Elliott v. Donahue

In Elliott v. Donahue, 169 Wis. 2d 310, 485 N.W.2d 403 (1992), Elliott sued Donahue for damages resulting from injuries sustained in an automobile accident. See Elliott, 169 Wis. 2d at 314. Donahue tendered the defense to Heritage Mutual Insurance Company, but Heritage, maintaining that Donahue did not have permission to drive the insured vehicle, denied coverage under the non-permissive use exclusion of the policy. See Elliott, 169 Wis. 2d at 314-15. Thus, Donahue retained counsel. See id. at 315. Despite an order for a bifurcated trial, damages and coverage were tried together. See id. The jury found that Donahue had permission to drive the insured vehicle and, therefore, the trial court entered judgment finding that he was covered under the Heritage policy. See id. Heritage then assumed Donahue's defense and settled the claims against him. See id. Donahue sought to recover his actual attorney fees and costs of litigation. See id. The trial court denied his request. See id. The Court reversed, in part, concluding that Donahue was entitled to recover costs and actual attorney fees incurred in defending against the damages claim but, under the American Rule, was not permitted to recover attorney fees with respect to contesting Heritage's denial of coverage. See Elliott v. Donahue, 163 Wis. 2d 1059, 1062, 473 N.W.2d 155 (Ct. App. 1991), rev'd, 169 Wis. 2d 310, 485 N.W.2d 403 (1992). On further appeal, the supreme court thus considered whether an insured may recover attorney fees incurred in successfully establishing coverage in the course of defending against an action for damages. See Elliott, 169 Wis. 2d at 314-16. The supreme court concluded that, under the policy provision obligating Heritage to reimburse an insured for any "reasonable expenses incurred at the insurer's request," Donahue was permitted to recover reasonable attorney fees incurred in establishing coverage. See id. at 319. The court explained: "Initiating an action which imposes an obligation on the part of the insured to successfully establish coverage is the equivalent of requesting the insured to incur reasonable expenses. Therefore, the attorney fees incurred by Donahue in successfully establishing coverage under the policy represent expenses incurred at Heritage's request." Id. The supreme court, however, then stated that it did not need to rely on the line of reasoning based on the policy provision because statutory law, recognizing equitable principles, permitted recovery of attorney fees. See id. The court reiterated that an insurance policy is "a unique type of legally enforceable contract" requiring an insurer, in return for the insured's premiums, to "assume the contractual duties of indemnification and defense for claims described in the policy." See id. at 320. Thus, the court declared: "The insurer that denies coverage and forces the insured to retain counsel and expend additional money to establish coverage for a claim that falls within the ambit of the insurance policy deprives the insured of the benefit that was bargained for and paid for with the periodic premium payments. Therefore, the principles of equity call for the insurer to be liable to the insured for expenses, including reasonable attorney fees, incurred by the insured in successfully establishing coverage." Id. at 322. On that basis, the court decided "that supplemental relief under Wis. Stat. 806.04(8) of the Uniform Declaratory Judgments Acts may include recovery of attorney fees incurred by the insured in successfully establishing coverage under the insurance policy." Id. at 324. Wisconsin Stat. 806.04(8), provides: Supplemental relief. Further relief based on a declaratory judgment or decree may be granted whenever necessary or proper. The application therefor shall be by petition to a court having jurisdiction to grant the relief. If the application be deemed sufficient, the court shall, on reasonable notice require any adverse party whose rights have been adjudicated by the declaratory judgment or decree, to show cause why further relief should not be granted forthwith.