Newman v. United Fire & Casualty

ATTORNEY FEES: Attorneys entitled to fees based on what client, as assignee of insurer in $3 million “tough love” suicide consent judgment, would have been able to recover for time & expenses pursuing coverage, not on contingency (amended in an attempt to clarify that it “has always been intended to cover the underlying action and any declaratory judgment action required as Third Party beneficiary or First Party assignee”)… Christensen.

Karlye Newman, 16, committed suicide 10/4/04 at Spring Creek Lodge in Sanders Co., a “tough love” behavior modification program. Her mother sued multiple defendants including National Contract Services in State Court for, inter alia, wrongful death/survivorship. NCS tendered the claim to United Fire & Casualty, which refused to defend or indemnify. Newman than reached a settlement with NCS whereby it consented to a $3 million judgment and assigned all of its rights against United to Newman and she signed a covenant not to execute against NCS. Newman then brought this breach of contract and declaratory action against United. This Court granted summary judgment to Newman and entered judgment for the amount of the underlying State Court judgment. (MLW 1/25/14). Newman also sued Teen Help, whose insurer Scottsdale also refused to defend. Teen Help also entered into a consent judgment and covenant not to execute with Newman. Scottsdale was subsequently found to have breached its duty to defend and ordered to pay the judgment against Teen Help. Judge Christopher awarded Newman attorney fees based on a contingency. Newman (Mont. 2013) affirmed the decision to award fees but reversed as to the basis for the award and remanded “for a calculation based upon what Newman, as Teen Help’s assignee, would have been able to recover for her attorney’s time and expenses incurred in pursuing insurance coverage from the defendants.” Newman and her attorneys in this action then amended their contingency agreement in an attempt to clarify that it “has always been intended to cover the underlying action and any declaratory judgment action required as Third Party beneficiary or First Party assignee.” United contends that Newman is only entitled to fees incurred in prosecuting this declaratory action.

Newman emphasizes that under Brewer (Mont. 2003) a 1st-party insured is entitled to fees in an action against its insured, and that under Riordan (36 MFR 382) a court may use a contingency as the basis for that award. She stresses that an assignee is entitled to all rights of the assignor, and that under Riordan this includes the right to seek fees based on a contingency. She contends that the operable contingency in this case, as amended, clarifies that it pertains to both the underlying litigation and prosecution of this declaratory action brought as an assignee.

It is clear, based on Newman, that Newman is entitled to reasonable “fees for services rendered by counsel in enforcing the insurance contract, just as first-party insured [NCS] would have been able to do had it instituted the contract and declaratory action against [United].” It is equally clear that Newman is not entitled to fees based on the contingency between Newman and her lawyers to which NCS was not a party. Id. Their post-hoc amendments to the contingency do not alter this, because they do not make NCS a party to the contingency. While a 1st-party insured may be awarded fees based on a contingency in an action against its insured,Riordan, it does not follow that the assignee of a 1st-party insured’s rights is also entitled to fees based on a contingency between the assignee and his/her lawyers. First, in the assignee contract, the normal justification for the exception to the American Rule is not present. Sampson (Mont. 2006) (“we have declined to extend this exception to third party actions, where there is no privity of contract”); Jacobsen (Mont. 2009) (“The rationale underlying the insurance exception to the American Rule is the existence of a fiduciary duty.”). Outside of her status as an assignee, Newman is not in privity with United, and United owes her no fiduciary duty. Moreover, as Newman held, in the assignee context, the 1st-party insured is not a party to the contingency between the assignee and its lawyers, and has “no contingency fee agreement to impose in the declaratory action.”

NCS is not a party to the original or amended contingency, and the Court will not consider it in determining an award of fees. As in Newman, the Court must base its award “upon what Newman, as [NCS’s] assignee, would have been able to recover for her attorney’s time and expenses incurred in pursuing coverage.” Newman shall submit a renewed motion for fees to allow the Court to determine an award based on reasonable hourly rates, expenses, and hours prosecuting this declaratory action.

Newman v. United Fire & Casualty, 41 MFR 376, 3/19/14.

Ann Moderie (Moderie Law Firm), Polson, Elizabeth Best (Best Law Offices), Great Falls, Lawrence Anderson, Great Falls, and Thomas Beers (Beers Law Offices), Missoula, for Newman; Dennis Clarke & Stephanie Hollar (Smith, Walsh, Clarke & Gregoire), Great Falls, for United.