An Insurer Has An Equitable Right To Pursue A Claim For Fees, Costs, And Expenses On Its Insured's Behalf
(August, 2009) By Kevin M. Cox, Associate.
For more information, contact Paul Farquharson.
Worsham v. Greenfield, No. 1810 (Md. App. August 27, 2009)
In an issue of first impression, the Court of Special Appeals
of Maryland decided whether a party has incurred attorneys' fees, costs, and
expenses within the meaning of MD. RULE 1-341 when the fees, costs, and expenses
were paid by the party's insurer.
The Appellant originally filed a complaint against four of
his neighbors alleging malicious prosecution, defamation, false light/invasion
of privacy, civil conspiracy, and aiding and abetting. Summary judgment was
granted in favor of three of the Defendants, including Mrs. Greenfield. The
surviving counts, as they related solely to the remaining Defendant, went to
trial, and the trial court granted his motion for judgment.
Appellant appealed to the Court of Special Appeals of
Maryland which affirmed the judgment. Appellant's petition for writ of certiorari" to the Court of Appeals was denied. The Appellees (Mr. and Mrs.
Greenfield) filed a motion pursuant to MD. RULE 1-341 for attorneys' fees
($38,693), and expenses ($1,571.48). Mr. Greenfield's motion was denied, but the
trial court found that Mrs. Greenfield had been joined in the action without
substantial justification and granted her $3,613.13.
The Appellant challenged Mrs. Greenfield's entitlement to
the award as opposed to the amount. He contended that Mrs. Greenfield lacked
standing to file a MD. RULE 1-341 motion because her attorneys' fees, costs, and
expenses were paid by her insurer, Erie Insurance ("Erie"). Appellant argued
that because Mrs. Greenfield personally suffered no damages, she was not
entitled to an award of damages since she did not personally "incur" any.
Appellee relied upon the purpose of MD. RULE 1-341, which was to prevent parties
and/or attorneys from abusing the judicial process by litigating actions without
substantial justification or doing so in bad faith.
The Court of Special Appeals read MD. RULE 1-341 as
ambiguous "as to whether a party must have actually incurred attorneys' fees,
costs, and expenses in order to have incurred them or whether they were paid by
a collateral source" and therefore permitted the insured's claim for fees. See
Twine v. State, Md. 539, 550 (2006). In discussing the purpose of MD. RULE
1-341, which is to deter abuse of the judicial process by compensating a party
who opposes a party proceeding in bad faith or without substantial
justification, the court held that fees, costs, and expenses incurred are
awardable even though paid by an insurer. "For reasons of equity, to fulfill the
purposes of MD. RULE 1-341," the court found that Erie had a cause of action,
through its insured, for a claim of attorneys' fees, costs, and expenses.
In addition, the court was also mindful that MD. RULE 1-341
is not a sanctions rule in the same sense of FED. R. CIV. P. 11, in that MD.
RULE 1-341 has the purpose to compensate, and while entitlement to an award is
based on the offending party's conduct, the amount awarded is not based on the
degree of offensiveness. The court stated, "While the nature of the offending
conduct is relevant to the amount, the amount must be compensatory and not
designed to punish the offending party." See also Beery v. Maryland Med. Lab.,
Inc., 89 Md. App. 81, 102 (1991) ("An award of counsel fees pursuant to Rule
1-341, despite our occasional use of the word ‘sanction' was not punitive, but
is intended to merely to compensate the aggravated party for the reasonable
costs and expenses, including reasonable attorney's fees, actually incurred in
opposing the unjustified or bad faith conduct.").
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