Treatment of Attorney Fee Awards under Liability Policies-Kennedys | kennedy

0

Insureds may find themselves obligated to pay a plaintiff’s attorney’s fees in various contexts, whether by statute or contractual provision. If the winning party’s attorney’s fees are awarded, the question arises whether the fees are covered by the liability insurer defending the suit.

There is no consensus among US jurisdictions on whether, and to what extent, attorneys’ fees are covered by a liability policy. However, decisions generally fall into one of three categories: (a) the charges are not considered “damage” under the policy’s insurance agreement and are, therefore, outside the coverage field; (b) the fees are covered “damage” under the insurance agreement; or (c) the charge is not “damage” under the policy’s insurance agreement, but is covered under an additional payments provision providing coverage, out of bounds, for “charge imposed to the insured”. Each category is discussed here.

Several jurisdictions hold that legal fees are not considered damages. See for example, Alea London Ltd. vs. Am. Home Services, Inc.638 F.3d 768, 780 (11th Cir. 2011) (“On plain language interpretation, AHS’s argument [that attorneys’ fees are covered as] ‘dispute fee’… is contrary to the ‘ordinary and legal meaning’ of the terms of the Policy[,] …attorney’s fees, although recoverable, are generally not included in ordinary types of damages [under Georgia Law].”); Mut from Vermont. Ins. Co. c. Pear tree189 NE3d 306 (mass 2022).

For example in Mut from Vermont. Ins. Co. c. Pear treethe Massachusetts Supreme Judicial Court overturned a lower court ruling that attorney’s fees were covered. Pear tree, 189 NE3d 306. In that case, Vermont Mutual paid substantial damages under a “business owners liability coverage form” and filed a declaratory judgment action to determine whether it was also liable to pay attorney’s fees under GL c. 93A, § 9 (4). Identifier. at 308-10. Although the court largely focused on the legal reasoning for awarding the fees, the court concluded that these fees are not covered as “damages” under the insurance agreement, which covered ” sums which the insured becomes legally liable to pay as damages due to “bodily injury”. Identifier. at 313.

In finding that these attorneys’ fees are not covered by “damages,” the court noted that attorneys’ fees and damages are conceptually different and serve two different purposes. The purpose of “damages is to compensate for harm,” while awards of attorneys’ fees are designed “to deter wrongdoing and recognize the public interest in bringing wrongdoing to light. ID. at 312. Accordingly, the court concluded that the costs “are not recoverable as damages under the contract of insurance” Identifier. at 313.

Conversely, several other courts have found that “an award of attorneys’ fees is indistinguishable from an award of damages for hedging purposes,” and are therefore covered. Hyatt Corp. vs. Western Fire & Case. Co. of NC, 801 SW2d 382, ​​393 (Mo. Ct. App. 1990); City of Ypsilanti c. Appalachian Ins. Co., 547 F. Sup. 823 (ED Mich. 1982).

For example in City of Ypsilanti c. Appalachian Ins. Co., a federal district court found that attorneys’ fees awarded under a civil rights law were covered by a law enforcement officers’ comprehensive professional liability insurance policy because “a person reasonable in the position of the insured would believe that the words “all sums which the insured will become legally liable to pay as damages would cover all forms of civil liability, including solicitors[‘s] costs.” City of Ypsilanti, 547 F. Supp. at 828. In particular, the court found that “[i]It is reasonable to say that a lawyer[‘s] awarding fees in a civil lawsuit is a form of “damage” that the defendant has agreed to cover, “and whether the parties intended to exclude such fees”[i]t would have been simple enough to exclude [them].” ID. Since fees were not excluded, the ambiguity surrounding attorney’s fee coverage remained and would be resolved against the insurer and in favor of the insured’s coverage. Identifier.

Finally, there is a group of states where the courts have taken a middle-of-the-road approach and found that while an award in effect is not covered as “damage”, it may be covered as “expense imposed to the insured” under the additional payment provision. . Mid-continent case. Co. vs. Treace, 186 So. 3d 11, 12 (Fla. 5th DCA 2015) (“all court costs” could be read to include attorneys’ fees, especially since there was no definition of that term in the policy. “); Wallace v. Nautilus Ins. Co.18-CV-747-LM, 2019 WL 3302172, at *8 (DNH July 23, 2019) (“several courts have interpreted the term [‘costs taxed’] under another state law to include an award of attorney’s fees. ); Littlefield vs. McGuffey979 F.2d 101, 105 (7th Cir. 1992) (if not excluded, attorney’s fees may be covered as “costs”). Byou see Alea London Ltd.638 F.3d at 780 (“[t]he ordinary and statutory meaning of “costs” under Georgian law does not include attorneys’ fees. “). To the extent that expenses are covered as an additional payment, they are usually paid outside the limits of the policy, ie in addition to them.

It is important to note; however, while attorneys’ fees may be covered by the additional payments provision, courts have indicated that the exclusionary language will apply as written. As one court noted, “[i]If an insurer does not wish to guarantee the legal fees charged to its policyholders, it suffices to add… the four words “excluding legal fees”… after the word “expenses”. littlefield, 979 F.2d at 105; Trace, 186 So. 3d at 12 (“the insurer did not, but could have, defined “legal costs” to specifically exclude attorneys’ fees”). In fact, the current ISO Commercial General Liability Form and many other liability forms now expressly state that the additional payment provision only applies to “legal costs” and excludes attorneys’ fees from the arrangement.

Comment

Although attorneys’ fees may not be covered by the insurance agreement as “damages”, they may fall under the additional payments provision of a policy and be payable outside the limits of the policy, as “expenses imposed on an insured”. To the extent that insurers wish to avoid coverage of attorneys’ fees, policies should clearly state that attorneys’ fees are not covered, either as “damages” or under a provision on additional payments.

Share.

Comments are closed.