgan v. Amex Assurance Co., 352 Or. 363, 287 P.3d 1038 (2012), addressed whether this fee shifting statute applies to insurance policies issued outside of Oregon, as a later enacted statute, ORS 742.001, provides that ORS Chapter 742 “appl[ies] to all insurance policies delivered or issued for delivery in this state…” In Morgan, the Oregon Supreme Court concluded, after considering the text, context and the legislative history, that the legislature did not intend for ORS 742.001 to limit the scope of ORS 742.061. The Court held, therefore, that ORS 742.001 permits an award of attorney fees to an insured that prevails in an action in an Oregon court on “any policy of insurance of any kind or nature,” even if the policy was delivered or issued for delivery in another state. The Oregon Supreme Court noted that to hold otherwise would be “to turn an expansion of the state’s authority to impose substantive regulations on insurers transacting business in Oregon into a limitation on the remedial and procedural rules that affect insurers appearing in its courts.”

Now, insureds and insurers in Oregon are looking to the Ninth Circuit Court of Appeals for an answer to whether ORS 742.061 applies only to Oregon state courts, as the statute specifically states that it applies “in an action…in any court of this state…” (emphasis added). Schnitzer Steel Industries, Inc. v. Continental Casualty Corp., 2014 U.S. Dist. LEXIS 160031 (D. Or. November 12, 2014). In Schnitzer Steel, the insured, as the prevailing party in a coverage action, moved for attorneys’ fees in the amount of $3,483,878.00. Continental opposed, arguing that the plain language of ORS § 742.061 does not apply because the statute plainly states that it is limited to an action “brought in any court of this state upon any policy of insurance…” Continental argued that because Schnitzer did not bring its claim in a court of Oregon, but rather a court in Oregon, the statute does not apply. Continental based its argument on Simonoff v. Expedia, Inc., 653 F.3d 1202 (9th Cir. 2011), a decision from the Ninth Circuit Court of Appeals that interpreted the phrase “the courts of” in the context of a forum selection clause. In Simonoff, the Ninth Circuit held:

We conclude[] that the choice of the preposition “of” in the phrase “the courts of Virginia” was determinative — “of” is a term “denoting that from which anything proceeds; indicating origin, source, descent, and the like.”  Thus, the phrase “the courts of” a state refers to courts that derive their power from the state — i.e. only state court — and the forum selection clause, which vested exclusive jurisdiction in the courts “of” Virginia, limited jurisdiction to the Virginia state courts.

Simonoff at 1205-06.

While Judge Mosman found Continental’s argument “very interesting” and rejected all but one of Schnitzer’s arguments in the reply as “very weak,” Judge Mosman adopted Schnitzer’s one argument based on Erie principles and ruled that ORS 742.061 applies to cases commenced in Oregon federal courts. Judge Mosman held that the Erie doctrine together with good public policy dictate that ORS § 742.061 should apply in this case as its holding – that ORS 742.061 applies to both federal and state courts of Oregon – will “avoid the intrastate forum shopping that Erie is intended to prevent and it would support the stated purpose of this statute by not creating an easy backdoor to thwart any impact it might have on encouraging settlements or discouraging unreasonable rejections of insurance claims.”  Id. *11-12.

Continental has appealed to the Ninth Circuit Court of Appeals. It will be interesting to see how the Ninth Circuit will address the issue pertaining to ORS 742.061 in light of its decision in Simonoff. It is possible that because the issue pertains to the construction of an Oregon statute, the Ninth Circuit Court of Appeals may certify the question at issue to the Oregon Supreme Court.

Filed under Attorneys’ Fees, Declaratory Judgment Actions

Through the Magnifying Glass: What an Insured May Recover Beyond Damages against its Insurer under Washington Law

By and on May 15, 2015
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Earlier this year, the United States District Court for the Western District of Washington provided a detailed analysis of the categories of damages available to a prevailing insured in a breach of contract action against an insurer, including prejudgment interest, costs and attorneys’ fees. MKB Constructors v. Am. Zurich Ins. Co., 2015 U.S. Dist. LEXIS 9325 (W.D. Wash. Jan. 27, 2015). In MKB, the insured was awarded more than $2.35 million in damages, comprised of (1) $1,083,424.24 for breach of contract, (2) $274,482.47 for violation of Washington’s Insurance Fair Conduct Act (“IFCA”), (3) $862,000 in enhanced damages under IFCA, and (4) $138,000 for failure to act in good faith (later overturned as duplicative of the IFCA damages). Following the verdict, the insured moved for prejudgment interest, nontaxable costs, and attorneys’ fees.

Prejudgment Interest

The parties did not dispute that the insured was entitled to prejudgment interest on the liquidated portions of its award. Rather, the issues were which rate to apply and when the interest began to accrue. Under Washington law, a twelve percent prejudgment interest rate is applied to contract disputes, but a lower rate of two percentage points above prime is applied to tort claims. RCW 4.56.110. The parties agreed that only one rate should apply, but disagreed as to whether the judgment was primarily based in tort or in contract. The insured asserted that the judgment was based primarily in contract because the majority of the liquidated portion of the award was for breach of contract. The insurer argued that the Court must consider the judgment as a whole and not just its liquidated components. The Court agreed with the insurer, citing Unigard Ins. Co.v. Mutual of Enumclaw Ins. Co., 160 Wn.App. 912 (Wash. Ct. App. 2011). The Court then compared the amount awarded for breach of contract to the greater total amount awarded for the tort claims based on bad faith and IFCA and concluded that the judgment was primarily based in tort. Accordingly, the Court applied the lower pre-judgment interest rate.

For the prejudgment interest accrual date, the parties agreed that under Washington law prejudgment interest should run from the date each particular invoice was paid. The insured argued, however, that the volume of invoices would make such a calculation an unreasonable burden. The Court agreed to two dates proposed by the insured for the commencement of prejudgment interest, one with respect to the invoices related to the breach of contract and another for its attorney’s invoices, based on the insured’s confirmation that these dates would not prejudice the insurer, and in fact would result in a net benefit to the insurer.

Attorney’s Fees

The insured sought a 33% increase of the total award to account for the contingent fee paid to its counsel. The Court rejected this request as unprecedented. Rather, Washington law presumes that a properly calculated lodestar figure represents reasonable compensation for counsel. A “lodestar” fee is determined by multiplying a reasonable hourly rate by the number of hours reasonably expended in the lawsuit.

The insurer disputed the reasonableness of the attorneys’ hours based on improper block-billing, unnecessary participation by a third attorney added just before trial, and for time spent on unsuccessful claims. Based on its review of the invoices, the Court reduced the block-billed entries by 20%. The Court did not deduct time for the third attorney added just before trial, because the addition of the attorney for trial was neither unusual nor excessive. The Court found that certain work related to discovery and dispositive motions were unnecessary and insufficiently related to the overall success of the litigation to warrant an award of fees. Rather than undertake an hour-by-hour analysis of the attorneys’ fees in order to excise the precise number of hours attributable to these items, the Court estimated, based on its experience with the case that an overall 20% reduction in the claimed fees would sufficiently account for the hours spent on these items.

Litigation Costs

Lastly, the insured sought reimbursement of litigation costs, totaling $160,580.50, which consisted of (1) expert witness fees; (2) travel expenses; (3) the insured’s labor costs; and (4) litigation costs advanced by counsel. The expert fees and travel expenses were uncontested.  In dispute were the labor costs and litigation costs advanced by counsel.

The Court held that the insured’s recovery of wages for employees who testified or otherwise participated in the lawsuit would be an unprecedented stretch of both IFCA and case authority permitting an award of costs. On the same basis, the Court denied recovery for fees paid to secure the attendance at trial of its former employees that were in excess of the statutory amount for fact witnesses provided by RCW 2.40.010. The Court rejected the insured’s argument that the payment of these witnesses was “akin” to an expert witness fee, since Washington courts have expressly disallowed such fees to fact or occurrence witnesses.

The Court also trimmed the insured’s request for over $52,000 in costs advanced by counsel.  “Actual and statutory litigation costs, including expert witness fees” may be awarded under IFCA.  Additionally, Washington case authority permits the court to award “all of the expenses necessary to establish coverage” in order to make the insured “whole.” Panorama Village Condo. Owners Ass’n Bd. Of Dirs. v. Allstate Ins. Co., 26 P.3d 910, 917 (Wash. 2001) (bolding in original). The Court ruled that the following costs should be reimbursed: (1) costs associated with electronic legal research; (2) photocopying; (3) messenger and Federal Express fees; (4) court reporter and videographer fees; (5) travel to depositions; (6) telephone conference fees; (7) PACER fees; and (8) hotel rooms near the courthouse for witnesses.

However, the Court declined to award certain costs that were not “litigation costs” such as a mediation fee; costs that were part of routine daily life and would have been incurred without trial such as costs for local attorneys’ commuting, lodging and meals during trial; and costs that were excessive, such as daily trial transcriptions.

The MKB decision should serve as a useful guide in future fee award cases and as a warning that courts in Washington should not “rubber stamp” an award in favor of the insured but should carefully scrutinize all components of the insured’s demand.

Filed under Attorneys’ Fees, Breach of Contract