If you’re a business owner or an insurance company, this is a very important factor to keep in mind for being liable for attorney’s fees. Say you have a case where there are damages or liability and you sue another party, if you have insurance that would cover that potential loss. That insurance will kick in for attorney’s fees. However, if the other party makes you an offer to settle and you don’t accept that offer, any attorneys fees that are needed above and beyond that settlement amount may be something that has to be adjudicated by the court.
If the insured prevails at trial, the insurance company can get attorney’s fees but only after they prove first of all that they did not accept the settlement offer and that the attorney’s fees have to be reasonable. They can’t be arbitrary or made-up numbers. This kicks in a lot with lawsuits.
So let’s say you sue someone for $50,000 and they make you an offer to settle for $30,000, but you deny the offer, go to trial, and both sides rack up attorney’s fees. And maybe a judgment is issued for $40,000. Well, the other side and your insurance company can say if you accepted the $30,000, you wouldn’t have all of these attorney’s fees. The other side can request those attorney’s fees. Your insurance company, if they provided you with defense coverage, can also make a claim for you for those attorney’s fees and vice versa. The insurance company might be required to pay them to the other side.
So be aware of that, you want to get good legal advice from an attorney about this type of scenario, we’re not attorneys. Make sure that your commercial policy has the right language for defense coverage and that you know what the liability limits are if there are any that will put you out of business if you have to pay a certain amount that you can’t afford. This might be something you want to have coverage for. And if you’re entering into settlement negotiations, you want to make sure that you know what you’re rejecting is not the initial offering. You may also be waiving some right to attorney’s fees that you have to pay later.