No. 85-598
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986
MIKE MORRIS,
Plaintiff and Appellant,
-vs-
NATIONWIDE INSURANCE COMPANY,
Defendant and Respondent.
APPEAL FROM: District Court of the Ninth Judicial District,
In and for the County of Teton,
The Honorable R. D. KcPhillips, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Erik B. Thueson, Great Falls, Montana
For Respondent:
Jardine , Stephenson, Blewett & Weaver; William
Jacobsen, Great Falls, Montana
Submitted on Briefs: March 13, 1986
Decided: July 31, 1986
Filed: JUL 3 1 1986
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Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
Appellant, Mike Morris, appeals from the judgment of the
District Court, Ninth Judicial District, County of Teton,
awarding him attorney fees in the amount of $4,664.88 against
respondent, Nationwide Insurance Company.
Morris brought this case to recover damages sustained as
a result of Nationwide's violations of the Unfair Claim
Settlement Practices Act, S 33-18-201, et seq. MCA. The case
is submitted to us by the parties with an agreed statement of
t
facts pursuant to Rule 9(d), M.R.App.Civ.P.
The facts as agreed to by the parties are as
follows: Morris brought an action to recover damages he
alleged he sustained as a result of the negligence of Sun
River Electric Co-op. He alleged that through the Co-op's
negligence, a 7,200 volt line, owned and operated by the
Co-op, started a fire on his ranch, causing the destruction
of over 150 tons of hay, various fences, and trees, which
were valuable windbreaks in his ranching operation.
The Co-op was insured for liability by Nationwide.
Morris joined Nationwide to his action against the Co-op as a
defendant, alleging that it had violated the Unfair Claim
Settlement Practices Act, S 33-18-201, et seq. MCA, in the
manner in which it conducted settlement negotiations
concerning his claim against the Co-op.
The District Court bifurcated the liability claim and
the bad faith claim. The trial concerning the Co-op's
liability commenced on June 25, 1984 and resulted in a jury
verdict in favor of Morris in the amount of $19,994.64. A
judgment was subsequently entered by the District Court for
this amount, plus costs.
The trial of the third party bad faith action against
Nationwide commenced on June 24, 1985. One of the issues
submitted to the jury in the bad faith trial was whether
Morris should be awarded the attorney fees he incurred in
prosecuting his claims against the Co-op as an element of his
compensatory damages. With regard to attorney fees, the
District Court instructed the jury as follows:
If you determine that the defendant has violated
its duty under the previous instruction just read
to you, then you should award damages to the
plaintiff for all losses proximately caused
thereby. The measure of damages is the amount
which will compensate for all the detriment
proximately caused by said conduct, whether it
should have been anticipated or not. Provided that
you determine that the loss has been suffered by
the plaintiff, said damages shall include: .
. .
Attorney fees and costs incurred in prosecuting the
lawsuit against Nationwide's insured, Sun River
Electric Coop.
No objection was made by Nationwide as to the portion of the
instruction dealing with damages for attorney fees.
The jury determined that Nationwide had acted in bad
faith under the provisions of the Unfair Claim Settlement
Practices Act and awarded $42,500 in compensatory damages to
Morris. The jury did not award Morris any punitive damages.
The jury, however, did find that Nationwide's bad faith had
proximately caused Morris to incur attorney fees and costs in
pursuing the underlying liability action against the Co-op.
Question no. 1 of the jury verdict states:
Should the plaintiff be awarded attorney fees and
costs incurred in prosecuting his claim for damages
resulting from the fire?
Answer :
Yes X
If you have stated "yes" to the above question,
then the Court shall assess appropriate attorney
fees and costs in a separate hearing.
The hearing concerning attorney fees took place on July
31, 1985. At that time, the District Court took evidence in
the form of testimony by Morris' attorney. On September 13,
1985, the District Court filed findings of fact and
conclusions of law regarding the issue of attorney fees and
costs to be awarded as compensatory damages. The District
Court determined that Morris was entitled to $4,664.88 as
compensatory damages for attorney fees incurred in the
liability action. The District Court arrived at the above
sum by reference to the contingent fee agreement entered by
Morris and his attorney which provided that Morris' attorney,
Erik B. Thueson, would receive 33 1/3 percent of all monies
obtained for Morris by way of settlement and/or judgment as
compensation for his services. An addendum was written on
the agreement excepting the first $6,000.00 recovered from
attorney fees.
At the hearing on attorney fees, Thueson presented
evidence that 352 hours of attorney time were expended
preparing and trying the underlying liability action against
the Co-op. Thueson further testified that he considered
$85.00 per hour to be a reasonable fee for this type of
litigation. Thus, based on Thueson's testimony the District
Court found reasonable attorney fees would have amounted to
$29,992.25, if computed on an hourly basis.
Morris raises only one issue for our review: Whether
the District Court erred in the manner in which it computed
the amount of attorney fees awardable as compensatory
damages.
Morris contends for a lodestar determination, that is, a
fee based on reasonable hours expended times a reasonable
hourly fee. It is well settled in Montana that where the
subject of a contingent attorney fees contract does not
offend public policy, it will be enforced according to its
terms. Frank L. Pirtz Const. , Inc. v. Hardin Town Pump
(Mont. 1984), 692 P.2d 460, 464, 41 St.Rep. 2366, 2371; Wight
v. Hughes Livestock Co., Inc. (Mont. 1983), 664 P.2d 303,
309, 40 St.Rep. 696, 702. Morris does not contend that the
subject of his contingent attorney fees contract offends
public policy. Rather, Morris contends that public policy of
this State regarding the Unfair Claim Settlement Practices
Act as announced by this Court in Klaudt v. Flink (Mont.
1983), 658 P.2d 1065, 1068, 40 St.Rep. 64, 68, would be
defeated if the attorney fees recovery in this case is
limited to the contingent fee contract. The argument put
forth by Morris, however, confuses the role of compensatory
and punitive damages.
It is true as Morris points out that in Klaudt we stated
that one of the purposes of the Unfair Claim Settlement
Practices Act was to prevent insurance companies from
exerting "leverage against individual claimants because of
the disparity in resource base. " 658 P.2d at 1068, 40
St.Rep. at 68. Punitive damages are permitted in bad faith
actions against insurance companies to deter such conduct.
Morris, however, contends that the attorney fees should not
be limited to the contingent fee agreement because to do so
encourages insurance companies to engage in protracted
litigation and to exert undue leverage against claimants.
In Fitzgerald v. Western Fire Ins. Co. (Mont. 19841, 679
P.2d 790, 792, 41 St.Rep. 654, 655-56, we distinguished
between punitive and compensatory damages as follows:
Compensatory damages result from actual losses
resulting from bodily injuries or property damages.
Punitive damages arise out of specific conduct
deemed undesirable and thereby require punishment
of the wrongdoer and make an example of him.
(Emphasis added. )
The instructions given to the jury by the District Court
properly described compensatory damages as "the amount which
will compensate for all the detriment proximately
caused ..." The jury awarded Morris attorney fees as an
element of compensatory damages and deferred to the District
Court to determine the actual amount of attorney fees
sustained by Morris. The amount of attorney fees sustained
by Morris was set by the contingent fee agreement as 33 1/3
percent of all monies obtained for Morris by way of judgment
over $6,000. To allow Morris to recover attorney fees based
upon an hourly fee changes the issue in this case from what
amount will compensate Morris for the actual damages he
sustained in the form of attorney fees, to what amount would
reasonably compensate Morris' attorney for his services. We
are not concerned with the latter issue in this case.
Morris also cites the Court to Goggans v. Winkley
(1972), 159 Mont. 85, 495 P.2d 594, in support of his
contention that limiting attorney fees to the contingent fee
agreement is violative of the collateral source rule. We
find this argument unavailing. The collateral source rule
prevents a defendant from putting evidence before a jury that
some third party has made payments to the plaintiff which
might reduce his damages. Goggans, 159 Mont. at 92, 495 P.2d
at 598. In the instant case, there is no claim that the
contingency fee agreement reduces Morris1 damages. Rather,
the contingent fee agreement provides a basis to determine
the damages Morris sustained by way of attorney fees.
Finally, Morris cites us to dicta in State v. Marsh
(1978), 175 Mont. 460, 467, 575 P.2d 38, 43, wherein we
stated that a contingent fee contract is not controlling in
demonstrating the "reasonableness" of an attorney fee, as
supportive of his argument. As stated previously, the issue
in this case is not what amount constitutes a reasonable
amount for the attorney's services, but what amount will
compensate Morris for his actual losses sustained in
employing his attorney. That amount was set by the
contingent fee agreement.
We hold in this case that the provisions of the
contingent fee agreement are controlling computing the
amount of attorney fees for which Morris would be liable to
his attorney; that the contract fixes the damages Morris
sustained thereof; and that the District Court did not err in
the manner in which it computed attorney fees.
The parties agreed in the contingent fee agreement as
follows:
... Party of the First Part [Mike Morris] does
hereby agree to reimburse Parties of the Second
Part [attorneys] for any and all costs and expenses
which they may incur in the representation of Party
of the First Part and Thirty-three and One-third
percent (33 1/3%) of all monies obtained for Party
of the First Part by way of settlement and/or
judgment as compensation for their services.
By a written addendum to the contingent fee contract,
the attorneys agreed that the "first $6,000.00 received shall
be free of attorney fees."
The agreed statement of facts under which the District
Court acted recites that "[pllaintiff did not seek any award
of damages for attorney fees incurred in prosecuting the bad
faith claim against Nationwide Insurance Company." The
District Court was therefore confined by the agreed facts to
the damages caused by attorney fees to the first part of the
bifurcated action. The computation by the District Court of
an attorney fee of $4,664.88 on a judgment of $19,994.64,
after deducting $6,000.00 is correct.
Affirmed.
Justice
We Concur: .A