Jordan v. National Grange Mut. Ins. Co.

• Decision Date: 02 April 1990
• Docket Number: No. 19153,19153
• Citation: 393 S.E.2d 647,183 W.Va. 9
• Court: West Virginia Supreme Court
• Parties: John E. JORDAN and Lucille Jordan v. NATIONAL GRANGE MUTUAL INSURANCE COMPANY.

Page 647

393 S.E.2d 647

183 W.Va. 9

John E. JORDAN and Lucille Jordan v. NATIONAL GRANGE MUTUAL INSURANCE COMPANY.

No. 19153.

Supreme Court of Appeals of

West Virginia.

April 2, 1990.

Rehearing Denied June 7, 1990.

Syllabus by the Court

1. An insured "substantially prevails" in a property damage action against his or her insurer when the action is settled for an amount equal to or approximating the amount claimed by the insured immediately prior to the commencement of the action, as well as when the action is concluded by a jury verdict for such an amount. In either of these situations the insured is entitled to recover reasonable attorney's fees from his or her insurer, as long as the attorney's services were necessary to obtain payment of the insurance proceeds.

2. "Where attorney's fees are sought against a third party, the test of what should be considered a reasonable fee is determined not solely by the fee arrangement between the attorney and his client. The reasonableness of attorney's fees is generally based on broader factors such as: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requisite to perform the legal service properly; (4) the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the undesirability of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases." Syl. pt. 4, Aetna Casualty & Surety Co. v. Pitrolo, 176 W.Va. 190, 342 S.E.2d 156 (1986).

Robert N. Bland, Charleston, for John E. Jordan and Lucille Jordan.

Arden J. Curry, II, Pauley, Curry, Sturgeon & Vanderford, Charleston, for Nat. Grange Mut. Ins. Co.

McHUGH, Justice:

This appeal presents a novel issue which is a variation of an issue in Hayseeds, Inc. v. State Farm Fire & Cas., 177 W.Va. 323, 352 S.E.2d 73 (1986), specifically, whether an insured may recover reasonable attorney's fees from his or her own insurer which are necessarily incurred to reach a settlement of an action on an insurance policy claim. We set forth in this opinion the guidelines for the recovery of reasonable attorney's fees in the context of a settlement with one's own insurer. Disagreeing with the ruling of the Circuit Court of Boone County, West Virginia, which concluded that the appellants were not entitled to recover reasonable attorney's fees in addition to the settlement amount, we reverse such ruling and remand this case for a determination of the amount of reasonable attorney's fees.

I

On February 14, 1986, a fire destroyed the business premises owned by the appellants, the Jordans. The building and its contents were insured by the appellee, the insurer, National Grange Mutual Insurance Company, for $40,000.

The insurer's initial response to the appellants' claim for payment of $40,000 under their policy for the loss incurred was that the appellants had willfully concealed and misrepresented material facts as to the losses in the fire, thereby precluding recovery on the policy. This response forced the appellants to incur expenses of $879.60 for a fire analysis report. The appellants thereafter retained an attorney to negotiate with the appellee.

The appellants filed a civil action against the insurer on February 11, 1987, for failure to pay the $40,000 claim timely. The appellants subsequently rejected offers of settlement of $20,000 and $33,237.60, respectively. A settlement of "this litigation" was reached, on July 12, 1988, for $40,000. The settlement agreement was silent as to attorney's fees.

The appellants refused to cash the $40,000 check for "full settlement of claim" because they believed the insurer should be responsible for the appellants' reasonable attorney's fees of one-third of the $40,000 settlement amount. The insurer moved for enforcement of the settlement agreement. It objected to the payment of the appellants' attorney's fees in addition to the payment of the policy limits of $40,000, on the ground that the appellants' counsel, being authorized to settle the claim in question, accepted the amount of $40,000 in full satisfaction of all claims.

The trial court, the Circuit Court of Boone County, upheld the appellee's position and required the appellants to accept the $40,000 settlement as full satisfaction of all claims, including reasonable attorney's fees.

II

This Court held in syllabus point 1 of Hayseeds, Inc. v. State Farm Fire & Cas., 177 W.Va. 323, 352 S.E.2d 73 (1986): "Whenever a policyholder substantially prevails in a property damage suit against its insurer, the insurer is liable for: (1) the insured's reasonable attorneys' fees in vindicating its claim; (2) the insured's damages for net economic loss caused by the delay in settlement[;] and [ (3) ] damages for aggravation and inconvenience." (emphasis added) We recognized in Hayseeds that allowing the recovery of reasonable attorney's fees from one's own insurer encourages the prompt payment of valid claims. Id. 177 W.Va. at 329-330, 352 S.E.2d at 79. Quoting our opinion in Aetna Casualty & Surety Co. v. Pitrolo, 176 W.Va. 190, 194, 342 S.E.2d 156, 160 (1986), we also recognized that where an insurer has violated its contractual obligations, ¹ the insured should be fully compensated for all expenses incurred as a result of the insurer's breach of contract; to hold otherwise would be unfair to the insured, who purchased the insurance policy to be protected from incurring attorney's fees and expenses arising from litigation. Hayseeds, 177 W.Va. at 329, 352 S.E.2d at 79. In other words, "[t]o impose upon the insured the cost of compelling his [or her] insurer to honor its contractual obligation is effectively to deny him [or her] the benefit of his [or her] bargain." Id. 177 W.Va. at 329, 352 S.E.2d at 80. That is, "when an insured purchases a contract of insurance, he [or she] buys insurance--not a lot of vexatious, time-consuming, expensive litigation with his [or her] insurer." Id. 177 W.Va. at 329, 352 S.E.2d at 79.

A jury found the insurer liable to its insured for breach of contract in Hayseeds and in Aetna Casualty & Surety Co. v. Pitrolo. There also was a jury verdict against the insurer in favor of its insured in Thomas v. State Farm Mutual Automobile Insurance Co., 181 W.Va. 604, 383 S.E.2d 786 (1989). In syllabus point 2 of Thomas this Court explained Hayseeds' concept of an insured who "substantially" prevails in litigation against his or her own insurer:

The question of whether an insured has substantially prevailed against his insurance company on a property damage claim is determined by the status of the negotiations between the insured and the insurer prior to the institution of the lawsuit. Where the insurance company has offered an amount materially below the damage estimates submitted by the insured, and the jury awards the insured an amount approximating the insured's damage estimates, the insured has substantially prevailed.

The insurer here argues that Thomas authorizes an insured to recover reasonable attorney's fees from his or her insurer only when the litigation has ended with a jury verdict favorable to the insured. ² The insurer has read Thomas too narrowly and has missed the point actually decided in that case.

The issue in Thomas was how to determine whether the insured has "substantially" prevailed in the litigation against his or her insurer. The insurer there argued that the insured had not "substantially" prevailed because the jury verdict amount was considerably less than the highest damage estimates offered by the insured at trial. This Court concluded that such comparison was not the proper manner to determine whether the insured "substantially" prevailed. Instead, the amount of damages recovered by the insured must be compared with the amount of damages demanded by the insured immediately prior to institution of the lawsuit. The references in Thomas to the jury award or verdict were made because there was a jury trial in that case. The issue in Thomas was not whether the recovery of reasonable attorney's fees from one's own insurer is authorized only when litigation is concluded by a jury verdict, as opposed to being concluded by a settlement.

The rationale set forth in Hayseeds, Aetna Casualty & Surety Co. v. Pitrolo and in Thomas for allowing the recovery of reasonable attorney's fees from one's own insurer is applicable whether the insured substantially prevails in the litigation as a result of a settlement or as the result of a jury verdict. In either case, "the insured is out his [or her] consequential damages and attorney's fees." Hayseeds, 177 W.Va. at 329, 352 S.E.2d at 79.

For the purpose of recovery of reasonable attorney's fees, a party can "substantially prevail" in litigation by obtaining the essence of the requested relief from the adverse party while the action is pending adjudication; a determination by the trier of the facts is not essential. For example, in cases under the Federal Freedom of Information Act, a complainant who substantially prevails is eligible to recover reasonable attorney's fees. 5 U.S.C. § 552(a)(4)(E) (1988). Under this statute a judgment on the merits is not a prerequisite to an award of reasonable attorney's fees, and an award of such fees is not barred because the action is mooted before judgment by the administrative agency's furnishing the requested materials. The purpose of allowing recovery of reasonable attorney's fees in that situation is to remove the incentive for resistance to the plaintiff's request based upon the defendant's knowledge that many plaintiffs do not have the financial resources or economic incentives to pursue their requests through expensive litigation....