On February 1, 2010, the Idaho Supreme Court overruled a twenty year precedent interpreting IC 41-1839 (which mandates awards of attorneys fees in “civil actions” involving insurance coverage matters) to require an award of attorneys fees to successful insureds in arbitration proceedings against their insurers, even if the policy was silent on such awards.

In Grease Spot, Inc. v. Harnes, 10.3 ISCR 91 (oddly enough, not even an insurance case), the Supreme Court overruled Emery v. United Pacific Ins. Co, 120 Idaho 244, 815 P.2d 442 (1991), stating it was inconsistent to interpret IC 41-1839 as allowing arbitration attorneys fees, while prohibiting such fees under IC 12-120(3), which mandates fees in “commercial transactions”.

In Grease Spot, a dispute over a purchase agreement of a small company, the parties arbitrated pursuant to a specific provision in the agreement that provided for arbitration, but contained no language regarding an award of fees.  The successful party in the arbitration, in confirming the award, moved for attorneys fees as well, which were denied by the District Court.

On appeal, the Appellant argued it was inconsistent and unfair to award insureds attorneys fees in arbitrations, but deny them to other arbitrating parties.  The Supreme Court agreed, but instead of awarding them fees, it overturned Emery, which for 20 years had read into “every insurance contract a provision granting the insured attorney fees incurred during arbitration when seeking payments due under an insurance policy.”  Emery, supra, at 445.

The impact of the Court’s ruling in Grease Spot means that in arbitrations between insurers and insureds over the coverage provided under their policies (ie: UIM and PIP proceedings), as long as the policy does not provide for an award of attorneys fees, then the insured is not  entitled to fees even if they prevail.

Given this sea change in the law, insurers should examine their Idaho policies and decide whether to revert back to arbitration-only provisions in first-party disputes.  Many companies revised their UIM and PIP policy language to avoid arbitration due to perceived high costs and liberal decisions (especially in Washington, where attorney fees for all prevailing insureds in UIM proceedings are mandated).  At least in Idaho, mandatory arbitration provisions should now be reconsidered.