On June 26, 2019, the Massachusetts Appeals Court reversed a $400,000 judgment obtained by a homeowner against the insurer of his home contractor. The h
omeowner’s judgment resulted from an uncovered claim that included separate awards for his legal costs and post-judgment interest.
The insurer, National Fire & Marine Insurance Company (“National Fire”) defended its insured under a full reservation of rights and had immediately disclaimed liability based on a jury verdict, and a jury-waived decision showing the insurer had no coverage for homeowner’s negligence and statutory claims against the home contractor. However, the Superior Court found that under the supplementary payments provision of National Fire’s commercial liability policy, legal fees and expert fees totaling over $106,000.00 that the homeowner had obtained through an assignment of rights were “costs taxed” in the lawsuit defended by the insurer. Additionally, the Superior Court held the insurer liable under its liability policy’s supplementary payments provision covering interest for approximately $120,000.00 in post-judgment interest. The Superior Court judge awarded the homeowner, as assignee of the contractor, interest at 12 percent from 2012, which increased the judgment by an additional 80 percent bringing the total homeowner’s award to over $400,000.00.
On appeal, the Appeals Court interpreted National Fire’s supplementary payment provisions differently from the Superior Court and reversed the judgment in favor of the homeowner and ordered judgment for the insurer. The homeowner has asked the Supreme Additional Court for further appellate review.
Dispute with home contractor leads to litigation over negligence and violations of Chapter 142A and 93A
The homeowner, Alex Styller (“Mr. Styller”) hired a construction contractor, FCMNH, Inc., (“the Contractor”) in 2004, to do a home construction project on Mr. Styller’s home in Lynnfield. The house was a large two‑story single-family residence. Mr. Styller planned to have the Contractor remove the second story of the existing home and replace it with a larger space. Also, he planned to have the Contractor change some parts of the first-floor layout.
Eventually, Mr. Styller and the Contractor entered into a written contract that required the Contractor to demolish both the first and second stories but leave in place the basement, foundation, first-floor deck including the floors, the fireplace and chimney, and utilities. Once the Contractor had completed the demolition, he was to build two new stories using an agreed-upon floorplan.
The Contractor did the demolition work in August 2004, charging approximately $40,000.00. In November 2004 the parties signed a second contract which specified additional construction work. The second contract, like the first contract, did not comply with the Massachusetts Home Constructions Contract Law, M.G.L. c. 142A. In October of 2005, the Contractor walked off the job claiming Mr. Styller had breached his payment obligations. As a result, Mr. Styller had to incur corrective work that he estimated at $109,000.00.
National Fire controls defense under a full reservation of rights
In November 2005, the Contractor sued Mr. Styller for labor and materials. Mr. Styller counterclaimed alleging breach of contract, common law negligence, and violations of general laws M.G.L. c. 142A and 93A.
The counterclaim that Mr. Styller filed alleging defective work and violations of Chapter 93A and Chapter 142A, were not within the coverage of the liability policy the Contractor had with National Fire. The policy specifically excluded the defective work, and the statutory violations did not involve property damage. However, the counter-claim also alleged negligence and damages apart from the defective work of the Contractor. As a result, the insurer had to defend all of the claims brought by the Contractor under the rule that if one count of a complaint is covered, the insurer must defend all the counts.
National Fire assumed the Contractor’s defense subject to a full reservation of rights. Subsequently, National Fire offered to have its legal counsel manage the whole case for the Contractor, including the Contractor’s affirmative claims against Mr. Styller for non‑payment. The insurer, as part of its offer, agreed to waive any claim for reimbursement of any expenses associated with its control of the litigation. In December 2008, a jury tried Mr. Styller’s negligence claim and the Contractor’s payment claim. The jury rejected the Contractor’s claim and entered a verdict in favor of Mr. Styller awarding him $85,409.80 less 27 percent contributory comparative negligence.
In January of 2009, the Superior judge conducted a bench trial on the statutory claims under M.G.L. c. 93A and 142A.
The judge found that the Contractor had violated the home improvement contractor statute, Chapter 142A, as its contracts with Mr. Styller did not comply with the statute. Since a violation of Chapter 142A, is, by definition, a violation of G.L.c. 93A, the Superior Court judge awarded Mr. Styller exemplary damages equal to the jury verdict of $85,409.00 plus an award of $105,374.70 for “attorney’s fees and litigation costs.”
On February 5, 2009, the Court entered a final judgment, including interest, of $385,086.00 against the Contractor.
On February 18, 2019, National Fire disclaimed all coverage for the entire judgment including any coverage for the litigation costs under the policy’s supplemental payments provision.
Mr. Styller sues seven individuals involved in the construction project of his home
After obtaining his judgment, Mr. Styller files an action against the individual officers and management employees of the Contractor as well as a subcontractor. After three years of litigation, the defendants paid Mr. Styller $81,000.00 and assigned to him all of their rights under the insurance contracts and the contract they had with National Fire.
Based on the assignment of rights, Mr. Styller filed suit against National Fire seeking a declaratory judgment that the insurer had a duty to indemnify him as the assignee of the Contractor for the full amount of the judgment obtained in the original suit. Mr. Styller also asserted a separate count against the insurer for failing to comply with the Unfair Claim Practice statute G.L.c. 176D because of the insurer’s refusal to pay the amount.
This lawsuit, heard by a different Superior Court judge, did not have any testimony. The judge decided the case based upon the stipulated record in the prior litigation between Mr. Styller and the Contractor.
This judge concluded that the following exclusion of the policy barred any duty of National Fire to indemnify Mr. Styller for the full amount of the judgment.
[Exclusion] ‘Property damage’ to…that particular part of real property on which you or your ’employees,’ ‘volunteer workers,’ or any contractors or subcontractors working directly or indirectly on your behalf are performing operations if the ‘property damage’ arises out of those operations; or
That particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.”
However, this judge found that National Fire was required to indemnify the Contractor and therefore, Mr. Styller as its assignee, for the fee award under the supplementary payments provision of the policy. This part of the insurance contract provided that:
We will pay, with respect to any claim we investigate or settle, or any “suit” against an Insured we defend:
…
All costs taxed against the insured in the ‘suit.'”
Additionally, the judge found that National Fire also had a duty to indemnify Mr. Styller for the post-judgment interest on the fee award. The judge cited a separate provision in the supplementary payment portion of the policy that provided the insurer agreed to pay “all interest on the full amount of any judgment that accrues after the entry of judgment and before [the insurer has] paid… the part of the judgment that is within the applicable limit of insurance.”
The judge rejected, however, Mr. Styller’s unfair claim practice allegations against National Fire.
The final judgment in the Superior Court found that National Fire had to pay the fee award of $105,374.50 and the statutory interest that has accrued on the full amount of the judgment totaling $264,530.21. The Court also added statutory interest in that amount of 12 percent from December 7, 2012, that added 80 percent onto that award making the final judgment over $400,000.00.
Both National Fire and Mr. Styller appealed to the Appeals Court.
The decision of the appeals court in favor of National Fire
On appeal, National Fire argued the Trial Court had erred in deciding that the policy covered the attorney fee award as “costs taxed” against the insured and that Mr. Styller was entitled to any post-judgment interest on the attorney fee award.
For his part, Mr. Styller argued that the fee award fell within the plain and ordinary meaning of the term ‘costs’ are expenses incurred during litigation that include attorney fees. He also pointed out that the policy does not define the term costs.
The appeals court, however, disagreed with Mr. Styller. To this Court, the word “costs” as applied to court proceeding ordinarily meant only the legal or taxable costs by statute and did not include attorney’s fees or expert fees. The appellate panel noted ‘taxable costs’ assessed for the prevailing party do not compensate them fully for the costs of litigation.
The Court noted that statutory costs taxed by the court clerk are minimal. They are usually nominal amounts such as the entry fee for filing the suit, the costs of depositions excluding attorney’s fees, and a sum not exceeding $500.00 for incurred expenses for plans, drawings, photographs and certified copies of public and court records for use at trial.
The Appeals Court ruled the statutory term ‘taxable costs’ did not include reasonable attorney fees. The judges then found that “the meaning of ‘costs taxed’ construed is that term is used in the policy to refer to costs taxed in a court proceeding, does not include attorney’s fees awarded under G.L.c. 93A.” Likewise, the Court found that expert fees and expenses, which in this case total over $20,000.00 were also not authorized as taxable costs.
Finally, on the post-judgment interest award, the Court found that any obligation to pay post-judgment interest onto the policy was contingent upon the obligation to indemnify the insured for its liability of the underlying claim. In this case, the parties had not disputed that the insurer was not obligated to pay the underlying indemnity. As a result, the Court reversed the judgment and found no violation of Chapter 93A or the Unfair Claims Practice Statute.
The final order of the Appeals Court
Based upon its findings, the Appeals Court reversed the judgment in favor of Mr. Styller and remanded it to the Superior Court. The judges’ decision ordered the entry of “a new declaration that ‘costs taxed’ in the context of the policy at issue here does not include attorney’s fees and expert fees and expenses and that the insurer is not obligated to pay post-judgment interest.” Finally, the Court confirmed that National Fire had no liability under the Unfair Claim Practice Act.
Application for further appellate review filed by Mr. Styller to the Supreme Judicial Court
The Massachusetts Appeals Court is an intermediate appellate court. The ultimate judicial authority resides with the Supreme Judicial Court. Parties dissatisfied with an Appeal Court’s decision may apply for further appellate review. However, the allowance of any further appeal is discretionary with the Supreme Judicial Court.
On July 15, 2019, Mr. Styller applied for further appellate review to the Supreme Judicial Court.
Agency Checklists will monitor this and post any decision on this application for further appellate review as a comment to this article.
