Allstate Ins. Co. v. Huizar

• Decision Date: 10 June 2002
• Citation: 52 P.3d 816
• Parties: ALLSTATE INSURANCE COMPANY, Petitioner, v. Gloria HUIZAR, Respondent.
• Court: Colorado Supreme Court

52 P.3d 816

ALLSTATE INSURANCE COMPANY, Petitioner, v. Gloria HUIZAR, Respondent.

No. 01SC9.

Supreme Court of Colorado, En Banc.

June 10, 2002.

Steven C. Choquette, Holland & Hart, L.L.P., Denver, Colorado, Attorney for Petitioner.

Lloyd C. Kordick, Colorado Springs, Colorado, Joseph J. Archuleta, Denver, Colorado, Attorneys for Respondent.

J. Gregory Walta, Colorado Springs, Colorado, Attorneys for Amicus Curiae, Colorado Trial Lawyers Association.

Justice COATS delivered the Opinion of the Court.

Allstate Insurance Company petitioned for review of the judgment of the court of appeals in Huizar v. Allstate Insurance Co., 32 P.3d 540 (Colo.App.2001) (Huizar II), affirming an award of attorney fees in favor of Gloria Huizar. The district court awarded attorney fees for Huizar's successful challenge to a provision of the insurance contract that allowed Allstate to litigate de novo the same issues that had already been resolved by arbitration. The court of appeals found that an award of attorney fees was permitted by the express terms of the contract and, in any event, by the public policy considerations articulated by this court in declaring the de novo trial provision of the insurance contract void as against public policy. See Huizar v. Allstate Ins. Co., 952 P.2d 342 (Colo.1998) (Huizar I)

. Because we find that the contract cannot be construed to permit an award of attorney fees under the circumstances of this case and neither the statutes nor policy considerations upon which we relied in Huizar I create a new exception to the rule that each party must bear its own attorney fees, the judgment of the court of appeals is reversed and the case is remanded for further proceedings.

I.

The dispute resulting in the attorney fees award at issue in this case grew out of a one-car accident in which Gloria Huizar was injured. Ms. Huizar suffered head and neck injuries when the automobile in which she was being driven by her neighbor crashed into a curb. Allstate Insurance Company, which was Huizar's insurer, paid her medical expenses pursuant to the personal injury protection coverage of her policy. Because her neighbor was uninsured, however, Huizar also looked to Allstate for additional coverage under the uninsured motorist provisions of her policy.

When the parties were unable to agree on the amount of benefits she should receive, Huizar invoked a provision in the policy that allowed either party to call for arbitration of claim disputes. The arbiter awarded Huizar $30,000, plus interest and costs. Allstate then sought a trial de novo, permitted by the policy whenever an arbitration award exceeded the $25,000 minimum liability coverage required by section 10-4-609, 3 C.R.S. (1997)(incorporating the minimum limits as set forth in the Financial Responsibility Act, § 42-7-103, 11 C.R.S. (1997)). In response, Huizar moved to dismiss the action and requested that the trial court docket the arbiter's award. The trial court concluded that the provision permitting a trial de novo violated public policy and was void. It therefore confirmed the arbitration award and entered judgment for Ms. Huizar for the $30,000, interest, and costs. On appeal, the court of appeals reversed. Huizar v. Allstate Ins. Co., 932 P.2d 839 (Colo.App.1996). This court granted Huizar's petition for writ of certiorari and reversed the judgment of the court of appeals, holding that while no single statement of public policy contained in any statutory or constitutional law directly prohibited the trial de novo clause, by invalidating arbitration, which had already been completed, it needlessly increased costs, diluted uninsured motorist coverage, impeded timely resolution of claims, unreasonably burdened the right of access to the courts, and rendered arbitration a less effective means of dispute resolution, violating the public policy of Colorado favoring fair, adequate, and timely resolution of uninsured motorist claims. Huizar I, 952 P.2d at 345.

On remand, although the trial court substantially reduced Huizar's request as unreasonable, it awarded her attorney fees of $35,000 for successfully challenging the validity of the trial de novo provision and an additional $4,850 for successfully litigating the attorney fees issue. While the trial court characterized Allstate's actions as attempting to avoid its policy obligations and noted the irony that would result from disallowing an award of attorney fees incurred in winning "this public policy fight," the trial court concluded only that Huizar was entitled to fees by the express provisions of the policy obligating Allstate to defend an insured person and pay reasonable expenses incurred at Allstate's request.

On direct appeal, the court of appeals affirmed, not only agreeing with the trial court's construction of the contract but also holding that the public policy considerations articulated by this court in Huizar I "should be interpreted to authorize the award of fees under the limited circumstances of this case." See Huizar II, 32 P.3d at 548

. Allstate sought further review of that decision by this court.¹

II.

In the absence of an express statute, court rule, or private contract to the contrary, attorney fees generally are not recoverable by the prevailing party in a contract or tort action. Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 247, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975); Bernhard v. Farmers Ins. Exch., 915 P.2d 1285, 1287 (Colo.1996); Bunnett v. Smallwood, 793 P.2d 157, 160 (Colo.1990). This reasoning is based on the so-called American Rule, which requires each party in a lawsuit to bear its own legal expenses. Bernhard, 915 P.2d at 1287.

The rationale supporting the rule includes a number of broad policy considerations. First, since litigation is at best uncertain, one should not be penalized for merely defending or prosecuting a lawsuit. Second, requiring each party to be responsible for its own fees is thought to encourage settlement. Moreover, the poor might be unjustly discouraged from instituting actions to vindicate their rights if the penalty for losing included the fees of their opponents' counsel. Cf. Farmer v. Arabian Am. Oil Co., 379 U.S. 227, 235, 236-39, 85 S.Ct. 411, 13 L.Ed.2d 248 (1964) (Goldberg, J., concurring)

. Additionally, the litigation and proof of what constitutes reasonable attorney's fees would pose a substantial burden for judicial administration. Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718, 87 S.Ct. 1404, 18 L.Ed.2d 475 (1967); Oelrichs v. Spain, 82 U.S. (15 Wall.) 211, 21 L.Ed. 43 (1872); Bernhard, 915 P.2d at 1287.

A.

Even the general rule requiring each party in a contract action to bear its own legal expenses permits the parties to agree otherwise by express provision in the contract. Agritrack, Inc. v. DeJohn Housemoving, Inc., 25 P.3d 1187, 1191 (Colo.2001). Both the trial court and the court of appeals found such an express provision for the recovery by Huizar of attorney fees in language of the policy obligating the insurance company to "defend an insured person sued as the result of a covered auto accident" and to pay as part of that defense any "other reasonable expenses incurred at [the insurance company's] request." The court of appeals analogized Allstate's exercise of its trial de novo right under the uninsured motorist provisions of the policy to a suit against Huizar for declaratory judgment. It therefore found that Allstate was obligated by the terms of the policy to defend Huizar against its own "suit" and to pay her attorney fees as reasonable expenses incurred at Allstate's request.

The interpretation of an insurance policy is a matter of law, which an appellate court reviews de novo. See Union Ins. Co. v. Houtz, 883 P.2d 1057, 1061 (Colo.1994)

. An insurance policy is a contract, which should be interpreted consistently with the well-settled principles of contractual interpretation. Chacon v. Am. Family Mut. Ins. Co., 788 P.2d 748, 750 (Colo.1990). The words of the contract should be given their plain meaning according to common usage, and strained constructions should be avoided. Allstate Ins. Co. v. Starke, 797 P.2d 14, 18 (Colo.1990). Further, the meaning of a contract must be determined by examination of the entire instrument, and not by viewing clauses or phrases in isolation. U.S. Fid. & Guar. v. Budget Rent-A-Car Sys., Inc., 842 P.2d 208, 213 (Colo.1992)(citing Kuta v. Joint Dist. No. 50(J), 799 P.2d 379, 382 (Colo. 1990)).

Following these principles, the language of the insurance policy at issue here cannot be reasonably construed to obligate the insurer to defend the insured against a claim of the insurer itself, much less to pay the insured's legal expenses to challenge the validity of the provisions of the contract. It is clear from the organization of the policy and the location of its reference to payment of expenses, the fact that other sections of the policy contain different provisions concerning attorney fees, and the context and express descriptions of the insurer's obligations that the insurer's obligation to defend extends only to suits by third parties with claims against the insured person.

Organizationally, the contract is divided into a number of "Parts," each dealing with a different type of coverage, and it includes a separate section devoted exclusively to "General Provisions." The language relied on by both lower courts does not appear in any generally applicable provision of the policy but in "Part 1," entitled "Automobile Liability Insurance," which is devoted specifically to an insured person's liability for bodily injury or destruction of property. Other "Parts" of the policy are expressly devoted to personal injury suffered by the insured, damage to the insured's vehicle, and uninsured or underinsured motorist coverage. When a contract is organized into separate parts, a provision or definition found in one part or section of the contract is...