Insurer Entitled to Coverage Litigation Attorneys’ Fees Under Arizona Statute

An Arizona federal district court has held that an insurer is entitled to an award of approximately $1.1 million in attorneys’ fees incurred in successful coverage litigation with an insured.  11333, Inc. v. Certain Underwriters at Lloyd’s, London, 2018 WL 1570236 (D. Ariz. Mar. 30, 2018).

In 2014, an insured filed coverage litigation against its E&O insurer following the insurer’s denial of coverage for a claim tendered by the insured.  In 2017, following discovery and motions practice, the court ruled for the insurer that no coverage was available for the claim.  The insurer subsequently sought to recover its coverage litigation attorneys’ fees under an Arizona statute, A.R.S. § 12-341.01(A), that gives a court discretion to award attorneys’ fees to a successful party in any contested action arising out of a contract.

In awarding the requested attorneys’ fees to the insurer, the court considered numerous factors that weighed in favor of the award.  The court found that the insured’s claims were not meritorious because they involved a distortion of policy language and a disregard of the factual record.  Likewise, the court found that a fee award would not have a chilling effect on future policyholders’ claims that had more merit.  Additionally, the court found that the insured’s claim was not novel, despite the lack of precedent, because the insured had simply disregarded well-known principles of policy interpretation.  Finally, the court considered that the litigation could not have been avoided or settled, noting that the insured had no one to blame but itself for its failure to make a reasonable settlement offer.  Accordingly, after weighing the hours billed and rates charged against the substance of the work performed, the court determined that nearly the entire request was reasonable and awarded the insurer approximately $1.1 million in attorneys’ fees.