In Texas, if proper presentment of a claim is made pursuant to Section 38.001 of the Texas Civil Practice and Remedies Code, a party that sues another for breach of an oral or written contract is entitled to recover, in addition to the amount of the underlying contract claim, its reasonable attorney's fees. This statute also extends the ability to recover attorney's fees to claims for services rendered, labor performed, and material furnished, among others.
In the past, a company sued for breach of contract was "on its own." In other words, the company was responsible for paying any settlement, judgment, and/or attorney's fees incurred in defending the action. The fact of the matter is that traditional commercial general liability policies do not cover insureds for claims for breach of contract. However, it appears that a new line of coverage is being offered by at least one insurance carrier that would offer insurance coverage "that pays for attorneys' fees if the covered party loses at trial or summary judgment." I understand that it was initially rolled out in California, and is now expected to be written in several other states, including Texas.
In commercial/contract disputes, attorney's fees can often far exceed the amount of the underlying amount in controversy, and it is not uncommon for an attorney representing a plaintiff in a commercial dispute to threaten to "run up" the attorney's fees in an effort to squeeze the defendant business into settling an otherwise tenuous lawsuit to avoid the uncertainty of potentially facing a considerably larger verdict following a trial on the merits.
The ability of a business to have insurance coverage for "loser pays" attorney's fees would offset the settlement negotiation leverage mentioned above because it would eliminate uncertainty. With this coverage, a business owner who is sued for breach of contract would be able to assess the company's risk based solely on the amount of the contract damages and not based on the uncertainty of what amount a jury might award for attorney's fees following a trial on the merits.
I have been unable to date to obtain an actual insurance policy containing this new line of coverage, but I suspect that the underwriting guidelines are strict with coverage being limited to established businesses that have been involved in a limited number of lawsuits involving contract claims. Moreover, I suspect that even with breach of contract coverage, substantial litigation will ensue regarding whether the insured knew or should have known of the potential that it would either need to sue for breach of contract or would be sued for breach of contract when the policy application was completed.