State Farm offered to settle Ms. King's claim for $20,000, but Ms. King declined the offer.

A jury subsequently found that Ms. King had suffered damages in the amount of $410,000.

The district court entered judgment against State Farm in the amount of $50,000 – the policy limit – along with "interest and taxable costs." Thereafter, it awarded Ms. King $20,000 in attorneys' fees pursuant to the 40 percent contingency fee arrangement she had with her attorney.

The district court denied all of her claimed litigation expenses and costs because they were not filed within five days of the jury's verdict as required by Montana law.

Mr. King appealed to the Supreme Court of Montana, arguing that the timing requirement of Montana Code Section 25-10-501 applied only to taxable costs found in Section 25-10-201 and that she should have been granted her request for nontaxable costs in the form of litigation expenses not covered by the statute.

The Montana Supreme Court's Decision

The Supreme Court of Montana explained that, as a general rule, the award of costs to a prevailing litigant was governed by statute and included a requirement that the party claiming costs submit a memorandum of costs within five days.

The court added that because Ms. King had not filed a memorandum of costs within five days of the jury's verdict, to the extent that her motion for attorneys' fees and litigation expenses claimed costs listed in Section 25-10-201, the trial court had correctly denied her request for those costs.

The court then agreed with Ms. King that the trial court had erred by applying "this rigid statutory framework" to her request for nontaxable costs.

The court explained that Montana generally follows the American Rule regarding attorneys' fees, where each party ordinarily was required to bear its own expenses absent a contractual or statutory provision to the contrary.

However, the court added, it also recognized several "narrow exceptions" to the American Rule, including the "insurance exception," which applied whenever an insurer forced its insured to assume the burden of litigation to obtain what the insured was entitled to under an insurance contract.

The court pointed out that Ms. King's case arose out of State Farm's failure to provide UIM benefits to her after an accident. The court said that after State Farm offered Ms. King only $20,000, "well below the policy limit of $50,000," Ms. King "was forced to take the matter to trial, where a jury determined that she had suffered $410,000 in damages in the accident, to recover the benefits to which she was entitled from the insurance contract with State Farm."

The court declared that Ms. King's case fell "under the insurance exception to the American Rule."

The court then held that the insurance exception to the American Rule allowed an insured to recover both taxable and nontaxable costs from an insurer when the insured was forced to assume the burden of legal action to obtain the full benefit of his or her policy.

The court said that, to recover taxable costs, the insured must submit a memorandum of costs within the time required by Section 25-10-501. The court then declared that, to recover nontaxable costs pursuant to the insurance exception, the insured must submit a request for those nontaxable costs "contemporaneously with, or before," a request for attorneys' fees. The court stated that a request for nontaxable costs under the insurance exception to the American Rule must be made by this time to facilitate the "uniform, timely notification of what costs [were] claimed and enable[] the opposing party to enter an objection."

Here, the court found, the trial court had correctly awarded Ms. King her attorneys' fees pursuant to the insurance exception to the American Rule and had correctly denied her request for taxable costs pursuant to Section 25-10-201 as untimely.

It concluded, however, that because Ms. King should have been allowed to request her nontaxable costs even after filing her motion past the five-day limit imposed by Section 25-10-501, the trial court had erred when it denied Ms. King's request for her nontaxable litigation expenses incurred due to State Farm's behavior. The court remanded to the trial court to determine the amount of nontaxable costs to be awarded to Ms. King.

The case is King v. State Farm Mutual Automobile Ins. Co., No. DA 18-0503 (Mont. Sep. 3, 2019). Attorneys involved include: For Appellant: Terryl T. Matt, Matt Law Office, PLLC, Cut Bank, Montana. For Appellee: Paul R. Haffeman, Stephanie A. Hollar, Davis, Hatley, Haffeman & Tighe, P.C., Great Falls, Montana.