In ACMAT Corp. v. Greater New York Mut. Ins. Co., 282 Conn. 576, 923 A.2d 697 (Conn. 2007), the trial justice found that the insured breached the duty to defend and owed attorney's fees to the insured. Id. Notably the trial justice awarded attorney's fees "despite the absence of bad faith by the insurer." Id. 282 Conn. at 577.
The Supreme Court of Connecticut began its opinion with an extensive forty-six state survey of American rule exceptions for duty to defend actions. Id. 923 A.2d at 703-07.
This survey even considered Wilkinson in its analysis of the current exception in Massachusetts. Id. 923 A.2d at 705. The ACMAT court found that only seven states strictly adhere to the American rule; while the majority of states have some form of statutory or common law exception. Id.
Specifically, ACMAT noted that "Idaho, Illionois, Rhode Island, South Dakota, Virginia, and Wyoming have statutes specifically authorizing attorney's fees if the insurer has engaged in bad faith behavior in insurance coverage disputes." Id. 923 A.2d at 707 n.11.
Connecticut concluded that the "most appropriate approach to this issue" was Rhode Island's approach, which only awards attorney's fees when the insurer has engaged in bad faith conduct. ACMAT, 923 A.2d at 707-08.
The Supreme Court of Connecticut held:
Accordingly, we conclude that, even without an authorizing contractual or statutory provision, a trial court may award attorney's fees to a policyholder that has prevailed in a declaratory judgment action against its insurance company only if the policyholder can prove that the insurer has engaged in bad faith conduct prior to or in the course of the litigation. This limited exception reflects an appropriate accommodation between the policy underlying the American rule of permitting parties, including insurance companies, to litigate claims in good faith, but still provides protection to those policyholders that might confront "stubbornly litigious" insurance companies that take specious positions in order to attempt to avoid paying legitimate claims. It also reflects our "respect for the legislative prerogative of choosing the special circumstances under which attorney's fees awards may be made. . . . To put it simply, when the General Assembly wants to authorize the award of attorney's fees it knows how to do it." Id. 923 A.2d at 708