Farmco, Inc. v. Explosive Specialists, Inc., 55318

• Decision Date: 14 June 1984
• Docket Number: No. 55318,55318
• Citation: 9 Kan.App.2d 507,684 P.2d 436
• Parties: FARMCO, INC., a Kansas Corporation, Appellee, v. EXPLOSIVE SPECIALISTS, INC., et al., Defendants, v. CALIFORNIA UNION INSURANCE, a Corporation, and Canadian Universal Insurance Company, Limited, a Corporation, Third-Party Defendants/Appellants.
• Court: Kansas Court of Appeals

Page 436

684 P.2d 436

9 Kan.App.2d 507

FARMCO, INC., a Kansas Corporation, Appellee, v. EXPLOSIVE SPECIALISTS, INC., et al., Defendants, v. CALIFORNIA UNION INSURANCE, a Corporation, and Canadian

Universal Insurance Company, Limited, a

Corporation, Third-Party Defendants/Appellants.

No. 55318.

Court of Appeals of Kansas.

June 14, 1984.

Syllabus by the Court

1. In the absence of clear and specific statutory authority, attorney fees are not recoverable.

2. In determining the legislature's intent in amending a statute, a reviewing court should look to the historical background of the amendment, the circumstances attending its passage, and the legislature's reaction or inaction to judicial interpretation of its intent.

3. Specific provisions of the Kansas Insurance Code providing for an award of attorney fees in a garnishment proceeding based on an insurance carrier's wrongful refusal to pay pursuant to its policy is not prohibited by the garnishment statutes. K.S.A. 40-256, 40-2004, 60-721.

4. A garnishment proceeding by a judgment creditor against the insurance carrier of a judgment debtor to collect the unpaid portion of an insurance policy is an action based on a policy of insurance within the terms of K.S.A. 40-256 and 40-2004.

5. K.S.A. 40-256 and 40-2004 provide for recovery by any "plaintiff."

6. The factors to be considered as guidelines in determining the reasonableness of attorney fees are set forth and applied.

7. The record is examined in a garnishment proceeding against the insurance carriers of the judgment debtor wherein the insurance carriers have delayed payment without just cause or excuse, and for reasons appearing in the opinion it is held that the judgment creditor may recover reasonable attorney fees under the facts and circumstances of this case and the trial court did not abuse its discretion in the sum awarded.

H.W. Fanning and Charles E. Hill, of Kahrs, Nelson, Fanning, Hite & Kellogg, Wichita, for third-party defendant/appellant California Union Insurance Company.

Eric E. Davis and William Tinker, of McDonald, Tinker, Skaer, Quinn & Herrington, Wichita, for third-party defendant/appellant Canadian Universal Insurance Company, Limited.

Calvin McMillan, of Kaplan, McMillan & Klinge, Wichita, and J. Eugene Balloun, of Balloun & Bodinson, Chartered, Olathe, for appellee.

Before ABBOTT, P.J., MEYER, J., and RICHARD W. WAHL, District Judge, assigned.

ABBOTT, Presiding Justice.

The trial court awarded attorney fees against two insurance carriers in a garnishment action pursuant to K.S.A. 40-256 and K.S.A. 40-2004. The insurance carriers appeal generally, arguing that 40-256 and 40-2004 do not apply to a garnishment action and that the trial court erred by awarding attorney fees based solely on a contingency fee contract between plaintiff and its counsel.

The plaintiff is Farmco, Inc., which contracted to have work done requiring the use of explosives. Farmco required its contractor to furnish a certificate of insurance covering any damage to its property as a result of the use of the explosives.

The defendant California Union Insurance Company issued a policy providing $100,000 coverage. The defendant Canadian Universal Insurance Company, Limited, issued a policy with excess coverage up to one million dollars.

Farmco's property was damaged by an explosion, the liability for which was covered under the insurance contracts. It recovered a judgment against the contractors and others in the amount of $296,521.20, including prejudgment interest. This court affirmed that judgment in an unpublished opinion, Farmco, Inc. v. Anderson Excavating & Wrecking Co., --- Kan.App.2d ---, 642 P.2d 580 (1982) (7 Kan.App.2d xii).

California Union paid $7,750 of its policy to other parties before judgment was entered against its named insured. On February 5, 1982, California Union paid $92,250 on the judgment. On March 3, 1982, Canadian Universal paid $138,409.90 on the judgment. The two insurance carriers could not agree on which of them owed the pre- and post-judgment interest, and despite repeated demands by Farmco the balance was not paid.

On August 23, 1982, Farmco garnisheed the insurance carriers. They answered separately and both denied owing the outstanding balance. Farmco took exception to their answers. A hearing was held on December 15, 1982, at which time the two insurance carriers admitted that Farmco was entitled to the remaining unpaid balance. Neither carrier had paid the claim because each thought the other was liable for it. In awarding attorney fees, the trial court found in part:

"3. [T]hat the garnishment answers filed by California Union and Canadian Universal are not proper or correct in that they deny owing money to the plaintiff when, in fact, said carriers did owe the balance of plaintiff's judgment and do have money in their possession belonging to the plaintiff.

"4. [T]hat pursuant to K.S.A. 40-2004 and K.S.A. 40-256, plaintiff is entitled to a reasonable attorney fee under all present and existing facts and circumstances; that as of the last date of payment made by Canadian Universal on March 3, 1982, there was owing to the plaintiff the sum of $122,610.71; that plaintiff's 25% contingency attorney fee is reasonable under the facts and circumstances; that plaintiff's argument that plaintiff should recover the full amount of plaintiff's attorney fees incurred prior to the Court of Appeals affirming plaintiff's judgment on January 21, 1982 is rejected on the grounds that the issue of attorney fees was argued on appeal and is now moot; that the Court, however, does now have jurisdiction over the insurance carriers by reason of the garnishment action and does find that plaintiff should be granted a judgment for attorney fees against California Union and Canadian Universal, jointly and severally, as of December 15, 1982 in the amount of $30,652.68.

"5. [T]hat plaintiff should be further granted judgment for all principal and interest against California Union and Canadian Universal, jointly and severally, as of December 15, 1982 in the sum of $136,160.41; that said judgment, plus attorney fees heretofore awarded shall be paid within 10 days from the date of filing this order."

The $136,160.41 judgment was paid by Canadian Universal, but both carriers appeal the trial court's award of attorney fees to Farmco.

The insurance carriers' first argument is that the instant action is one in garnishment and the garnishment statutes do not provide for recovery of attorney fees by a garnishor. The law in Kansas is that in the absence of clear and specific statutory authority, attorney fees are not recoverable. See In re Miller, 228 Kan. 606, 620 P.2d 800 (1980); Jones v. Smith, 5 Kan.App.2d 352, 616 P.2d 300 (1980).

Under the garnishment statutes, only a garnishee may recover attorney fees. K.S.A. 60-721(a ) provides in part:

"Upon determination of the issues, either by admissions in the answer or reply, or by default, or by findings of the court on controverted issues, judgment shall be entered fixing the rights and liabilities of all the parties in the garnishment proceedings ... [and] if the answer of a garnishee is controverted without good cause, the court may award the garnishee judgment against the party controverting such answer damages for his or her expenses, including reasonable attorneys' fees, necessarily incurred in substantiating the same." (Emphasis supplied.)

The insurance carriers argue that the foregoing statute is exclusive; that attorney fees cannot be awarded in any other circumstances or pursuant to any other statute. No authority is cited which directly supports their argument. The trial court awarded attorney fees pursuant to the insurance statutes, 40-256 and 40-2004.

K.S.A. 40-256 provides:

"That in all actions hereafter commenced, in which judgment is rendered against any insurance company as defined in K.S.A. 40-201, and including in addition thereto any fraternal benefit society and any reciprocal or interinsurance exchange on any policy or certificate of any type or kind of insurance, if it appears from the evidence that such company, society or exchange has refused without just cause or excuse to pay the full amount of such loss, the court in rendering such judgment shall allow the plaintiff a reasonable sum as an attorney's fee for services in such action, including proceeding upon appeal, to be recovered and collected as a part of the costs: Provided, however, That when a tender is made by such insurance company, society or exchange before the commencement of the action in which judgment is rendered and the amount recovered is not in excess of such tender no such costs shall be allowed." (Emphasis supplied.)

K.S.A. 40-2004 provides:

"In any action in which any judgment is rendered against an unauthorized, foreign or alien insurer upon a contract of insurance issued or delivered in this state to a resident thereof or to a corporation authorized to do business therein, if it appears from the evidence that such insurer has refused to pay such loss, the court in rendering such judgment shall allow the plaintiff a reasonable sum as an attorney's fee to be recovered and collected as part of its cost: Provided, however, That when a tender is made by such insurer before the commencement of the action in which judgment is rendered and the amount recovered is not in excess of such tender, no such costs shall be allowed."

In Coleman v. Holecek, 542 F.2d 532, 538 (10th Cir.1976), the Tenth Circuit Court of Appeals, applying Kansas law, held that attorney fees were recoverable under 40-256 in a garnishment action by a judgment creditor against the judgment debtor's insurance carrier.

"The garnishor in a garnishment proceeding stands in the shoes of his debtor. Gilley v. Farmer, 207 Kan. 536, 485 P.2d 1284, 1290 (1971). Since Holecek would have been entitled to recover his attorney's fees had he brought the instant suit, Coleman argues...