Are There Times When One Party Might Pay Attorneys’ Fees for Both?

This article is a companion piece to this video

In this episode of On Subrogation: Attorney Fee Shifting, Rathbone Group’s Jason Sullivan discusses attorneys’ fees in the context of your subrogation claims, and times when there may be a legal reason to shift those fees.

In the US, the general rule of thumb is that, in a lawsuit, each party pays for their own attorneys. However, that is not always the case. Of the myriad complex legal mechanisms subrogation attorneys might use in a given insurance dispute, attorneys’ fees may come into play, especially if your adverse party is uncooperative.

There are 3 types of exceptions that will shift responsibility for attorneys’ fees to the other party, and they occur by statute, sanctions, or contract:

Exception #1: Attorneys’ Fees are Shifted by Statute

There are state and federal statutes that designate when the party who wins has the right to have the other party pay their attorneys’ fees. This is largely to make the legal process more democratic; courts want parties to be able to pursue rightful claims even if they do not have the resources to pay for it. In some cases, this fee shifting is mandatory. Other times, it is at the court’s discretion.

The most important statute exception in subrogation is Offer of Judgment from the Federal Rules of Civil Procedure, Rule 68:

1. A party will offer to pay to settle a dispute.
2. If the opposing party rejects the offer, they may later have to pay the other party’s attorneys’ fees if the court’s judgment is not better than the original offer.

Many states have adopted statute similar to Offer of Judgment. Let’s use a hypothetical to illustrate:

• A plaintiff files a lawsuit.
• The defendant answers and says they will pay 60% of the claim.
• The plaintiff rejects the offer.
• The lawsuit proceeds through depositions, experts, and to trial.
• The result is the jury decides the defendant is only 55% responsible for the matter.
• Because 55% < 60%, the plaintiff is then responsible for the defendant’s attorneys’ fees, because there was no monetary gain that justified taking the lawsuit through to completion.

As we will also see with Exceptions #2 and #3, fee shifting is largely done to govern each party’s behavior. The essence is, don’t waste the court’s time or the other party’s time – act in good faith. Fee shifting is meant to (1) discourage parties from acting in a contentious or petty manner, and (2) incentivize parties to work toward resolving the subrogated matter in a timely and cooperative way.

Exception #2: The Court Awards Attorneys’ Fees via Sanction

There are also circumstances where the court has the authority to issue sanctions against another party in order to get them to cooperate with the legal process. Courts may award fee shifting sanctions if a party:

1. Pursued claims in bad faith
2. Brought frivolous actions/defenses
3. Refuses to participate in good faith in litigation

Let’s use a hypothetical subrogation case to illustrate how sanctions for attorneys’ fees shifting might play out during the discovery process of an insurance lawsuit:

• A suit has been filed and is going through the discovery process.
• The defendant’s attorney makes a reasonable request to the plaintiff’s attorney.
• The plaintiff’s attorney rejects the request and create a privileged log of items they refuse to hand over and why.
• Both attorneys meet to discuss the issue, but the plaintiff’s attorney still refuses to hand the documents over.
• The defense attorney files a motion to compel the plaintiff to turn the documents over, and the court agrees with the defense, ordering the plaintiff to comply with the discovery request.
• The plaintiff still refuses to give the documents to the defense.
• The court orders the plaintiff to pay the defense’s attorneys’ fees.

Why? Because the plaintiff is the one who brought the complaint, but they are the one refusing to act in good faith. Another example of wasting both the court’s and the other party’s time and resources.

Exception #3: Contract Includes Attorneys’ Fee Shifting

There are times when contract language might allow for fee shifting. It is not something subrogation attorneys deal with often, as we are rarely working under a contract. The major exception to this is if a carrier is a member of intercompany arbitration, because that is a contract.

Rule 5-2 handles the conditions that arise if a party refuses to follow through on an arbitration judgment. Because both parties, by being in intercompany arbitration, have agreed to contract terms, if one party refuses to comply, attorneys’ fees may be shifted.

Subrogation FAQ: How Do You Calculate Attorneys’ Fees?

The most common questions our subrogation attorneys encounter, both from other insurance professionals and attorneys, regards best practices for calculating attorneys’ fees when fee shifting comes into play. The simplest method, which the courts like best, is the Lodestar Method, which is:

reasonable hourly fee x hours of work

Courts like this method because it is transparent to identify what work hours went where throughout the subrogation suit in order to approve the amount. However, we know not all attorneys work on the Lodestar Method, but by contingency fees.

Contingency attorneys’ fees may present problems in your case because, in general, courts do not like to award a lump sum for attorneys’ fees; they want that log of hours of work to see how it breaks down. If you are an attorney who works on contingency fees, determine as soon as possible if attorneys’ fee shifting may be a possibility in your subrogation case and keep track in a manner that is like the Lodestar Method.

Get More Subrogation Education with Rathbone Group

Curious to learn more about the ins and outs of the subrogation process? Rathbone Group offers free informational resources to other insurance and subrogation professionals on our YouTube channel and podcast library. In our On Subrogation series, we discuss complex topics in insurance law in digestible, easy-to-understand ways.

If you have a subject we haven’t yet covered that you would like to see broken down in an episode of On Subrogation, reach out to us at video@rathbonegroup.com or podcast@rathbonegroup.com to ask any questions or suggest a topic for a new episode.