Our new elected Governor Mike Pence, recently proposed a “loser pays” system in our state courts. Under this proposal, any party that lost in a lawsuit would be required to pay the winner’s attorney fees. What made this legislation controversial was that it did away with the usual “American Rule” – where each side to a lawsuit pays for their own attorney fees – and instead enacted what is known as the “English Rule,” which requires that the loser pay the attorney fees of the winning party. The “English Rule” was an idea that our Founding Fathers rejected in drafting our federal Constitution, and indeed the only state in America that currently follows the English Rule is Alaska. As far as I can tell, no one in the Indiana business or insurance industry had requested this legislation, which is probably why Governor Pence quietly withdrew his proposal last week after much criticism.
One of the main reasons given by proponents of a “loser pays” system is that it would stop frivolous lawsuits. However, many people don’t know that Indiana already has a law which says that if a judge finds that someone filed a lawsuit that was frivolous, or made a frivolous defense to a lawsuit that did have merit, that person has to pay the other side’s attorney fees. Under this statute which is found at Indiana Code 34-52-1-1, a judge may award attorney fees to the winner of a lawsuit when the loser:
(1) brought the action or defense on a claim or defense that is frivolous, unreasonable, or groundless;
(2) continued to litigate the action or defense after the party’s claim or defense clearly became frivolous, unreasonable, or groundless; or
(3) litigated the action in bad faith.
In fact, Indiana judges have utilized this statute many times to award attorney fees when a lawsuit or a defense to a lawsuit was found to be frivolous or in bad faith.
For example, in a case known as Kahn v. Cundiff, the Indiana Court of Appeals upheld an award for attorney fees against an attorney for filing and refusing to dismiss a frivolous lawsuit until the day of trial. The attorney was representing two women who were injured in an automobile accident and had filed a lawsuit against both the driver of a car who had caused an accident and against the owner of the car who had given permission to the driver to use his car. The lawsuit alleged that the owner should have known that the person he loaned the car to was incompetent to drive a car.
The problem was that there was no evidence that the person who was driving the car was incompetent or otherwise unfit to drive, and thus there was no evidence to support any type of claim against the car’s owner as compared to the driver of the car. The trial court judge thus awarded over $8,000 in attorney fees to the owner of the car because the attorney had filed a frivolous claim, and then refused to dismiss it when it became clear there was no evidence to support such a claim.
In another case which illustrates that even an insurance company may have to pay attorney fees when its defense of a legitimate claim was frivolous, in United Farm Bureau Ins. Co. v. Ira, a customer of Farm Bureau Ins. Co. was injured in an auto accident. Farm Bureau and their insured Mr. Ira reached an agreement that required Farm Bureau to pay all future medical expenses that were incurred for treatment of his extensive injuries. However, Farm Bureau later refused to pay for some of these expenses. After Mr. Ira sued to enforce their agreement, Farm Bureau changed its mind but still only offered to pay a portion of these expenses. After a trial, a judge ordered Farm Bureau to pay the disputed medical expenses, plus all the fees of Mr. Ira’s attorney. The judge based his decision on his finding that Farm Bureau’s defense to Mr. Ira’s claim was frivolous.
In upholding the trial judge’s decision, the Court of Appeals wrote that Farm Bureau “had doggedly pursued its defense even after it had proof to the contrary and no substantial evidence supporting its position.” In fact, the Court of Appeals considered Farm Bureau’s defense to be so frivolous that it increased the trial judge’s damage award to Mr. Ira by ten percent!
These cases show that Indiana courts already have the ability and willingness to punish and deter frivolous lawsuits and defenses. However, if a Loser Pay’s rule became law, an insurance company like Mr. Ira’s could threaten to bankrupt this fellow if he sued them, lost at trial, and then would have to pay the insurance company’s attorney fees.
One could also easily imagine someone with a hail damage claim to their home and their insurance company then offering to pay only one-half of the cost for a new roof because the damaged roof was old, or that there was no proof their home was damaged despite the falling of golf ball sized hail! The homeowner could sue for the cost of a new roof, but the insurer would point out that if the homeowner lost, the insurer could take their home to pay for attorney fees. Even if the dispute was legitimate and pursued in good faith, the homeowner could end up being responsible for the insurance company’s attorney fees if they lost. This would give the rich and powerful in our society an unfair advantage.
Such a change would also have the practical effect of closing the courthouse doors to legitimate claims, in violation of Indiana’s Constitution. Specifically, Article 1 Section 12 of our State Constitution that was enacted in 1851 states:
All courts shall be open; and every person, for injury done to him in his person, property, or reputation, shall have remedy by due course of law. Justice shall be administered freely, and without purchase; completely, and without denial; speedily, and without delay.
In assuming that these words mean what they say, let’s keep Indiana’s courts open for our citizens. If you need help with a motorcycle, semi-truck, automobile, or insurance claim, give me a call to discuss your legal rights. The consultation is free, and there is never a fee unless I make a recovery for you.
 U.S. Chamber of Commerce, “Enterprising States 2012,” Accessed January 20, 2012, http://forum.uschamber.com/sites/default/files/Enterprising-States-2012-web_0.pdf.