A recent Law 360 story by Ganesh Setty, “Mass. Justices Told Atty Fee Award Must Be Covered” reports that the Massachusetts Supreme Judicial Court heard oral arguments on whether an attorney fee award constitutes damages "because of" bodily injury, with the dispute appearing to hinge on whether a reasonable policyholder would interpret their policy that way in light of a narrow, inapplicable exclusion exception for such payments.
Vermont Mutual Insurance Co. argued the attorney fee award against its insureds falls outside its "because of" causation standard with respect to bodily injury claims. The recipient of the yet-to-be-paid award, Phyllis Maston, meanwhile highlighted how the policy did not specifically define the term "damages." The Massachusetts high court appeared hesitant to side with Maston, given the award originated from a state consumer protection statute, and Vermont Mutual's policy is a standard form insurance contract used nationwide.
According to court documents, Vermont Mutual insured Paul and Jane Poirier, franchisees of damage restoration chain Servpro, under a business owners policy between December 1998 and December 2001. Phyllis Maston and her late husband, Douglas, hired Servpro to clean out their basement, and Phyllis Maston later suffered a nasal infection she attributed to the cleaning solution Servpro used. The Mastons sued Servpro, and a trial court ultimately found in 2009 that Servpro violated Massachusetts' consumer protection law, Chapter 93A, through its breach of warranty.
As part of Chapter 93A, which empowers consumers to sue businesses for unfair or deceptive practices, a successful petitioner can recover their own attorney fees. The law treats attorney fee awards as separate from awards for damages. Vermont Mutual paid nearly $700,000 to Maston, but refused to cover her award of more than $215,000 in attorney fees, along with another $21,600 in attorney fees following Servpro's unsuccessful appeal of the original judgment, according to court documents.
The insurer subsequently filed a lawsuit against the Poiriers and Maston seeking a court declaration that the total attorney fee award is not covered since it does not constitute insured damages "because of" bodily injury as required by its policy. A lower court sided with Maston in July 2016, noting there are no other cases in Massachusetts directly addressing a coverage dispute like Vermont Mutual's. The court instead pointed to the 2010 Ohio Supreme Court decision in Neal-Pettit v. Lahman, which involved language similar to Vermont Mutual's policy, and found that attorney fees do qualify as damages because of bodily injury.
Vermont Mutual maintained in its high court briefs that since the policy used "because of," rather than a broader term like "arising out of," the attorney fee award is not covered, especially since Chapter 93A treats damages and attorney fee awards as separate remedies. The insurer further argued that an exception to a contractual liability exclusion in the policy explicitly treats an attorney fee award as damages because of bodily injury only when there's an insurance contract between its insured and another party, and the parties can be jointly represented in a civil dispute.
While a policyholder reading the policy may initially think an attorney fee award constitutes covered damages, "you can't find ambiguity just because you stopped reading," Peter E. Heppner, counsel for the insurer, told the high court's seven justices. Although inapplicable, the exclusion exception illustrates that the policy did not intend to broadly treat attorney fees as damages because of bodily injury, he said. Justice Scott L. Kafker asked Heppner, with respect to Maston's attorney fee award: "I understand that it's two or three steps removed, but it all arises out of the fact that there's an injury, doesn't it?"
"'Arises out of' is an interesting choice of words," Heppner responded. "When the policy has 'arising out of' in several exclusions, and then 'because of' here — and we know that the Supreme Court has said 'because of' is 'but for' — there has to be a distinction between those words."
When asked by Justice Dalila Argaez Wendlandt why the exclusion exception didn't put a reasonable insured on notice that the attorney fees may not otherwise be covered, Timothy P. Wickstrom, an attorney representing Maston, said the exclusion exception was inapplicable to the case to begin with. It only concerns defense costs for the insured and the other party it contracts with, not attorney fee awards adverse to an insured, he argued. If Vermont Mutual wanted to broadly bar coverage for attorney fees, one sentence stating so would have sufficed, he added. The insurance policy at issue is a standard form insurance policy, Justice Kafker further noted. "That's where it gets me nervous."
"Here [in] Massachusetts, we've got this particular 93A attorney fee provision that's idiosyncratic, and we're applying it to these nationwide forms, right?" he asked. The coverage dispute is not about Chapter 93A's separate treatment of damages and attorney fees, but whether attorney fees are covered under the policy, Wickstrom responded. Wickstrom further highlighted that part of the total attorney fee award under Chapter 93A includes Servpro's unsuccessful appeal of the judgment in the underlying case.
"In a situation where Vermont Mutual had a duty to defend, had a duty to indemnify — the defendants, their insureds, were on the hook for the appeals court fees," he said. "How unfair is that?" "Just create all the complexities of 93A attorneys fees, which probably no one ever thought about when they created this sort of extra remedy for everybody," Justice Kafker quipped.