FEBRUARY 2014 BAD FAITH CASES: INSURER COULD NOT SEEK ATTORNEY’S FEES FROM ANOTHER CARRIER IN DECLARATORY JUDGMENT ACTION FOR PAYING SHARE OF INSURED’S FEES ON THE BASIS OF BAD FAITH, BUT COULD PROCEED ON STATUTORY CLAIM UNDER 42 Pa. C. S. § 2503(7) (Western District)
Plaintiff insurer filed a declaratory judgment action against one of its co-insurer after the insurer declined to pay its portion of defense costs in an underlying suit against the companies insured. Included in that action was a claim for attorney’s fees and delay damages. The defendant-insurer filed a motion to dismiss the complaint, contending an award for attorney fees was unsustainable under the declaratory judgment act and Pennsylvania law.
While prevailing litigants are generally responsible for their own attorney fees, Pennsylvania law does permit an insured to recover attorney fees for prosecuting a declaratory judgment where an insurer has refused to defend the insured in bad faith. The exception is intended to protect the insured where the insurer’s denial is unreasonable and in bad faith.
The court indicated plaintiff failed to point to any Pennsylvania case where an insurer was permitted to recover attorneys’ fees for an action arising out of a co-insurer’s refusal to pay its proportionate share of defense costs.
Plaintiffs did, however, allude to entitlement of attorneys’ fees under Pennsylvania statute 42 Pa.C.S.A. § 2503(7) permitting recovery of counsel fees if a party’s conduct during the pendency of a matter is dilatory, obdurate, or vexatious. The court allowed the claim to advance under that theory.