National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

The TCPA does not contain any provision that allows the court to award attorneys fees.   Most TCPA actions, however, are brought as class actions. Thus, Plaintiffs often invoke the provisions of FRCP Rule 23 to obtain attorney fees. That rule states, in pertinent part:

(h) Attorney Fees Awards. In an action certified as a class action, the court may award reasonable attorney fees and non-taxable costs authorized by law or by agreement of the parties.

That provision is different from other statutory bases for attorney fees where attorney fees are expressly referred to as “part of costs.”     For example, in federal civil rights suits,  plaintiffs request attorney fees pursuant to the Civil Rights Attorney's Fees Awards Act of 1976 (42 U.S.C. § 1988).   That statute permits the court, in its discretion, to award the prevailing party "a reasonable attorney's fee as part of the costs."   In Sullivan County, Tenn. v. Home Indem. Co., 925 F.2d 152 (6th Cir.1991), the court found such attorney fees were not "damages.” The Court viewed 42 USC § 1988 as reflecting an unambiguous intent to treat attorney fees as costs in order to ensure that the fees could be assessed against a state agency notwithstanding the bar to such awards presented by the Eleventh Amendment to the federal Constitution. The court found the supplementary payment provision of the policies, which made the insurer responsible for all costs taxed against the insured in a suit for damages, demonstrated "very persuasively" that the policy meant to refer to "damages" only in the conventional sense of the term, for if the word "had been used originally in a sense that already included costs, the quoted portion of the Supplementary Payments provision would have been totally unnecessary...."

In Alea, the Court held that under the insuring agreement, the insurer agreed only to: (1) pay damages the insured was legally obligated to pay; (2) defend lawsuits against the insured; and (3) investigate and settle claims. It observed that at the end of the insuring agreement, the policy expressly states: “No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments – Coverages A and B.”

The Court noted that the Supplemental Payment obligations are expressly limited to: (1) expenses incurred by the insurer in defending the insured; (2) cost of certain bonds; (3) reasonable expenses the insured incurs at the insurer’s request in investigating or defending the lawsuit; (4) all costs taxed against the insured in the law suit; (5) pre judgment interest and (6) post judgment interest. “Notably absent is any supplementary payment for attorneys' fees for claimants against the insured.”   The Court concluded that there was no language in the policy that leads to the conclusion that the insurance contract contemplated that the insurer would indemnify the insured for its opponents’ attorneys’ fees. Accordingly the 11^th Circuit affirmed the District Court’s ruling that the fees awarded to the underlying plaintiffs in the TCPA class action suit and assessed against the insured were not covered by the policy. 

Notably, the typical “Supplementary Payments” provision in a CGL ISO policy form issued prior to 2006 states, in pertinent part:

We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend… (e) all court costs taxed against the insured in the “suit.”

In the CG 00 01 12 07 ISO form,  the following language was added to par. e: “However these payments do not include attorneys’ fees or attorneys’ expenses taxed against the insured.”  The addition of that language should remove any argument that an opponent’s attorney fees are covered as costs under the Supplemental Payments provision.

There may still be a debate as to whether an award of attorney fees constitute “damages” as there is some conflicting case law on that subject. For example, in Hyatt Corp. v. Occidental Fire & Cas. Co. of N.C., 801 S.W. 2d 382 (Mo. App. 1991), the Missouri Court of Appeals found that attorney fees paid as part of a settlement of a class action suit are covered as damages. Hyatt involved an underlying class action personal injury suit where multiple persons were killed or injured when two skywalks at the Kansas City Hyatt Regency collapsed. That suit settled. The underlying plaintiffs’ counsel was awarded attorney fees as part of the settlement. One of the insurers refused to pay the attorneys fees, arguing that they were not “damages” within the meaning of its general liability policy. The Missouri appellate court disagreed. The court held that the “principal amounts at issue with respect to the federal class action are not the settlements paid to plaintiffs but [the insurer’s] share of attorney’s fees awarded in the federal class action as part of the settlement of the case. Such an award of attorney’s fees is indistinguishable from a damages award for coverage purposes.” Id. at 393-394.  

The Hyatt court relied on City of Ypsilanti v. Appalachian Ins. Co., 547 F. Supp. 823 (E.D. Mich. 1982) aff’d. mem. 725 F.2d 682 (6^th Cir. 1983), a civil rights case. In that case, the district court held that attorney fees do not constitute "costs" under the insurance policy because the definition of "costs" refers only to the expense of carrying on the defense of a lawsuit. It does not refer to sums for which the insured is found liable, such as an award of attorney fees.  Id. at 827.  It found, however, “that a reasonable person in the position of the insured would believe that the words ‘all sums which the Insured shall become legally obligated to pay as damages would provide coverage for all forms of civil liability, including attorneys’ fees.”  Contra, Cutler-Orosi Unified School Dist. v. Tulare County School Districts Liability/Property Self-Insurance Authortiy, 31 Cal. App. 4^th 617 (5^th Dist. 1994)(“We agree with the Sullivan County court that to treat attorney fees as damages in such circumstances would ignore the evident intent of the policies to differentiate between costs and damages and would render the supplementary payment provisions superfluous).

However, in Wilson v. TriMet, A138860 (Or. Ct. App. April 14, 2010), Oregon’s Court of Appeals ruled that ORCP 54 E does not apply to cases where an insured seeks recovery of attorney fees pursuant to ORS 742.061. That statute creates an entitlement to attorney fees whenever an insurer fails to settle within six months of receiving proof of loss and the insured’s ultimate recovery exceeds the insurer’s best offer. The Court ruled that this six month deadline was absolute, even in the face of ORCP 54 E.

The Court explained: “If an insurer is allowed to nullify a portion of the attorney fee award required by ORS 742.061 by making an offer of judgment pursuant to ORCP 54 E after six months from proof of loss … the core purposes of ORS 742.061 to reduce litigation and encourage efficient claims settlement would be defeated.” This reasoning is counterintuitive to the extent it would allow an insured to reject a generous offer seven months after providing proof of loss but then still recover all of its attorney fees after failing to beat that offer following many more months of litigation and trial. In that situation, the effect of the Wilson decision may actually be to encourage reckless prosecution of insured’s claims based on the knowledge that attorney fees are all but guaranteed if the insurer fails to make a reasonable offer within six months. The slight disincentive that ORCP 54 E offered is now gone.

The lesson to insurers in Oregon is clear: put your best offer on the table within six months of being provided with a proof of loss. Otherwise, you better be prepared to pay attorney fees regardless of any additional settlement efforts after the six month deadline.