NAII Files Amicus Brief to Uphold ‘American Rule’ in Minnesota

May 27, 2003

The National Association of Independent Insurers (NAII) filed an amicus brief encouraging the Minnesota Supreme Court to uphold the “American Rule” for recovery of attorneys’ fees.

A state district court decision awarded an insured full payment of court costs including attorney fees based on its findings that the insurer acted unfairly and in bad faith. The Court of Appeals reversed the lower court ruling and held that, absent statutory authorization or breach of a contractual duty to defend, the insured is not entitled to payment of attorney fees. The NAII’s brief urges the Minnesota Supreme Court to affirm the Court of Appeals’ decision on this

“The NAII argues that courts in the United States have steadfastly refused to adopt a ‘loser pays’ approach on the issue of attorneys’ fees. The ‘American Rule’ is premised on the concept that attorneys’ fees do not constitute damages and that the judicial system should not be stifled by the threat that attorneys’ fees might be awarded to the prevailing party,” Laura Kotelman, NAII counsel, said.

“The NAII is concerned that in every ordinary coverage dispute, ranging from run of the mill automobile matters to property and health insurance, a ruling consistent with that of the district court would create an incentive for claimants to include frivolous or extraneous allegations of breach of an implied covenant of good faith and fair dealing in order to gain possible recovery of attorneys’ fees,” Kotelman commented.

Moreover, the Minnesota Supreme Court has repeatedly held that a breach of contract does not give rise to a claim for fees. Most recently in Garrick v. Northland Ins. Co. (Minn. 1991), in refusing to permit the recovery of legal fees the Court noted, “If the change in Minnesota’s historical doctrine is to be made, it seems to us that this argument ought to be directed to the legislature.”

“If any breach of contract is sufficient to give rise to the right to recover fees, it will be impossible to limit the rule to just insurance contracts,” Kotelman added.

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