Virtually every jurisdiction in the United States has a statute on the books that provides for prevailing-party attorney fees in favor of insureds when they are successful in coverage suits against insurers. These statutes generally require a judgment in favor of the insured and were intended to level the playing field such that insurers could not use their greater financial strength to avoid paying meritorious claims. That purpose is well served in the context of first-party claims. First-party insurance provides direct benefits to the insured, such as life insurance, homeowners insurance, or uninsured/underinsured motorist coverage. “Third-party” insurance, by contrast, protects the insured against liability to others, such as automobile or general liability insurance.
Over 30 years ago, Florida extended the reach of its insurer attorney fee statute to apply when the insurer settles a breach of contract lawsuit on the insurance policy, applying the so-called “confession of judgment doctrine.” The rationale of the doctrine is simple: Where the insured is forced to sue the insurer to obtain benefits it paid for, the insured cannot simply settle the suit in order to avoid paying prevailing-party attorney fees.
Three other states have also adopted a variant of the confession-of-judgment doctrine. However, only in Florida has the doctrine been extended to third-party suits. A close examination of the evolution of the doctrine demonstrates why it should not be applied in the third-party context.