Defendant can recover attorney’s fees even where insurer provides defense, says NM Court of Appeals

After buying a home in Elephant Butte, Star Varga discovered construction defects and sued the seller, the seller’s broker, and her own brokers. The trial court granted summary judgment to Ms. Varga’s own brokers. Those brokers then asked to be awarded over $71,000 in attorney’s fees for defending the lawsuit, based on a clause in the purchase agreement which provided that in the event of a dispute, the prevailing party would be entitled to recover reasonable attorney’s fees.

At the attorney’s fee hearing, the trial judge asked whether an insurer had provided the brokers with a defense. The brokers’ attorney answered that an insurer had indeed provided a defense, and that any award of attorney’s fees would be turned over to the insurer. The trial judge refused to award any attorney’s fees because the brokers themselves had not incurred any attorney’s fees. The trial judge said he would have considered awarding fees if the brokers had had to shell out attorney’s fees from their own pockets.

It may well be that the trial judge did not want to subject an individual homeowner like Ms. Varga to the prospect of having to pay tens of thousands of dollars in attorney’s fees, but in Varga v. Ferrell (Oct. 2, 2013), the Court of Appeals reversed. In her opinion, Judge Cynthia Fry wrote that the agreement created no exception to awarding fees to the prevailing party, merely because a third party paid for the defense. By “reading into” the agreement “an exception for insurer-paid attorney’s fees,” the district court had illegitimately re-written the parties’ agreement. A deal is a deal, and should be enforced. The case has now been remanded to the trial judge with instructions to determine what a “reasonable” amount of attorney’s fees would be.

I think this decision is correct. New Mexico law is that contracts should be enforced as written. The lesson of this case is that if you are going to sue someone where a contract provides that the prevailing party will recover attorney’s fees, you’d better be sure you have a good claim. At a minimum, you need explain to your client the risk of having to pay the other side’s attorney’s fees if the case is not a success.

 

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