Insurance Policy Disputes - Attorney Fee Award as Damages.

Reasonable attorney fees are often recoverable by an insured in an insurance policy dispute adjudication. 

Absent statutory or contractual authority, the American Rule generally assumes each party to a lawsuit bears its own attorney fees. Ehrman v. Feist, 1997 ND 180, ¶ 18, 568 N.W.2d 747.

But policy holders who win against the insurer on insurance claims get different treatment. Courts frequently allow an insured to recover attorney fees in litigation to resolve insurance coverage disputes. North Dakota is a good example. See Johnson v. Center Mut. Ins. Co., 529 N.W.2d 568, 571-72 (N.D. 1995); State Farm Fire and Cas. Co. v. Sigman, 508 N.W.2d 323, 325-27 (N.D. 1993).

In Sigman, 508 N.W.2d at 324, an insurer brought a declaratory judgment action against its insured for a determination of coverage. The Sigman construed the insurance policy requiring the insurer to pay reasonable expenses the insured incurred at the insurer's request as obligating the insurer to pay the insured's attorney fees incurred in the insured's declaratory judgment action. Id. 

"Litigation between an insurance company and its insured to determine coverage presents a unique situation. The insured pays premiums to receive protection, not a lawsuit from its insurer. When the insured gets that policy protection only by court order after litigating coverage, it is both 'necessary' and 'proper' to award attorney fees and costs to give the insured the full benefit of his insurance contract. . . . If an insured is not awarded attorney fees as supplemental relief, he is effectively denied the benefit he bargained for in the insurance policy." Sigman, at 326-27.

Other states come to similar conclusions, but by a variety of reasons.  For example, in Texas the code provides that a party

"may recover reasonable attorney's fees from an individual or corporation, in addition to the amount of the valid claim and costs, if the claim is for ... an oral or written contract."  Tex. Civ. Prac. & Remedies Code, Sec 38.001(8).

Texas courts, even without the code provision, have come to the award of attorney's fees against an insurer on the theory that the insurer has done a wrongful act and the victim should not be foreclosed from damages if the damages are the attorney's fees to gain the contracted results.  E.g.,  Standard Fire Ins. Co. v.  Stephenson, (Beaumont Ct. of Appeals, 30 Oct 1997).