In Medical Mutual Insurance Co. v. Curtis, 2008 Ark. LEXIS 379 (May 29, 2008), the Arkansas Supreme Court held that an insurer that (1) asserts lack of coverage, (2) reserves its right to recover defense costs it expends, (3) defends under reservation of rights, and then (4) gets a declaratory judgment that there was never any duty to defend, cannot recover its defense expenditures from the insured. Noting the division of authority elsewhere, the court charted a new course: under the American Rule, attorneys’ fees are not recoverable unless provided by statute! The decision was 4-2, with the dissent cogently criticizing invocation of the American Rule, which precludes recovery of fees from an adversary in the litigation where the fees were incurred. Medical Mutual was not Curtis’s adversary in the underlying litigation. Moreover, the American Rule allows recovery of attorney’s fees pursuant to contract, which other states allow to be an implied contract. And, if the law of unjust enrichment would support recovery, none of the policies underlying the American Rule would preclude such a recovery. The Arkansas court has simply ducked the substantive questions that have divided courts elsewhere with a very dubious invocation of the American Rule.
William T. Barker
Sonnenschein Nath & Rosenthal, LLP