Ct. of Appeals: Litigation expenses for insurer breach of contract

The Court of Appeals handed down a decision in Masonic Temple Association of Crawfordsville v. Indiana Farmers (h/t Indiana Law Blog for the link.)

First of all, a very well written opinion. I don’t know the relevant law well enough to have an opinion on whether it’s a good decision or bad decision, but the case had a lot of twists and turns and Judge Kirsch or his law clerk(s) did a good job of making it easy to understand. The background of the case, essentially, was that the Masonic Temple was insured by Indiana Farmers. Some contractors building near by did some excavation which caused the foundation of the Temple to shift, causing damage to the building. Masonic temple said it was a covered loss, Indiana Farmers said it wasn’t. Masonic Temple filed suit against the contractors along with a breach of contract action against Indiana Farmers. At mediation a settlement agreement was reached between Masonic Temple, the contractors, and Indiana Farmers. However, the terms of the settlement left open the issue of the following elements of damage: 1) Attorney fees; 2) Litigation expenses; 3) costs; and 4) investigation costs and expenses. Indiana Farmers filed for summary judgment, arguing that even assuming a breach occurred, Masonic Temple would not be entitled to those elements of damage. The trial court agreed and entered summary judgment. Masonic Temple appealed.

The Court of Appeals adopted a new rule:

We therefore adopt in Indiana the third-party litigation exception that has been adopted in many other jurisdictions. When the defendant’s breach of contract caused the plaintiff to engage in litigation with a third party to protect its interests and such action would not have been necessary but for defendant’s breach, attorney fees and litigation expenses incurred in litigation with a third party may be recovered as an element of plaintiff’s damages from defendant’s breach of contract. These attorney fees and litigation expenses are foreseeable damages, which should be contemplated by an insurance company when it denies a claim. “In holding the defendant liable for the plaintiff’s losses, we are not violating the policy against ‘penalizing’ a litigant for defending a lawsuit. We are simply following the general rule of requiring a wrongdoer to bear the consequences of his misconduct.”
. . .
Accordingly, we vacate the trial court’s grant of summary judgment and remand to the trial court to determine if Indiana Farmers breached its contract with Masonic Temple when it denied its insurance claim. If Indiana Farmers is found to have committed a breach of contract, then the trial court must look at Masonic Temple’s damages and differentiate between the damages incurred pursuing the original declaratory judgment claim against Indiana Farmers and the damages incurred in the third-party litigation with the contractors, which was precipitated by the breach of contract.

The only thing I would add, I suppose, is that the trial court should also differentiate between litigation expenses that are associated with damages recovered from the third-party that were recoverable under the insurance policy and those that were not. For example, if the Masonic Temple were entitled to elements of damages from the contractors that were not covered under the insurance policy, then presumably Indiana Farmers would not be liable for attorney’s fees associated with those elements of damages.