Illinois Casualty Company v. Kladek
Illinois Casualty Company v. Kladek, Inc. doing business as King of Diamonds, Andra Cheri Moreland, April Puck, Brittany Wilcox, Brooke Marrin, Denise Trlica, Emily Sears, Ina Schnitzer, Jaime Longoria, Jamie Middleton, Jennifer Archuleta, Jessica Burciaga, Jessica Hinton, Jessica Rockwell, Lina Posada, Lucy Pinder, Maysa Quy, Rhian Sugden, Rosie Wicks, Tara Leigh Patrick, and Ursula Mayes
- Donovan Frank
- 0:22-cv-03214
- U.S. District Court · District of Minnesota
- 8
In Illinois Casualty v. Kladek, Judge Frank awarded Kladek $3,138.75 in unpaid defense fees but denied the rest of its attorney fees request.
Businesses or individuals who are insured under commercial insurance policies and are involved in coverage disputes with their insurers — particularly those who have successfully established a duty to defend and now seek reimbursement of legal fees. The ruling clarifies that under Minnesota law, an insurer who actually provides a defense (even under a reservation of rights) has not breached the duty to defend, and therefore the insured cannot recover fees spent litigating the coverage question itself. It also reaffirms that pre-tender legal costs are the insured's own responsibility.
What happened
Illinois Casualty Company v. Kladek, Inc. arose from an insurance coverage dispute. A group of models sued Kladek — a gentlemen's club operating as King of Diamonds — claiming Kladek used their photos in social media advertisements without consent. Kladek's insurer, Illinois Casualty Company (ICC), eventually provided a defense but first filed its own lawsuit asking a court to declare it owed no duty to defend or pay any judgment. Kladek fought back and won on the coverage question, then asked the court to also make ICC pay its legal fees — both for defending the models' lawsuit and for fighting this coverage case.
The court addressed two categories of fees separately. First, regarding fees from the underlying models' lawsuit, Kladek sought reimbursement for legal costs paid before it officially notified ICC of the lawsuit — $28,701.81 — but the court denied that amount because Minnesota law does not require an insurer to cover costs incurred before the insured formally asks for help (called 'tendering' the defense). Kladek also sought full reimbursement for fees incurred after it notified ICC and before ICC took over the defense. ICC had already paid $12,556.59 of a $15,695.34 bill, claiming the parties had agreed to a reduced rate. The court found the record unclear on whether any such agreement existed and ordered ICC to pay the remaining $3,138.75. Second, regarding fees from this coverage lawsuit itself, Kladek argued it should recover those costs because ICC wrongly refused to defend it. The court rejected this argument, finding that ICC had not actually breached its duty to defend — because ICC did provide a defense, even if it did so while reserving its right to dispute coverage.
Judge Donovan W. Frank granted Kladek's motion for fees and costs in part and denied it in part, ordering ICC to pay $3,138.75 but rejecting all other fee requests. The court found that because ICC actually provided a defense (through appointed counsel, under a reservation of rights), ICC did not breach its duty to defend, and therefore the narrow Minnesota legal exception that allows insureds to recover fees from a coverage lawsuit did not apply here.
The detailed version
- Illinois Casualty Company v. Kladek · No. 0:22-cv-03214
- Donovan Frank
- Feb. 18, 2026
Background
This fee petition arose out of an insurance coverage dispute. A group of models (the individual defendants) had sued Kladek, Inc. — which operates King of Diamonds Gentlemen's Club — in a separate federal lawsuit (the "Underlying Suit"), alleging that Kladek used their photos in social media advertisements without consent in violation of federal and state law. Kladek held a Businessowners Policy issued by Illinois Casualty Company (ICC) that included both a Businessowners Liability Coverage Form and a Cyber Protection Endorsement.
Kladek was served in the Underlying Suit in September
- The DeWitt law firm initially defended Kladek, billing $28,701.81 through December 13,
- On December 13, 2021, Kladek first notified ICC and requested a defense (the "tender" date). The DeWitt firm continued to represent Kladek after the tender, billing an additional $15,695.34 through December 31,
- In September 2022, ICC agreed to assume the defense under a reservation of rights (a formal notice that an insurer agrees to provide a defense while preserving its right to later dispute whether it owes coverage), and Stich Angell attorneys appeared in the Underlying Suit in October
- ICC issued a formal Reservation of Rights letter in December 2022.
On December 29, 2022, ICC filed this declaratory judgment action, asking the court to declare it owed no duty to defend or indemnify Kladek. Kladek counterclaimed for a declaration that ICC did owe those duties. The court previously sent the Cyber Endorsement coverage question to arbitration (July 2023), and an arbitration panel concluded ICC owed a duty to defend under that endorsement. In the July 2025 Order, the court additionally granted summary judgment in Kladek's favor, finding ICC must defend the Underlying Suit under the Businessowners Liability Coverage. Kladek then filed the present motion seeking attorney fees and costs for both the Underlying Suit and this declaratory judgment action.
Analysis
Fees for the Underlying Suit — Pre-Tender Period
Kladek sought $28,701.81 for fees incurred by the DeWitt firm before the December 13, 2021 tender date. The court denied this amount. Under Minnesota law, an insurer's duty to defend is not triggered until the insured properly tenders a defense request. Domtar, Inc. v. Niagara Fire Ins. Co., 563 N.W.2d 724, 739 (Minn. 1997). Because there was no evidence Kladek tendered before December 13, 2021, and Kladek offered no basis for departing from the general rule, the court held Kladek was not entitled to pre-tender fees.
Fees for the Underlying Suit — Post-Tender Period
Kladek also sought fees for the post-tender, pre-ICC-defense period. The record showed DeWitt billed $15,695.34 for services during this period. ICC had already paid $12,556.59, asserting the parties had negotiated a reduced-rate payment in full. Kladek disputed this, characterizing the payment as partial. The court found the record unclear as to whether a full-satisfaction agreement existed. Accordingly, the court ordered ICC to pay the remaining balance of $3,138.75 ($15,695.34 minus $12,556.59 already paid). The court noted that ICC's position was reasonable and that its partial payment did not itself constitute a breach of the duty to defend.
Fees for the Declaratory Judgment Action
Kladek sought fees for litigating this coverage case — arguing it was entitled to those fees because ICC wrongfully refused to defend it. This is where the bulk of Kladek's fee request was concentrated.
The court applied Minnesota's "American Rule," under which each party bears its own attorney fees unless a contractual or statutory exception applies. Buckner v. Robichaud, 992 N.W.2d 686, 689 (Minn. 2023). Minnesota courts recognize a narrow exception, derived from Morrison v. Swenson, 142 N.W.2d 640 (Minn. 1966), allowing an insured to recover fees incurred in a declaratory judgment action when the fees arise directly from the insurer's breach of the insurance contract — typically, a wrongful refusal to defend. Courts have consistently limited this exception to situations where the insurer actually breached a duty to defend, and have declined to extend it to declaratory actions seeking only to establish that the insurer must pay money. In re Silicone Implant Ins. Coverage Litig., 667 N.W.2d 405, 425 (Minn. 2003).
The court found the Morrison exception inapplicable here because ICC did not breach its duty to defend. ICC assumed Kladek's defense — albeit under a reservation of rights — and appointed counsel who appeared in the Underlying Suit. The court distinguished the cases Kladek relied upon, noting that in those cases the insurers had either refused to provide any defense or had refused to reimburse for defense costs when they were clearly obligated to do so. Because ICC provided a defense, no breach occurred, and the Morrison exception to the American Rule did not apply. The court therefore denied all fees and costs incurred in this declaratory judgment action.
Disposition
The court granted in part and denied in part Kladek's motion for attorney fees and costs. ICC was ordered to pay Kladek $3,138.75 — representing the unpaid balance of post-tender, pre-defense fees from the Underlying Suit. All other aspects of Kladek's fee request were denied.
Read the full 8-page opinion on CourtListener, the free public archive maintained by the Free Law Project.