Attorneys’ Fees and Prosecuting Bad Faith/UTPA Cases

by Spilman Thomas & Battle, PLLC
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Attorneys who litigate common law bad faith and Unfair Trade Practices Act claims are well aware that insureds who substantially prevail in an underlying contract action for insurance proceeds are entitled to an award of attorneys’ fees under Hayseeds, Inc. v. State Farm Fire & Casualty, 177 W. Va. 323, 352 S.E.2d 73 (1986). However, in 2013, the Supreme Court of Appeals of West Virginia was faced with the issue whether attorneys’ fees should be awarded to plaintiffs who successfully litigate bad faith claims. In an important decision for insurance coverage and bad faith attorneys, Lemasters v. Nationwide Mutual Insurance Company, 232 W. Va. 215, 751 S.E.2d 735 (2013), the Court declined to extend Hayseeds to attorneys’ fees in bad faith cases. Specifically, the Court ruled that an insured’s entitlement to Hayseeds damages does not continue throughout subsequent bad faith litigation. In sum, an insured may not collect damages for attorneys’ fees, costs and expenses in litigating a bad faith claim.
 
In 2004, Mr. Lemasters was injured in an automobile accident in which he was not at fault. He sued the at-fault driver and settled with that driver’s liability insurance company for policy limits. He also made a claim with Nationwide, his own insurance carrier, for underinsured motorists (UIM) benefits of $50,000. In 2006, after a dispute over the extent of Mr. Lemasters lost wages, Mr. Lemasters and his wife sued Nationwide for recovery of his policy’s UIM benefits. In 2007, Nationwide and the Lemasters settled the claim for UIM coverage for the policy limits of $50,000. The Lemasters did not move for attorneys’ fees and costs under Hayseeds at that time.
 
Subsequently, the Lemasters amended their complaint to allege a UTPA claim against Nationwide for failure to timely pay their first-party claim for UIM benefits. A jury awarded the Lemasters $400,000 in compensatory damages and $200,000 in punitive damages. After the jury verdict, the Lemasters moved for attorneys’ fees and costs on their initial UIM action pursuant to Hayseeds.
 
The Marshall County Circuit Court, finding that the Lemasters had substantially prevailed in their underlying UIM action, awarded $30,108.71 in attorneys’ fees, costs and litigation expenses. However, the circuit court declined the Lemasters’ request for an award of attorneys’ fees and costs on their UTPA verdict finding that it had no authority to make such an award and that there was no factual basis to award attorneys’ fees on the bad faith claim. The circuit court further noted that Nationwide’s conduct did not give rise to a need to shift the burden of paying attorneys’ fees from plaintiff to Nationwide because the alleged actions of Nationwide did not rise to a level justifying the extraordinary relief sought by the Lemasters.
 
On appeal, the Supreme Court of Appeals of West Virginia examined the differences between a Hayseeds action and an action brought pursuant to Jenkins v. J.C. Penney Casualty Insurance, 167 W. Va. 597, 280 S.E.2d 252 (1981). Hayseeds actions arise from an action on the insurance contract to collect benefits arising from that contract, whereas Jenkins actions arise from allegations of UTPA violations. In Hayseeds, it is necessary for an insured to substantially prevail on an underlying contract action before he or she may recover additional damages, while in Jenkins there is no requirement that an insured substantially prevail; instead, in Jenkins, liability and damages must be settled previously or in the course of the Jenkins action for UTPA violations. The Court noted that it did not fully explain in Jenkins the damages attainable under UTPA cases other than to state that an insured may be permitted to recover attorneys’ fees and, sometimes, punitive damages. Because Jenkins does not require that an insured substantially prevail in an underlying action and because that case allows an insured to seek attorneys’ fees and punitive damages, the Court found that the circuit court was erroneous in its ruling based on the fact that the Lemasters could not seek attorneys’ fee or punitive damages because they did not substantially prevail on their UTPA claim.
 
However, the Court found that Dodrill v. Nationwide Mutual Insurance Company, 201 W. Va. 1, 491 S.E.2d 1 (1996), cleared up the issue of damages available in a Jenkins/UTPA action. The Court noted that Dodrill provided that attorneys’ fees were only awardable when incurred in an underlying action against a tortfeasor. Thus, the circuit court was correct in holding that it was without authority to award the Lemasters attorneys’ fees, costs and expenses in vindicating their Jenkins/UTPA claims because the fees arose out of a bad faith action as opposed to an underlying action against a tortfeasor.
 
The Lemasters also argued that their Hayseeds award was inadequate because it did not include the costs associated with their continuing efforts to collect Hayseeds damages. However, the Court held that the Lemasters cited no direct authority for their belief that Hayseeds damages continue throughout litigation of a bad faith claim. Further, the Court found that there was no authority in West Virginia jurisprudence to support such an argument.
 
In addition, the Lemasters argued that they were entitled to additional attorneys’ fees, costs and expenses because of Nationwide’s conduct throughout litigation and the fact that the jury found actual malice by Nationwide in the handling of the Lemasters’ UIM claim and a general business practice of UTPA violations. The Court recognized that certain awards may be based upon the bad character of a party in litigation according to the holding in Syllabus point 3 of Sally-Mike Properties v. Yokum, 179 W. Va. 48, 365 S.E.2d 246 (1986). In this case, however, the trial court was in the best position to gauge the conduct of Nationwide and decide if such an award was appropriate. The trial court found that Nationwide’s conduct did not rise to such a level that would justify the relief of attorneys’ fees sought by the Lemasters, and the Court refused to disturb the trial court’s ruling.
 
Finally, the Court refused to establish a bright-line rule that, as a matter of law, litigants against whom actual malice is found and punitive damage assessed should be required to pay the prevailing party’s attorneys’ fees absent extraordinary circumstances showing why it should not. The Court noted that the Lemasters cited no legal authority for such a rule. It further noted that the establishment of this rule would lead to erasing the distinction between attorneys’ fees and punitive damages. In fact, it would lead to a finding that every award of punitive damages would require an automatic award of attorneys’ fees without further examination. Such a rule would remove the circuit court’s established discretion whether to award attorneys’ fees.
 
The Lemasters decision was a per curiam opinion with Justice Davis and Justice Workman dissenting. In the dissent, written by Justice Davis and joined by Justice Workman, Justice Davis argued that Jenkins clearly intended to include the cost of pursuing a UTPA claim. She further argued that the majority’s assertion that Dodrill limited the recoverable attorneys’ fees to only those incurred in the underlying action is simply wrong and that Dodrill contained no such limitation. She opined that the Lemasters prevailed in their UTPA claims and should have been awarded attorneys’ fees incurred in pursuing those claims.
 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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