Federal Judge Awards Insured Attorney’s Fees in Defense of Declaratory Judgment Action Based on Policy Provision

A federal district court recently awarded an insured its defense fees and  costs incurred in defending against a declaratory judgment action brought by the insurer to resolve whether it owed a  the duty to defend and indemnify in the underlying litigation. In Milwaukee Mutual Insurance Company v. Val Pro, Inc., et al., Case No. 12-CV-1658 (JNE/JJK) (D. Minn. 12/6/2013), District Court Judge Joan Erickson ruled a subcontractor sued in a construction defect lawsuit was entitled to its fees and costs incurred in the declaratory judgment action brought to resolve the coverage issues. The award was pursuant to policy language deemed to be  a” fee-shifting provision” which  provided that the insurer would pay “ all reasonable expenses incurred at the insurer’s  request to assist in the investigation or defense” of the claim or suit.

The decision is noteworthy because the insurer  provided the insured a defense. The court declined the insurer’s request to apply a long line of cases holding  the insurer is only responsible for the insured’s declaratory judgment fees if there has been a breach of a contractual duty because of the fee-shifting provision, found oftentimes in the Supplementary Payments section of a CGL policy. The court awarded declaratory judgment fees and costs to the  general contractor on separate grounds. The award was not based on the fee-shifting provision in the policy, but instead as damages based on the insurer’s  breach of its duty to defend the general contractor.

We will continue to monitor decisions impacting insurance coverage.  If you have any questions about this, or any other matter, please contact Bob Kuderer or Matt Johnson.