Worsham v. Greenfield, 2013 Md. LEXIS 823, No. 139, Sept. Term, 2009 (October 23, 2013)
In this long-awaited decision, the Court of Appeals of Maryland ruled that, pursuant to Maryland Rule 1-341, litigation costs may be awarded to a defendant who is forced to defend itself against claims brought without substantial justification, even if the actual costs of the defense were paid for by the defendant’s insurance company.
The underlying litigation arose out of a dispute between two neighbors that resulted in, what the Court described as, “scorched earth” litigation. The neighbors defending themselves against the claim maintained a homeowners’ insurance policy that provided them with a defense to the claims. When the litigation concluded in their favor, the defendants filed a motion for attorney’s fees and costs under Maryland Rule 1-341. The Circuit Court awarded the fees, even though the defendants did not actually pay for their defense costs themselves.
Maryland Rule 1-341 allows the court to require a party who maintains or defends a civil action, in bad faith or without substantial justification, to pay the reasonable costs, including attorney’s fees, that were “incurred by” the adverse party in opposing it. As the case made its way up to the Court of Appeals, the neighbors argued that these defendants were not entitled to the fees awarded under Maryland Rule 1-341 because they did not personally “incur” the fees. They argued that the defendants’ insurance company incurred the fees and, because the insurance company was not a party to the case, Maryland Rule 1-341 did not apply.
The Court of Appeals disagreed. It explained that the purpose of Maryland Rule 1-341 is to deter abusive litigation. Whether the party personally paid for the litigation costs that it incurred in defending itself, or whether some outside source or third party, such as an insurance company, actually pays those costs, it is the party who incurs the cost of litigation. Thus, the Court affirmed the Court of Special Appeals’ opinion and costs were awarded to the defendants for the costs attributable to their defense.