May 01, 2012 Articles

Insurance Coverage for Attorney Fee-Shifting Awards

Insureds may seek to recover an attorney fee award from their insurers, either as part of the indemnity obligation to pay damages or from the supplementary payments coverage to pay costs

by Nick Nierengarten

The familiar American rule holds that each party bears its own attorney fees in litigation. The only exceptions are a statute or contract authorizing the shifting of legal fees from the prevailing party to the losing party. Any number of federal and state statutes have fee-shifting provisions in them. These generally relate to civil rights, consumer protection, employment, and environmental suits. In addition, many contracts have prevailing party provisions that likewise shift attorney fees.[1] In many contexts (class actions, for example), the attorney-fee award can be substantial, often representing a large percentage of the overall recovery.

Where the prevailing party is awarded attorney fees, the inevitable question is whether the fees are covered by the losing party’s liability insurance. There are two primary avenues by which an attorney-fee award may be recovered from the insurer. The first is the indemnity provision in the policy. Here, the question is whether the attorney-fee award constitutes damages within the particular coverage grant. The second is under the supplementary payments coverage of the policy, which obligates the insurer to pay for expenses, costs of bonds, interest, and costs taxed against the insured. Here, the question is whether an attorney-fee award constitutes a cost.

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