No. 85-598 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1986 

MIKE MORRIS, 

Plaintiff and Appellant, 

-vsNATIONWIDE INSURANCE COMPANY, 

Defendant and Respondent. 

APPEAL FROM: District Court of the Ninth Judicial District, 

In and for the County of Teton, 

The Honorable R. D. KcPhillips, Judge presiding. 

COUNSEL OF RECORD: 

For Appellant: 

Erik B. Thueson, Great Falls, Montana 

For Respondent: 

Jardine , Stephenson, Blewett & Weaver; William 

Jacobsen, Great Falls, Montana 

Submitted on Briefs: March 13, 1986 

Decided: July 31, 1986 

Filed: JUL 3 1 1986 

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Clerk 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

Appellant, Mike Morris, appeals from the judgment of the 

District Court, Ninth Judicial District, County of Teton, 

awarding him attorney fees in the amount of $4,664.88 against 

respondent, Nationwide Insurance Company. 

Morris brought this case to recover damages sustained as 

a result of Nationwide's violations of the Unfair Claim 

Settlement Practices Act, S 33-18-201, et seq. MCA. The case 

is submitted to us by the parties with an agreed statement of 

t 

facts pursuant to Rule 9(d), M.R.App.Civ.P. 

The facts as agreed to by the parties are as 

follows: Morris brought an action to recover damages he 

alleged he sustained as a result of the negligence of Sun 

River Electric Co-op. He alleged that through the Co-op's 

negligence, a 7,200 volt line, owned and operated by the 

Co-op, started a fire on his ranch, causing the destruction 

of over 150 tons of hay, various fences, and trees, which 

were valuable windbreaks in his ranching operation. 

The Co-op was insured for liability by Nationwide. 

Morris joined Nationwide to his action against the Co-op as a 

defendant, alleging that it had violated the Unfair Claim 

Settlement Practices Act, S 33-18-201, et seq. MCA, in the 

manner in which it conducted settlement negotiations 

concerning his claim against the Co-op. 

The District Court bifurcated the liability claim and 

the bad faith claim. The trial concerning the Co-op's 

liability commenced on June 25, 1984 and resulted in a jury 

verdict in favor of Morris in the amount of $19,994.64. A 
judgment was subsequently entered by the District Court for 

this amount, plus costs. 

The trial of the third party bad faith action against 

Nationwide commenced on June 24, 1985. One of the issues 

submitted to the jury in the bad faith trial was whether 

Morris should be awarded the attorney fees he incurred in 

prosecuting his claims against the Co-op as an element of his 

compensatory damages. With regard to attorney fees, the 

District Court instructed the jury as follows: 

If you determine that the defendant has violated 

its duty under the previous instruction just read 

to you, then you should award damages to the 

plaintiff for all losses proximately caused 

thereby. The measure of damages is the amount 

which will compensate for all the detriment 

proximately caused by said conduct, whether it 

should have been anticipated or not. Provided that 

you determine that the loss has been suffered by 

the plaintiff, said damages shall include: . . . 

Attorney fees and costs incurred in prosecuting the 

lawsuit against Nationwide's insured, Sun River 

Electric Coop. 

No objection was made by Nationwide as to the portion of the 

instruction dealing with damages for attorney fees. 

The jury determined that Nationwide had acted in bad 

faith under the provisions of the Unfair Claim Settlement 

Practices Act and awarded $42,500 in compensatory damages to 

Morris. The jury did not award Morris any punitive damages. 

The jury, however, did find that Nationwide's bad faith had 

proximately caused Morris to incur attorney fees and costs in 

pursuing the underlying liability action against the Co-op. 

Question no. 1 of the jury verdict states: 

Should the plaintiff be awarded attorney fees and 

costs incurred in prosecuting his claim for damages 

resulting from the fire? 

Answer : 

Yes X 
If you have stated "yes" to the above question, 

then the Court shall assess appropriate attorney 

fees and costs in a separate hearing. 

The hearing concerning attorney fees took place on July 

31, 1985. At that time, the District Court took evidence in 

the form of testimony by Morris' attorney. On September 13, 

1985, the District Court filed findings of fact and 

conclusions of law regarding the issue of attorney fees and 

costs to be awarded as compensatory damages. The District 

Court determined that Morris was entitled to $4,664.88 as 

compensatory damages for attorney fees incurred in the 

liability action. The District Court arrived at the above 

sum by reference to the contingent fee agreement entered by 

Morris and his attorney which provided that Morris' attorney, 

Erik B. Thueson, would receive 33 1/3 percent of all monies 

obtained for Morris by way of settlement and/or judgment as 

compensation for his services. An addendum was written on 

the agreement excepting the first $6,000.00 recovered from 

attorney fees. 

At the hearing on attorney fees, Thueson presented 

evidence that 352 hours of attorney time were expended 

preparing and trying the underlying liability action against 

the Co-op. Thueson further testified that he considered 

$85.00 per hour to be a reasonable fee for this type of 

litigation. Thus, based on Thueson's testimony the District 

Court found reasonable attorney fees would have amounted to 

$29,992.25, if computed on an hourly basis. 

Morris raises only one issue for our review: Whether 

the District Court erred in the manner in which it computed 

the amount of attorney fees awardable as compensatory 

damages. 
Morris contends for a lodestar determination, that is, a 

fee based on reasonable hours expended times a reasonable 

hourly fee. It is well settled in Montana that where the 

subject of a contingent attorney fees contract does not 

offend public policy, it will be enforced according to its 

terms. Frank L. Pirtz Const. , Inc. v. Hardin Town Pump 

(Mont. 1984), 692 P.2d 460, 464, 41 St.Rep. 2366, 2371; Wight 

v. Hughes Livestock Co., Inc. (Mont. 1983), 664 P.2d 303, 

309, 40 St.Rep. 696, 702. Morris does not contend that the 

subject of his contingent attorney fees contract offends 

public policy. Rather, Morris contends that public policy of 

this State regarding the Unfair Claim Settlement Practices 

Act as announced by this Court in Klaudt v. Flink (Mont. 

1983), 658 P.2d 1065, 1068, 40 St.Rep. 64, 68, would be 

defeated if the attorney fees recovery in this case is 

limited to the contingent fee contract. The argument put 

forth by Morris, however, confuses the role of compensatory 

and punitive damages. 

It is true as Morris points out that in Klaudt we stated 

that one of the purposes of the Unfair Claim Settlement 

Practices Act was to prevent insurance companies from 

exerting "leverage against individual claimants because of 

the disparity in resource base. " 658 P.2d at 1068, 40 

St.Rep. at 68. Punitive damages are permitted in bad faith 

actions against insurance companies to deter such conduct. 

Morris, however, contends that the attorney fees should not 

be limited to the contingent fee agreement because to do so 

encourages insurance companies to engage in protracted 

litigation and to exert undue leverage against claimants. 
In Fitzgerald v. Western Fire Ins. Co. (Mont. 19841, 679 

P.2d 790, 792, 41 St.Rep. 654, 655-56, we distinguished 

between punitive and compensatory damages as follows: 

Compensatory damages result from actual losses 

resulting from bodily injuries or property damages. 

Punitive damages arise out of specific conduct 

deemed undesirable and thereby require punishment 

of the wrongdoer and make an example of him. 

(Emphasis added. ) 

The instructions given to the jury by the District Court 

properly described compensatory damages as "the amount which 

will compensate for all the detriment proximately 

caused . . . " The jury awarded Morris attorney fees as an 

element of compensatory damages and deferred to the District 

Court to determine the actual amount of attorney fees 

sustained by Morris. The amount of attorney fees sustained 

by Morris was set by the contingent fee agreement as 33 1/3 

percent of all monies obtained for Morris by way of judgment 

over $6,000. To allow Morris to recover attorney fees based 

upon an hourly fee changes the issue in this case from what 

amount will compensate Morris for the actual damages he 

sustained in the form of attorney fees, to what amount would 

reasonably compensate Morris' attorney for his services. We 

are not concerned with the latter issue in this case. 

Morris also cites the Court to Goggans v. Winkley 

(1972), 159 Mont. 85, 495 P.2d 594, in support of his 

contention that limiting attorney fees to the contingent fee 

agreement is violative of the collateral source rule. We 

find this argument unavailing. The collateral source rule 

prevents a defendant from putting evidence before a jury that 

some third party has made payments to the plaintiff which 

might reduce his damages. Goggans, 159 Mont. at 92, 495 P.2d 

at 598. In the instant case, there is no claim that the 
contingency fee agreement reduces Morris1 damages. Rather, 

the contingent fee agreement provides a basis to determine 

the damages Morris sustained by way of attorney fees. 

Finally, Morris cites us to dicta in State v. Marsh 

(1978), 175 Mont. 460, 467, 575 P.2d 38, 43, wherein we 

stated that a contingent fee contract is not controlling in 

demonstrating the "reasonableness" of an attorney fee, as 

supportive of his argument. As stated previously, the issue 

in this case is not what amount constitutes a reasonable 

amount for the attorney's services, but what amount will 

compensate Morris for his actual losses sustained in 

employing his attorney. That amount was set by the 

contingent fee agreement. 

We hold in this case that the provisions of the 

contingent fee agreement are controlling computing the 

amount of attorney fees for which Morris would be liable to 

his attorney; that the contract fixes the damages Morris 

sustained thereof; and that the District Court did not err in 

the manner in which it computed attorney fees. 

The parties agreed in the contingent fee agreement as 

follows: 

. . . Party of the First Part [Mike Morris] does 

hereby agree to reimburse Parties of the Second 

Part [attorneys] for any and all costs and expenses 

which they may incur in the representation of Party 

of the First Part and Thirty-three and One-third 

percent (33 1/3%) of all monies obtained for Party 

of the First Part by way of settlement and/or 

judgment as compensation for their services. 

By a written addendum to the contingent fee contract, 

the attorneys agreed that the "first $6,000.00 received shall 

be free of attorney fees." 

The agreed statement of facts under which the District 

Court acted recites that "[pllaintiff did not seek any award 
of damages for attorney fees incurred in prosecuting the bad 

faith claim against Nationwide Insurance Company." The 

District Court was therefore confined by the agreed facts to 

the damages caused by attorney fees to the first part of the 

bifurcated action. The computation by the District Court of 

an attorney fee of $4,664.88 on a judgment of $19,994.64, 

after deducting $6,000.00 is correct. 

Affirmed. 

Justice 

We Concur: .A