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. The case is VT. Mut. Ins. Co. v. Poirier, 490 Mass. 161 (2022).
The Poiriers operated a cleaning business, Servpro, insured with a policy including a "Businessowners Liability Coverage Form" by Vermont Mutual, effective from December 17, 1998 – December 17, 2001. According to the policy, Vermont Mutual agreed to "pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury,' 'property damage,' 'personal injury' or 'advertising injury' to which this insurance applies." The policy also provides the insurer the "right and duty to defend the insured against any 'suit' seeking those damages." The policy continues by stating that "[n]o other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under the Supplementary Payments section.
During the policy term, Douglas and Phyllis Maston hired Servpro to clean up a sewage spill in their basement. Servpro workers removed contaminated materials, cleaned the basement, and applied disinfectants. The workers warned Phyllis to stay out of the basement while they applied the products, but failed to warn her that being in the basement could be dangerous until the disinfectant dried. Over the next few days following the application of the disinfectants, Phyllis continued cleaning the basement. Soon after, she developed ongoing respiratory problems, which her doctors determined was caused by exposure to chemicals that were used in Servpro's cleaning products.
The Mastons sued the Poiriers for breach of contract, negligence, and violations of Massachusetts code Chapter 93A, including breaches of warranty of merchantability and the warranty of fitness for a particular purpose. The Matsons waived their contract and negligence claims shortly before trial, and proceeded to a bench trial on the Chapter 93A claims alone.
Vermont Mutual paid the substantive damages on the bodily injury claim, nearly $700,000, which represented all of the Poiriers' liability to the Matsons 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 attorney's fees. The Poiriers claimed Vermont Mutual should cover the attorney's fees as well as the costs of the bodily injury.
The trial judge found that Servpro violated Chapter 93A by committing a breach of the implied warranty of merchantability, but did not find knowing or willful actions and therefore did not award multiple damages. Due to the severity of Mrs. Matson's injuries, he found damages for $696,669, and also imposed liability for attorney's fees and costs in the amount of $215,328 and $15,447 respectively. The trial judge held that the attorney's fees fell into the policy's coverage for sums that the insured became legally obligated to pay as "damages because of 'bodily injury,'" and therefore Vermont Mutual had to cover them. The judge rejected the alternative argument that attorney's fees were covered by the provision in the policy authorizing the payment of costs.
The appeals court affirmed, Vermont Mutual appealed, and the state high court took on the matter.
At 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."
The parties did not dispute that the attorney's fees themselves were not "bodily injury," the dispute stemmed from whether the insureds were liable for the attorney's fees "as damages because of" Mrs. Matson's bodily injury.
In the opinion, the judge noted that damages caused by bodily injury refer to the physical injuries and money damages required to compensate them, but attorney's fees for Chapter 93A claims instead reflect the cost of bringing the suit to recover the 93A relief and parties are ordinarily responsible for paying their own attorney's fees even if they succeed. Under Chapter 93A, damages and attorney's fees are conceptually different, and thus attorney's fees are not recoverable under an insurance contract. The court further distinguished between costs and attorney's fees, finding that the word "costs," as applied to proceedings in court, "ordinarily means only legal or taxable costs, and does not include attorneys' fees."
Editor's Note: After the Vermont Mutual policy was issued, the Insurance Services Office, ISO, amended the supplemental payments provision to expressly provide that the payments for costs "do not include attorney's fees or attorney's 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. Just because ISO took action to further clarify the provision later, does not mean that the clause was ambiguous to begin with.