Mass. Supreme Rules Attorney Fees are Not Part of Insured Damages

The Massachusetts Supreme Judicial Court has ruled that attorney’s fees from a consumer protection lawsuit are not covered as part of bodily injury damages under a business liability policy, reversing a lower court that had found they were covered.

Attorney’s fees are not awarded as “damages because of ‘bodily injury'” and are not “costs taxed against the insured,” as required by a Vermont Mutual Insurance Co. businessowners liability policy, Justice Scott L. Kafker stated in the court’s July 6 decision in Vermont Mutual Insurance Co. v Paul Poirier.

The Poiriers were sued by another couple, the Mastons, who hired their Servpro firm to clean up their basement following a sewage backup. The Mastons sued the Poiriers for damages after Mrs. Maston suffered respiratory ailments caused by chemicals from a disinfectant Servpro used in its cleaning.

The Mastons originally sued the Poiriers for breach of contract, negligence, and violations of the Massachusetts consumer protection law, Chapter 93A, on breaches of the warranty of merchantability and the warranty of fitness for a particular purpose. Shortly before trial, the Mastons waived their contract and negligence claims and proceeded to a bench trial on the Chapter 93A claims alone.

The Poiriers’ business insurer, Vermont Mutual Insurance Co., paid the substantive damages on the bodily injury claim — $696,669.48, which represented all of the Poiriers’ liability to the Mastons except for their attorney’s fees and interest. The insurer then asked for a declaratory judgment as to whether it was also responsible for the Mastons’ attorney’s fees. The Poiriers claimed their insurer should cover the attorney’s fees in addition to the costs of the bodily injury.

The business policy’s liability coverage form provided that Vermont Mutual would pay for “damages because of bodily injury.” It also provided that Vermont Mutual had a duty to defend the insured against any “suit seeking those damages.” A supplementary payments provision also stated that in addition to the limit of insurance, the insurer would also pay certain expenses related to the claim or suit covered by the policy, including “[a]ll costs taxed against the insured in the ‘suit.’

A judge of the Superior Court held that the policy did cover the attorney’s fees and an appeals judge upheld that. However, the high court has now reversed.

The trial judge found that Servpro had violated Chapter 93A by committing a breach of the implied warranty of merchantability, although he did not find that it had acted knowingly or willfully and therefore did not award multiple damages. Based on Mrs. Maston’s injuries, he found damages for $696,669.48. Having established a violation of Chapter 93A, the judge also imposed liability for costs and attorney’s fees. The judge found that the Mastons were entitled to $215,328.00 in fees and $15,447.61 in costs.

The trial court judge held that the award of attorney’s fees fell into the policy’s coverage for sums that the insured becomes legally obligated to pay as “damages because of ‘bodily injury,'” and therefore Vermont Mutual had to cover the them. The judge, however, rejected the alternative argument that attorney’s fees were covered by the provision in the policy that authorized the payment of costs.

The appeals court affirmed both the substantive findings and the award of attorney’s fees and costs, and imposed further appellate attorney’s fees of $21,600 and appellate costs of $1,970,35. Vermont Mutual appealed, and the state’s high court took on the matter.

The primary issue was the clause providing liability coverage, which states that Vermont Mutual will pay those sums that the insured becomes legally obligated to pay as “damages because of bodily injury.”

There was no dispute that the attorney’s fees themselves were not “bodily injury,” either under the definition in the policy or according to the plain meaning of the term. The disagreement stemmed from the words connecting the two — whether the insureds were liable for the attorney’s fees “as damages because of” Mrs. Maston’s bodily injury.

On its face, Judge Kafker wrote, damages caused by bodily injury refer to the physical injuries and the money damages required to compensate them. But attorney’s fees for Chapter 93A claims are different. They reflect the cost of bringing suit to recover the 93A relief and parties are ordinarily responsible for paying their own attorney’s fees, even if they succeed.

While there are fee-shifting provisions that allow courts to award both damages and attorney’s fees, “that does not mean they award attorney’s fees as damages,” according to the court.

“Damages and attorney’s fees are conceptually different, and are so recognized under that chapter. The insurance contract here only provides for the recovery of ‘damages.’ Therefore, attorney’s fees awarded pursuant to G. L. c. 93A are not recoverable as damages under the insurance contract,” Judge Kafker wrote.

Regarding the provision for the insurer to pay costs “taxed against the insured,” the court concluded that this provision does not cover statutory awards of attorney’s fees. Again, the court distinguished between costs and attorney’s fees, ruling that the word “costs,” as applied to proceedings in court, “ordinarily means only legal or taxable costs, and does not include attorneys’ fees.”

The Mastons pointed out that, after the Vermont Mutual policy was issued, the Insurance Services Office amended the supplemental payments provision to expressly provide that the payments for costs “do not include attorneys’ fees or attorneys’ expenses taxed against the insured.” But the Massachusetts high court said that the “absence of an express exclusion does not operate to create coverage” in the policy in this case, even if other policies contain an express exclusion.

The American Property Casualty Insurance Association and the Complex Insurance Claims Litigation Association submitted amicus briefs in the case.