In Medical Protective Co. v. Pang, 2013 DJDAR 14233 (2013), the United States Court of Appeal for the Ninth Circuit decided a fee case under Arizona Revised Statute Section 12-341.01. The statute allows fee awards in cases involving breach of contract claims.

A physician purchased medical malpractice insurance with the Medical Protective Company (“Medical”). Subsequently, the physician applied for a substantial increase in his coverage.  He represented that he had no knowledge of any “pending claims” for medical malpractice. Medical approved the increase in insurance coverage. Shortly thereafter, a patient sued the physician for malpractice.

On September 21, 2005, Medical filed an action to rescind the new insurance policy on the ground that the doctor knew of the patient’s malpractice claim, but failed to disclose it. While that suit was pending, the physician won the patient’s malpractice lawsuit pending against him.

The physician and Medical then settled their dispute and withdrew their claims against each other. The physician then moved for an award of attorney fees, claiming he was the “prevailing party.” The trial court denied the request for attorney fees because the parties had reached a prior settlement.

The Ninth Circuit reversed the trial court’s decision. The court noted that under Section 12-341.01, in any “contested action” arising out of a contract, the trial court may award reasonable attorney fees to the prevailing party. 

The court noted that the statute does not just pertain to a litigant who has received a favorable judgment. To determine whether a party is successful, the court must look at the totality of the circumstances. The fact that the parties settled did not necessarily mean that the physician was not successful in the litigation. The trial court’s decision was vacated on that basis.