Illinois Allows Subrogating INsurer to Recover Section 155 Fees
Illinois law makes no express provision for awarding attorney’s fees to prevailing parties. However, Section 155 does allow recovery of such fees in cases where the insurer has acted vexatiously or unreasonably. A recent opinion of the Illinois Appellate Court has broadened this remedy to include insurers who pursue equitable contribution claims on behalf of their insureds.
In Statewide Ins. Co. v. Houston Gen. Ins. Co., No. 1-07-1798 (Ill. App. December 14, 2009), a divided panel of the First Division ruled that “the remedy under Section 155 is intended for the protection of both the insured and the assignee who succeeds to the insured’s position.” Accordingly, the court ruled that an insurer pursuing equitable contribution claims on behalf of a mutual insured was entitled to recover over $260,000 in attorney’s fees for successfully prosecuting the claim. Writing in dissent, Justice Garcia argued that the prosecuting insurer in this case was not a judgment debtor or otherwise entitled to pursue a claim under Section 155. Justice Garcia argued that if Statewide had an independent obligation to provide a defense to its insured under its own policy, it was not entitled to seek relief under Section 155 for the insurer’s purported vexatious delay since it did not succeed to the same position of the insured under the disputed policy.
This recent Illinois opinion may be contrasted with a 2009 opinion of the Supreme Judicial Court of Massachusetts in which the SJC ruled that an insurer that obtains a declaration that another insurer owed a duty to defend their mutual insured had no right to recover its DJ fees, even though the claim concerned subrogated rights that would otherwise have entitled a prevailing policyholder to a few award. In John T. Callahan & Sons, Inc. v. Worcester Ins. Co., 453 Mass. 447, 902 N.E.2d 923 (2009), the court ruled that the public policy underlying the exception to the “American Rule” that it had enunciated in cases such as Gamache, is not intended “to punish wrongdoers or to reward those who act responsibly” but rather “is a policy designed to protect the insured’s right to receive the full benefits of its liability insurance contract.” Since the insured had in fact received the full benefits of its contract, the court held that there was no right of equitable subrogation to be pursued by Zurich. In any event, the court ruled that Zurich had, in fact, received a benefit since the other insurer had ultimately been forced to reimburse it for half of the costs of defense and settlement.
