Is it possible that if the (plaintiff) files suit against an insurance company for a denied claim and looses the suit , that plaintiff could be responsible for the attorneys fees of the opposing insurance company (defendant)? Also if the hearing is held in small claims court, does that change the rule as to whether the business as defendant is even allowed representation by attorney?
Attorney's fees are rarely available against an opposing party in Minnesota. If the claim is frivolous and if you have been warned that it is frivolous but continue to pursue, a judge can award attorney's fees as a sanction. If the lawsuit is based on a contract (breach of) between two parties, the contract may allow an award of attorney's fees. Additionally, some lawsuits that are based on violations of statutes may allow a recovery of attorney's fees at a judge's discretion. These would include some employment claims, Minnesota Human Rights Claims, and consumer fraud claims, for example.
Parties are allowed to have an attorney represent them in small claims court. That does not change the question of whether or not attorney's fees are allowed. However, there is a cap on the amount of damages that can be claimed in small claims court, and if a party intends to request attorney's fees (where allowed), that additional request may push the claim over the limit and out of small claims court.
It sounds like your claim might be a "dec action" - a declaration of rights. In that kind of action, if an insured proves that s/he should have had insurance coverage, the court sometimes has discretion to award attorneys fees to the insured. If your claim against the insurance company is significant, it might be worth your effort to discuss it with an attorney.
Generally each side must pay their own attorneys' fees. There are exceptions. If your lawsuit is considered frivolous you could be required to pay attorneys' fees. The contract may have a provision requiring payment of attorneys' fees. If you lose a lawsuit you can be required to pay certain litigation expenses, called costs and fees, incurred by the winning party. The costs and fees do not include attorneys' fees. It is my understanding that MN small claims court does not allow an attorney to represent a party. You can check with the local clerk of the District Court to get rules for small claims court.
Regarding your first question about attorneys' fees, the answer depends upon the circumstances. Generally, a defendant may seek recovery of attorneys' fees and costs from the plaintiff if: (1) the defendant is the prevailing party and (2) the case is ruled to be a frivolous lawsuit. The ability to recover in this fashion would typically be upon motion for sanctions, as permitted by state statutes. There may also be other situations where a defendant can recover attorneys' fees and costs; however, it would be burdensome to explain all of the different ways right now. Also, each jurisdiction is different, so there may be some avenues available in Florida, where I mainly practice, that would not be available in your state of residency.
Regarding your second question about legal representation in small claims court, the fact that the lawsuit is filed in small claims court does not rob the defendant of the right to be represented by counsel.
If you are considering filing suit against your insurance company, you should definitely consult an experienced insurance attorney in your area to discuss the validity of your claim. I hope this helps, and best of luck to you.