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"Nearly $1,000,000 in Attorney's Fees Avoided as the Supreme Court of Appeals of West Virginia Issues a Favorable Decision for West Virginia's Insurance Industry: Lemasters v. Nationwide Mut. Ins. Co."

Litigation Alert
November 5, 2013

Summary:

The Lemasterses appealed an order of the Circuit Court of Marshall County denying their request for $953,087.44 in attorney fees, costs and expenses allegedly incurred in the prosecution of bad faith claims against Nationwide Mutual Insurance Company. The Supreme Court of Appeals of West Virginia agreed with Nationwide, and affirmed the Circuit Court's denial of Plaintiff's request for attorney fees.

Bowles Rice argued this appeal for Nationwide.

Background:

Mr.Lemasters was injured in an automobile accident for which he was not at fault on June 15, 2004. After settling his personal injury claim with the at-fault driver, Mr. Lemasters submitted an underinsured motorist claim to his insurer, Nationwide.  The UIM claim eventually settled for the full policy limit of his UIM coverage.

Then, the Lemasterses filed a motion to amend their complaint to include a bad faith claim for violation of the Unfair Trade Practices Act. After a seven-day trial, during which Nationwide was defended by Spilman Thomas & Battle, PLLC, the jury found for the Lemasterses, awarding $400,000 in compensatory damages and $200,000 in punitive damages. The Lemasterses then moved for attorney fees and costs incurred in the initial UIM action pursuant to Hayseeds v. State Farm Fire & Casualty, as well as for fees and costs incurred in prosecuting the bad faith action.  Nationwide then retained Bowles Rice to oppose the motion for fees.  The Circuit Court found that the Lemasterses had substantially prevailed and were therefore entitled to reasonable fees, costs, and litigation expenses in the amount of more than $30,000 for the underlying action. However, the request for attorney fees and costs incurred in the subsequent bad faith case was rejected.

Case Analysis:

Historically, two cases establish the foundation for the award of fees in insurance cases. Hayseeds held that a policyholder substantially prevailing in a suit against its insurer is entitled to reasonable attorneys' fees.  In Jenkins v. J.C. Penney Cas. Ins., the Court found a bad faith cause of action under the UTPA when an insurance company's violations of unfair settlement practice provisions constitute "a general business practice," and permitted the recovery of increased costs and fees in such situations.

The Court subsequently addressed Hayseeds and Jenkins in the case of McCormick v. Allstate Ins. Co., clarifying the "separate and distinct nature of the two types of cases and the relief available therein." The Court stated: "Whereas in Hayseeds it is necessary that a policyholder substantially prevail on the underlying contract action before he may recover enhanced damages, under Jenkins there is no requirement that one substantially prevail. . . . Jenkins instead predicates entitlement to relief solely upon violation of the West Virginia Unfair Trade Practices Act." Lemasters, p. 11 (citing McCormick).

Counsel for the Lemasterses unsuccessfully argued that the language in these cases allowed them to recover fees and costs not only for underlying actions against insurance companies, but for litigating subsequent bad faith claims as well.

The Circuit Court found this interpretation misplaced, and noted that an additional award would be duplicative because the plaintiffs had already been awarded reasonable fees, costs and expenses as a result of "substantially prevailing" on the underlying UIM claim.

The Supreme Court of Appeals of West Virginia agreed with the Circuit Court, explaining that "attorney fees were awardable only for fees incurred in the 'underlying action against a tortfeasor.'" Lemasters,p. 12 (citing Dodrill v. Nationwide Mut. Ins. Co.).  Moreover, the Court confirmed that Hayseeds damages do not continue to accrue while a bad faith case is litigated.  Finally, while the Court confirmed that attorney fees may be awarded when the losing party acts in "bad faith, vexatiously, wantonly or for oppressive reasons" (Sally-Mike Properties v. Yokum),  the Court declined the Lemasterses' invitation to adopt a bright line rule requiring a Circuit Court to award fees anytime a party is found to have acted with actual malice. 

This is a great win for the insurance industry!  You can review the entire opinion via this link: Lemasters v. Nationwide Mut. Ins. Co.