Title: Abbey v. Farmers Insurance Exchange
Citation: 160 N.W.2d 709
Docket Number: 41137
State: Minnesota
Issuer: Minnesota Supreme Court
Date: July 26, 1968

160 N.W.2d 709 (1968) H. L. ABBEY, Respondent, v. FARMERS INSURANCE EXCHANGE, Appellant. No. 41137. Supreme Court of Minnesota. July 26, 1968. Rider, Bennett, Egan, Johnson &amp; Arundel, Stuart W. Rider, Jr., and Dayton E. Soby, Minneapolis, for appellant. O. C. Adamson, Minneapolis, for respondent. Heard before KNUTSON, C. J., and NELSON, MURPHY, OTIS, and FRANK T. GALLAGHER, JJ. NELSON, Justice. In this action plaintiff sought recovery of "Guaranteed Flight Pay" under a policy of insurance issued by defendant. After the Federal Aviation Agency did not renew plaintiff's medical certificate, required of all commercial pilots, he submitted a claim for benefits by reason of this disability. Since his claim was denied, this action followed. Defendant in its answer to plaintiff's complaint alleged that the contract of insurance had been induced by three fraudulent misrepresentations contained in plaintiff's application for insurance. The action was commenced February 18, 1965. On September 23, 1966, plaintiff amended his complaint seeking recovery of *710 "reasonable attorneys' fees and costs necessarily incurred in the prosecution of this action" in addition to recovery of benefits provided in the insurance contract. Conflicting testimony was introduced on the issue of fraud. Plaintiff's counsel then testified over objection of defendant as to the reasonable value of his and his associate's services. Upon the submission of the case to the jury, the trial court directed them to determine the reasonable value of plaintiff's attorneys' fees in the event it returned a verdict in favor of plaintiff, reserving for later ruling the question of whether plaintiff was or was not entitled to recovery of attorneys' fees in this action for breach of plaintiff's insurance contract. The jury returned a verdict in plaintiff's favor and determined the reasonable value of his attorneys' fees to be $4,500. The usual post-trial motion for judgment n. o. v. or a new trial were filed by defendant, together with an additional alternative motion for a determination that the amount of plaintiff's recovery be limited to the insurance benefits provided in the policy, plus interest. Plaintiff countered with a motion that the amount of his recovery be determined to include $4,500 for his legal expenses. The trial court denied defendant's motions and granted plaintiff's motion, ordering entry of judgment in his favor for $11,113.55 (the amount due under the terms of the insurance policy, including interest to the date of the verdict) and the additional amount of $4,500 for attorneys' fees. Judgment was thereafter entered, and defendant appealed from that part of the judgment directing that plaintiff recover $4,500 for legal fees. Following this, plaintiff served a notice of review under Minn.St. 605.065 on the ground that in the event of an affirmance on defendant's appeal plaintiff will be adversely affected because the trial court's order does not contain an award to plaintiff of attorneys' fees incurred in the post-trial proceedings nor for fees incurred on the appeal to this court. Thus, in this action for breach of an insurance contract to recover disability benefits, the question on appeal is whether the insured who prevails in the action is entitled to recover attorneys' fees incurred in that action. 1-2. In Rumsey Mfg. Corp. v. United States Hoffman M. Corp. (2 Cir.), 187 F.2d 927, 932, Judge Learned Hand, speaking for the court, stated: The general rule on the right to recover attorneys' fees and costs in a suit to recover benefits under an insurance policy is stated in 16 Couch, Insurance 2d § 58:113: This same view is expressed in Fazzino v. Insurance Co. of North America, 152 Cal. App. 2d 304, 313 P.2d 178. In that case a suit was brought against an insurer for declaratory relief and for damages for breach of an insurance and indemnity contract. The court held that the insured was entitled to recover the cost of defending himself in an action in which the insurer had refused to defend him, but further held (152 Cal. App. 2d 309, 313 P.2d 181): *711 While a number of states have provided by statute for recovery of attorneys' fees as well as penalties where the insurer fails to pay a loss under a policy, the criteria used in these statutes differ from one state to the next. As a general rule, however, these penalties and attorney's fees are not assessed against an insurer unless it appears that payment was withheld unreasonably or that the insurer did not have reasonable grounds to believe that it had a meritorious defense to the insured's claim for benefits. 3 Appleman, Insurance Law and Practice, § 1611. Although New York appears to have no statutory penalty or provision for attorneys' fees in a suit by an insured against an insurer for benefits under a policy, the case of Sukup v. State, 19 N.Y.2d 519, 281 N.Y.S.2d 28, 227 N.E.2d 842, indicates that the New York court might, in a proper case, apply a rule similar to those of states which have such statutory provisions. There the court held (19 N.Y.2d 522, 281 N.Y.S.2d 28, 227 N.E.2d 844): The court went on to hold that no bad faith was present. In this case, since there is neither statutory authority nor any provision in the policy which would justify holding that plaintiff was entitled to recover his attorneys' fees, the court erred in so holding. 3. This court has passed on the recovery of attorneys' fees and costs in a suit against an insurer to recover benefits under a policy of insurance where the insurer denied liability and a declaratory action was brought to determine the issue. It held in Morrison v. Swenson, 274 Minn. 127, 142 N.W.2d 640, that the alleged insured, if successful in the action, was entitled to recover all expenses caused by the insurer's breach of contract. We said there (274 Minn. 137, 142 N.W.2d 647): Dworsky v. Vermes Credit Jewelry, Inc., 244 Minn. 62, 69 N.W.2d 118, was an action in which plaintiffs, partners in an insurance agency, sought to recover the balance due on a premium for an all-risk comprehensive insurance policy, in which action defendant claimed that the policy was illegal and counterclaimed for the amount already paid thereon and for damages sustained by it in prosecuting an action against the insurer on said policy. After findings for defendant, plaintiffs appealed *712 from the judgment entered and this court reversed, saying (244 Minn. 63, 69 N.W.2d 119): In 7A Appleman, Insurance Law and Practice, § 4691, in commenting on the duties of an insurer, it is stated: See, 7A Appleman, Insurance Law and Practice, notes 67 and 68, pp. 512, 513. It is clear that the court below adopted the rule stated in the Morrison case. However, this court limited the rule established in that case to the situation presented therein and made it clear that it recognized the general rule that ordinarily attorneys' fees are not recoverable unless there is statutory authority for it. While in Morrison we held, as an exception to the general rule, that a party who is thrust into litigation with a third person by reason of a wrongful act of another in breach of contract may recover attorneys' fees incurred in such prior litigation in an action against the one who committed such wrongful act, this court again later affirmed the general rule that attorneys' fees are allowed only when authorized by statute or provided for in the contract. See, Grodzicki v. Quast, 276 Minn. 34, 149 N.W.2d 8. The question here is whether an insured who prevails in an action to recover disability benefits is also entitled to recover attorneys' fees incurred in that action. Since the exception adopted in Morrison v. Swenson, supra, is in fact limited to damages resulting from breach of contract by the insurer's failure to defend, it does not apply and this case must be governed by the general rule. Thus, that part of the judgment entered in the court below granting attorneys' fees to plaintiff must be reversed. Reversed.