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July 13, 2022

Legal Update
John G. O'Neill, Jessica H. Park

Award of Attorney’s Fees Under Chapter 93A Does Not Constitute “Damages Because of ‘Bodily Injury'” Covered By a Businessowners Liability Policy, SJC Holds

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Attorney’s fees awarded to a plaintiff who suffered bodily injury due to an insured’s violation of Chapter 93A were not covered under the insured’s businessowners liability insurance policy, the Massachusetts Supreme Judicial Court recently concluded. The SJC’s decision, Vermont Mutual Insurance Company v. Poirier, confirms an important principle: that a statutory award of attorney’s fees, which is aimed at disincentivizing wrongful conduct rather than compensating a plaintiff for an injury, does not constitute covered “damages” for purposes of a liability policy such as the one at issue in the case.

The insured in Vermont Mutual operated a cleaning business. After a customer developed severe respiratory problems from exposure to chemicals the insured used in its cleaning processes, the customer sued the insured for breach of contract, negligence, and violations of G. L. c. 93A based on breaches of the warranty of merchantability and the warranty of fitness for a particular purpose.

The trial judge ruled in favor of the injured plaintiff on her c. 93A claims, finding that the cleaning business committed an unfair or deceptive act by breaching the implied warranty of merchantability. The judge awarded the plaintiff and her husband approximately $270,000 in actual damages, $215,328 in attorney’s fees, and roughly $15,000 in costs. 

After the award was affirmed on appeal, Vermont Mutual paid the plaintiff $696,669.48, representing the insured’s liability in the underlying action except for attorney’s fees and interest thereon. It then filed a declaratory judgment action asserting that its policy did not provide coverage for the attorney’s fee award.

The policy in question provided that Vermont Mutual would pay “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ . . . to which this insurance applies.” Attorney’s fees, Vermont Mutual argued, were not “damages because of ‘bodily injury'” and therefore were not covered.

The lower court disagreed and granted summary judgment for the plaintiff, holding that there was coverage for the award of attorney’s fees. The SJC, however, reversed the motion judge’s decision, concluding that attorney’s fees under G. L. c. 93A are not awarded as “damages because of ‘bodily injury.'” 

Damages and Attorney’s Fees Serve Two Different Purposes and Are Thus Treated Differently 

After noting that “damages caused by bodily injury refer to the physical injuries and the money damages required to compensate them,” the court found that “[a]ttorney’s fees expended to pursue a c. 93A claim are different. They reflect the cost of bringing suit to recover the c. 93A relief requested.”

The SJC noted that fee-shifting statutes like c. 93A allow a court to diverge from the “American rule” that each side pay its own attorney’s fees and instead “award both damages and attorney’s fees…” However, the court found that the statute’s provision for attorney’s fees was a “separate form of relief distinct from the award of damages.” Damages and an award of attorney’s fees, the court observed, “serve two different purposes — damages are to compensate for the injury, and awards of attorney’s fees are to deter misconduct and recognize the public benefit of bringing the misconduct to light.” In view of this conceptual difference, the attorney’s fees awarded under c. 93A were not “damages” for purposes of the insurance contract and were not covered.

The court also examined whether there was coverage for the attorney’s fees award under a separate provision of the policy that provided coverage for “[a]ll costs taxed against the insured in the ‘suit’,” but found that this provision did not cover the fee award either. The court found that the policy’s reference to costs “taxed” against the insured conveyed a narrower, technical meaning of court-related or nominal costs recoverable as a matter of course to prevailing parties, and did not include attorney’s fees.

If you have questions about this decision and how it could impact your business, please contact one of the insurance and reinsurance attorneys at Sugarman Rogers.