Punitive Damages Based on Attorney Fees
The plaintiff motorist obtained a judgment of compensatory and punitive damages, as well as an award of attorney fees based solely on the punitive damages, against the defendant motorist in connection with an auto accident. Subsequently, the plaintiff filed a supplemental complaint against the defendant's insurer after the insurer denied payment of the punitive damages and the attorney fees. The trial court granted summary judgment to the plaintiff, the appeals court affirmed, and the case then went to the Ohio Supreme Court. This case is Neal-Pettit v. Lahman, 928 N.E.2d 421 (2010).
Neal-Pettit filed a lawsuit against Lahman for compensatory and punitive damages due to an auto accident. The case was heard before a jury and Neal-Pettit was awarded compensatory damages, punitive damages, and attorney fees; the court set the amount of attorney fees at $46,825. Lahman had an auto policy with Allstate Insurance Company. The insurer paid the compensatory damages but denied payment of the punitive damages and attorney fees. Neal-Pettit then filed a lawsuit against the insurer.
When the case came before the Ohio Supreme Court, the court accepted jurisdiction based on three issues: whether it is against public policy for an insurer to pay an attorney fee award made in conjunction with a punitive damages award; whether an attorney fee award can be characterized as damages because of bodily injury as required for coverage under the auto policy; and, whether the policy term excluding coverage of punitive or exemplary damages, fines or penalties excludes coverage of attorney fees that are awarded in conjunction with a punitive damages award.
The insurer argued that its policy insuring clause did not agree to cover awards of attorney fees since the insuring agreement only applied to damages and attorney fees are not damages. In addition, the insurer said that the attorney fee award is an element of the punitive damages award and thus are not awarded as a result of bodily injury. The court said that it was true that the policy did not discuss attorney fees within the insuring clause; however, Ohio case law established that a jury may in its estimate of compensatory damages take into consideration and include reasonable fees of counsel employed by the plaintiff. As for punitive damages, the court said that in this case, attorney fees awarded as a result of punitive damages could also stem from the underlying bodily injury. The court noted that the language of the policy does not limit coverage to damages solely because of bodily injury. Attorney fees may therefore fall under the policy's general coverage of damages that an insured is legally obligated to pay because of bodily injury.
Allstate also argued that the policy excluded coverage of punitive or exemplary damages, fines, or penalties, and since the attorney fees in this case were granted as a result of punitive damages awarded by a jury upon a finding of malice, the fees were excluded. The court countered that the exclusion did not refer in any way to attorney fees or litigation expenses. It specifically mentions only punitive or exemplary damages and these are conceptually distinct from attorney fees. Therefore, since the term “punitive or exemplary damages” does not clearly and unambiguously encompass an award of attorney fees, and since the language of the exclusion is that of the insurer, the ambiguity is construed against the insurer.
The final argument put forth by the insurer was that it is against Ohio's public policy for an insurer to pay attorney fees on behalf of its insured when those fees are awarded solely as a result of a punitive damages award. The court said that it is true that public policy (and state law) prevents insurance policies from insuring against claims for punitive damages. However, the court pointed out that the statute mentions only punitive and exemplary damages, not attorney fees and the court would not add the fees on its own volition. The court found that payment by an insurer of an attorney fee award violates neither public policy nor the state law.
The judgment of the lower courts court was affirmed.
Editor's Note: In this case, the Ohio Supreme Court made a distinction between punitive damages and attorney fees, even though those fees were awarded as a result of punitive damages. Add to this the court's finding the policy language to be ambiguous on the issue, and the ruling against the insurer seems inevitable. Insurers usually rely on policy language or public policy to prevent the insurance policy from paying an award of punitive damages, but as this case shows, interpretation of policy language and coverage itself is still subject to judicial review.