In its recent decision MleKush v. Farmers Ins. Exchange, the Montana Supreme Court again expanded the “insurance exception” to the historical “American Rule” under which parties to litigation each pay their own attorney’s fees regardless of outcome.

Following unsuccessful settlement negotiations in a case where the value of the underinsured motorist or “UIM” claim was in dispute but coverage was not disputed, the insured filed suit and was awarded damages in excess of the carrier’s last offer.  The insured then moved for attorney’s fees under the insurance exception to the American Rule.

Rejecting the insurer’s argument that a legitimate dispute about value of a UIM claim should not penalize the insurer with threat of attorney’s fees, the Court explained the insurance exception is not a bad-faith concept; it simply recognizes that the insured should not bear the expense when forced to resort to litigation to recover benefits for which she has contracted and paid premiums.

“When a first-party insured is compelled to pursue litigation and a jury returns a verdict in excess of the insurer’s last offer to settle an underinsured motorist claim, the insurer must pay the first-party insured’s attorney fees in an amount subsequently determined by the district court to be reasonable. To be clear, if a first-party insured goes to trial and obtains a verdict in excess of the insurer’s last offer, this constitutes prima facie proof that the insured was forced to assume the burden of legal action to obtain the full benefit of the policy, thus obviating the need for an inquiry as to whether or not the insurance exception applies.”

Though not unexpected given the Court’s history, MleKush could incentivize plaintiff’s counsel (and their insured clients) to refuse settlement on close cases in order to take a relatively risk free “roll of the dice” to recover fees.   Whether by way of inflated settlement values, increased litigation costs, or payment of fees, the decision seems destined to result in higher premiums for Montana’s citizens.