The Supreme Judicial Court (SJC) has decided in favor of Vermont Mutual on the question of whether a covered breach of warranty judgment under G.L. c. 93A for bodily injuries necessarily includes the contractual obligation for the insurer to pay attorney fees. See Agency Checklists’ article of April 12, 2022, “Vermont Mutual Asks High Court to Reverse Decision $215,000 Attorney Fee Award Payable As Damages under Bodily Injury Coverage.”
An uninsured risk for attorney fees awarded under G. L. c. 93A
This decision highlights for independent insurance agencies, insureds, and their insurers the uncovered risk product liability claims brought under G.L. c. 93A may pose. Breaches of warranty are defined by the Attorney General’s regulations as violations of G.L. c. 93A. Products liability coverage will protect an insured up to the policy limit for legal liability for breach of warranty damages. However, based on the Vermont Mutual decision, an insured may be covered for a bodily injury claim brought under G.L. c. 93A, but they must pay any mandatory award of attorney fees allowed under G.L. c. 93A out of their own pocket.
The broad reach of G.L. c. 93A liability
General Laws Chapter 93A is a statute that prohibits unfair and deceptive acts and practices in commerce or trade in the Commonwealth. The statute allows for individuals and businesses to sue for damages and recover up to treble damages and attorney fees for proven violations of the act.
Until relatively recently, insurance-related 93A claims involved almost exclusively suits by insureds and claimants against insurers alleging unfair claim practices. However, there are suits under M. G.L. c. 93A that can trigger policy coverage, notwithstanding that the statute prohibits “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”
Unfair and deceptive acts are undefined in G.L. c. 93A
Chapter 93A does not define what constitutes an unfair or deceptive business practice. Instead, the Legislature granted the Attorney General authority to issue regulations defining unfair and deceptive acts regarding business practices of commercial entities.
One of the regulations the Attorney General issued defines a business’ breach of a warranty involving a consumer product or service as a violation of c. 93A. This regulation states:
It shall be an unfair and deceptive act or practice to fail to perform or fulfill any promises or obligations arising under a warranty. (940 CMR § 3.08)
In construing this regulation of the Attorney General, the SJC has ruled that “Generally, a breach of warranty constitutes a violation of G.L.c. 93A…”
More particularly, for insurance purposes, the SJC has also stated, where a business’s alleged breach of warranty caused personal injuries, “We see no reason to exclude injury to the person from the category of injuries cognizable under G.L.c. 93A.”
As a result of this regulation and the SJC’s rulings, a commercial liability policy may have coverage for product liability claims alleging violations of G. L. c. 93A, arising out of a commercial insured’s actual or alleged breach of a warranty.
The present case is one such case where a liability policy covered some but not all of the liability an insured incurred from the breach of an implied product warranty.
The 93A claim for breach of warranty and failure to warn about a product’s personal injury risk
This SJC decision concerning coverage for attorney fees under G.L. c. 93A arose out of a lawsuit against ServPro franchisees (ServPro) insured by Vermont Mutual. The franchisees cleaned up a sewer backup in a customer’s basement. They used a cleaning product that required the customer to stay out of the basement and to ventilate it continuously for four days after ServPro finished.
ServPro did not advise the customer about the hazards of the cleaning product. The customer went in and spent several days cleaning up and organizing the basement after ServPro left. Subsequently, the customer developed chronic asthma, which she and an expert witness related to the ServPro cleaning product and the ServPro franchisees’ failure to warn her about the product’s hazards.
The customers’ breach of warranty suit and recovery under G.L. c. 93A
The customer sued ServPro under G. L. c. 93A for bodily injury damages, attorney fees, and multiple damages for breach of warranty.
ServPro notified Vermont Mutual, and Vermont Mutual assumed the defense of the 93A suit under ServPro’s business owners liability policy which indemnified ServPro, up to the policy’s $1 million liability limit, for:
[T]hose sums that [ServPro] becomes legally obligated to pay as damages because of bodily injury…to which this insurance applies…”
The 93A trial results in a six-figure damage award and a six-figure attorney fee award
Since no right to a jury trial exists under G. L. c. 93A, a Superior Court judge heard the customer’s case against ServPro. The judge ruled in favor of the customer, finding that ServPro had violated G. L. c. 93A by breaching its product’s implied warranty of merchantability and by its failure to warn the customer of ServPro’s cleaning product’s hazards.
The judge declined to award double or treble damages but did award the customer compensatory damages of $267,248.67. Also, since ServPro had violated G.L. c. 93A by breaching its product warranty, the customer had the right to an award of her reasonable attorney fees incurred in suing ServPro under c. 93A. Based on the complexity of the case, the judge awarded an attorney fee of $215,328.00
The appeal of the underlying 93A judgment against ServPro
Vermont Mutual appealed the 93A damage and attorney fee award against ServPro to the Appeals Court. The appeal failed, and the SJC refused further appellate review.
Following the SJC denial, Vermont Mutual paid the original judgment, which, with pretrial and post-judgment interest at twelve percent, totaled $696,669.48.
The demand for Vermont Mutual to pay attorney fee award under its policy’s insuring agreement
After receiving Vermont Mutual’s post-appeal payment of her bodily injury award, the consumer, through counsel, claimed, as a judgment creditor, that she had the right under the policy for the payment of the attorney fee awarded her under c. 93A, which post-appeal, now exceeded $250,00.00
Counsel for the customer argued that the policy covered the customer’s 93A attorney fee award ‘as damages caused by” the consumer’s bodily injuries.
Vermont Mutual refused to pay the consumer any additional monies under the policy, arguing that the attorney fee award under G.L. c. 93A was not bodily injury damages and, therefore, was not covered by the policy’s insuring agreement.
Vermont Mutual’s declaratory judgment on whether 93A attorney fees are covered damages
Eventually, Vermont Mutual filed a declaratory judgment seeking the Superior Court to resolve the controversy over the unpaid attorney fee award being covered under Vermont Mutual’s policy
On cross-motions for summary judgment, the Superior Court disagreed with Vermont Mutual and ruled that the attorney’s fees awarded to ServPro’s customer “are covered under the Policy as “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’.”
Vermont Mutual appealed the Superior Court’s adverse decision to the Appeals Court, but the SJC ordered the appeal transferred directly to its docket, bypassing the Appeals Court.
The narrow legal issue before the SJC
The only issue presented on appeal before the SJC was the proper interpretation of ServPro’s insurance policy regarding the nature of attorney fees awarded under G.L. c. 93A to the customer.
The major legal issue in Vermont Mutual’s appeal came down to the basic issue of insurance policy interpretation that could be phrased as:
- Did the insuring agreement in Vermont Mutual’s liability policy which covered the damages for bodily injuries awarded under c. 93A also cover the obligation to pay the attorney fees awarded under G.L. c. 93A as a result of bodily injury award?
The legal principles applied by the Court to interpret Vermont Mutual’s policy
The Court’s decision first stated the principles it would use to analyze the meaning of the policy. These rules, with some paraphrasing ,were:
- If the language of an insurance policy is unambiguous, then the Court construes the words in their usual and ordinary sense.
- If the policy language is ambiguous, doubts as to the intended meaning of the words must be resolved against the insurance company that employed them and in favor of the insured.
- A term is ambiguous where it is susceptible of more than one meaning, and reasonably intelligent persons would differ as to which meaning is the proper one.
- When in doubt as to the proper meaning of a term in an insurance policy, the Court considers what an objectively reasonable insured, reading the relevant policy language, would expect to be covered.
- The Court’s interpretation must attempt to give full effect to the document as a whole.
- Every word in an insurance contract serves a purpose and must be given meaning and effect whenever practicable.
The policy’s interpretation before the SJC
In analyzing the policy, the SJC first noted that under the policy’s insuring agreement, the attorney fees assessed against ServPro in its customer’s lawsuit constituted “sums that [ServPro became] legally obligated to pay.”
However, the attorney’s fees themselves did not constitute “bodily injury” under the policy since the policy defined “bodily injury” as
Bodily injury, sickness, or disease sustained by a person, including death resulting from any of these at any time.
Also, prior decisions by the SJC had specified that “bodily injury” was “a narrow term that encompasses only physical injuries to the body and the consequences thereof.”
Based on these two undisputed points, the Court stated the disagreement it had to decide was whether the words in the insuring agreement, “as damages because of,” connecting the term “legal liability” with the term “bodily injury” obligated Vermont Mutual to pay the attorney fees (Emphasis in original).
“Damages because of bodily injury” involves monetary compensation for physical injuries
Applying its principles of contract interpretation, the Court looked first at the language of the insurance contract and the common understanding of the words “damages” and “attorney’s fees.”
The Court noted that it had already ruled on the meaning of “damages.” Per Black’s Law Dictionary, which the Court had previously cited, damages are defined as “[m]oney claimed by, or ordered to be paid to, a person as compensation for loss or injury.” Thus, to the Court, “damages caused by bodily injury” would only refer to the physical injuries and the monetary damages required to compensate them.
Attorney fees awarded under c. 93A, are a form of relief separate from damages
The Court next distinguished attorney fees incurred under c. 93A, by pointing out that Massachusetts follows the so-called American rule, where litigants bear their own legal fees in pursuing a lawsuit.
In this case, the Court noted if the customer had pursued common law claims against ServPro for negligence or breach of warranty without resorting to a statutory claim under c. 93A, she would have had to pay the legal fees incurred out of her own pocket or out of her damage award.
Because she pursued ServPro solely under c. 93A and the Attorney General’s warranty regulation, Massachusetts statutory law allowed the customer to obtain an award of attorney fees. However, to the Court, the statutory attorney fee recovery provision of c. 93A did not equate an attorney fees award with a damage award.
The Court quoted the provisions of c. 93A, § 9 stating if a 93A plaintiff proved a violation of the statute, they could recover:
- The amount of actual damages or twenty-five dollars, whichever is greater; and.
- Double or treble the amount awarded for knowing or willful violations of c. 93A.
The statute further provides, however, that if a plaintiff recovers any damages, then the plaintiff shall:
in addition to other relief provided for by this section and irrespective of the amount in controversy, be awarded reasonable attorney’s fees and costs incurred in connection with said action.
Focusing on the statutory language, “in addition to other relief,” and “irrespective of the amount in controversy,” the Court concluded c. 93A’s provision for attorney’s fees was “a separate form of relief distinct from the award of damages.”
Therefore, the Court concluded:
Consequently, even under G. L. c. 93A, damages and attorney’s fees for pursuing the c. 93A action are decoupled and treated differently. They 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.
Conclusion of the Court
The final “Conclusion” of the justices stated:
The [Insureds’] policy does not cover the [customer’s] award of attorney’s fees under G. L. c. 93A. We, therefore, reverse the grant of summary judgment to the defendants and remand for proceedings consistent with this opinion.
The SJC’s reversal requires further proceedings in the Superior Court
The remand to the Superior Court “for proceedings consistent with this opinion,” per the Court’s footnotes, involved unresolved claims in the Superior Court that were still pending because the SJC had limited its analysis to the terms of the policy. These pending claims are:
- The customer and the insureds’ counterclaims, which the lower court did not address before entering summary judgment, alleged Vermont Mutual had engaged in unfair claim practices, violating G. L. c. 93A and G. L. c. 176D, in conducting the defense of the underlying 93A breach of warranty action rather than its refusal to pay the attorney’s fees that were the subject of the present appeal.
- Vermont Mutual’s insureds had raised factual issues claiming Vermont Mutual was estopped from denying coverage for the award of attorney’s fees. The parties had agreed to delay considering these issues until after the judge had decided the scope of the policy.
While these unresolved issues might have an effect on this case, they cannot change the SJC’s ultimate decision that commercial general liability policies, as presently written, do not provide any coverage for attorney fees arising out of 93A claims.
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Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
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