a. Legal authority to award attorney's fees
A determination that the legal authority exists to award attorney's fees is a conclusion of law which the Montana Supreme Court reviews for correctness. Mlekush v. Farmers Ins. Exch., 2015 MT 302, ¶ 8, 381 Mont. 292, 358 P.3d 913; see also Houden v. Todd, 2014 MT 113, ¶ 19, 375 Mont. 1, 324 P.3d 1157; Chase v. Bearpaw Ranch Ass'n, 2006 MT 67, ¶ 14, 331 Mont. 421, 133 P.3d 190. "Our review of a district court's legal conclusion that no basis for attorney fees exists is plenary." Tanner v. Dream Island, 275 Mont. 414, 429, 913 P.2d 641, 650 (1996) (internal citations omitted).
Montana follows the American Rule regarding attorney's fees that "in the absence of a specific contractual or statutory grant . . . the prevailing party in an action is not entitled to an award of attorney fees either as costs of the action or as an element of damages." Foy v. Anderson, 176 Mont. 507, 511, 580 P.2d 114, 116 (1978). Exceptions exist.
The district courts have equity power to grant complete relief, including attorney's fees, absent statutory authority on a case-by-case basis. Foy, 176 Mont. at 511, 580 P.3d at 116–117. We have narrowly construed this exception to apply only to cases "where the action into which the prevailing party has been forced is utterly without merit or frivolous." Erker v. Kester, 1999 MT 231, ¶ 44, 296 Mont. 123, 988 P.2d 1221. See Foy v. Anderson, 176 Mont. 507, 580 P.2d 114 (1978) (awarding attorney's fees where a litigant sought to join respondent as a third party in a lawsuit alleging that respondent had filed a claim against him when in fact she had filed no such claim); Holmstrom Land Co. v. Hunter, 182 Mont. 43, 595 P.2d 360 (1979) (awarding attorney's fees where a landowner sued a water commissioner when the commissioner shut off the landowner's headgate at the court's order); Stickney v. State, Cnty. of Missoula, 195 Mont. 415, 636 P.2d 860 (1981) (awarding attorney's fees where courtroom spectators sued a justice of the peace where no basis for personal liability existed). Award of attorney's fees under this exception is discretionary and is therefore reviewed for abuse of discretion. Boehm v. Cokedale, LLC, 2011 MT 224, ¶¶ 24–29, 362 Mont. 65, 261 P.3d 994.
We have upheld a grant of attorney's fees as a measure of damages in a case where a litigant took "reprehensible" self-help action in a water dispute. Cate v. Hargrave, 209 Mont. 265, 274–75, 680 P.2d 952, 957 (1984). We have upheld a grant of attorney's fees in a contempt action to enforce the terms of a divorce decree. In re Marriage of Redfern, 214 Mont. 169, 692 P.2d 468 (1984).
A second exception to the American rule is the insurance exception. Winters v. State Farm Mut. Auto. Ins. Co., 2014 MT 168, 375 Mont. 351, 328 P.3d 665. Under this exception "an insured is entitled to recovery attorney fees . . . when the insurer forces the insured to assume the burden of legal action to obtain the full benefit of the insurance contract." Mountain West Farm Bureau Mut. Ins. Co. v. Brewer, 2003 MT 98, ¶ 36, 315 Mont. 231, 69 P.3d 652. "Such award is not discretionary, and as such does not require a lower court to consider the issue in the first instance." Winters, ¶ 32. This exception applies to situations where an insurer breaches its duty to defend as well as situations where an insurer breaches its duty to indemnify. Mountain West, ¶ 36.
"Whether an injured third-party claimant who prevails in an insurance coverage action against a motor vehicle liability insurer may recover his or her attorney fees is a question of law" which is reviewed for correctness. Mountain West, ¶ 7. We have held that the insurance exception applies only to direct beneficiaries of the insurance contract. Mountain West, ¶ 40.
b. Decision to grant or deny attorney's fees
"If legal authority exists to award attorney's fees, we review for abuse of discretion [a district court's] decision to grant or deny the fees." Wohl v. City of Missoula, 2013 MT 46, ¶ 29, 369 Mont. 108, 300 P.3d 1119; see also Chamberlin v. Puckett Constr., 277 Mont. 198, 206, 921 P.2d 1237, 1242 (1996); Boehm v. Cokedale, L.L.C., 2011 MT 224, ¶ 12, 362 Mont. 65, 261 P.3d 994.