Employers Mutual Casualty Co. v. Donnelly, 300 P.3d 31

EMC insured RCI under a Commercial General Liability Policy; EMC filed a declaratory judgment to determine if it must pay damages, costs, and attorney fees in the underlying Donnellys v. RCI case.
The underlying action against RCI awarded $126,611.55 in damages and $296,933.89 in costs and attorney fees; the court found damages not covered but costs/fees covered.
A settlement in the declaratory action and the underlying action was reached on August 17, 2009, with RCI dropping counterclaims and EMC continuing defense.
The district court, via orders in 2010–2011, held EMC must pay the $296,933.89 in costs/fees taxed against RCI but found the damages award non-covered.
The district court also denied Donnellys’ requests for attorney fees under I.C. § 12-120(3) and I.C. § 41-1839; the Donnellys and EMC cross-appealed on coverage and fees.
The Idaho Supreme Court affirmed, holding EMC must pay costs/fees taxed against its insured, but the damages were not covered and no fees awarded under the statutes in favor of the Donnellys.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does EMC owe attorney fees and costs taxed against its insured where damages are not covered by the policy?	Donnnellys argue costs/fees should be paid under policy terms and Harvey allows cost shifting.	EMC argues no duty to pay costs/fees where damages aren’t covered.	Yes; EMC must pay costs/fees taxed against its insured.
Does EMC have a duty to indemnify RCI for damages awarded to Donnellys?	Donnnellys contend damages were covered as tort/damages.	EMC argues damages were contract-based and excluded.	No indemnity for the contract-based damages.
Are Donnellys entitled to attorney fees under I.C. § 12-120(3)?	Donnnellys claim fee entitlement for commercial transaction with EMC.	EMC asserts no direct commercial relationship between Donnellys and EMC.	Not entitled under I.C. § 12-120(3).
Are Donnellys entitled to attorney fees under I.C. § 41-1839?	Donnnellys argue they are the persons entitled to sums under the policy.	EMC argues Donnellys aren’t insured and failed proof-of-loss requirements.	No; Donnellys not entitled under I.C. § 41-1839.
Are there appellate attorney fees under I.C. § 41-1839?	Donnnellys seek fees incurred on appeal.	EMC contends not applicable as no policy entitlement.	Not awarded on appeal.

Mutual of Enumclaw Ins. Co. v. Harvey, 115 Idaho 1009 (Idaho 1989) (costs/attorney fees framework under reservation of rights and supplementary payments)
Sumpter v. Holland Realty, Inc., 140 Idaho 349 (Idaho 2004) (damages breach of implied warranty treated as contract-based; coverage analysis depends on duty beyond contract)
Taylor v. Herbold, 94 Idaho 133 (Idaho 1971) (contract vs. tort duty distinctions in determining liability)