Personal Injury Insurer for Construction Accident Victim Cannot Recover Attorney’s Fees for Winning Declaratory Judgment Action

This Blogpost by Boston Personal Injury and Accident Laywer, Keith L. Miller, anaylzes a battle between insurers over costs of construction accident.

Following a construction site accident where an insurer of a subcontractor refused to defend the general contractor, who then successfully filed a declaratory action to force the subcontractor’s insurer to share in the defense and settlement costs of the action, the Massachusetts Supreme Judicial Court has refused to permit the general’s insurer to recover the attorney’s fees incurred in successfully bringing its declaratory judgment action.
 
zurich.jpgIn January of 2001 a worker fell and suffered injuries while employed on a project in Uxbridge, Massachusetts. A year later he brought a negligence action against the general contractor and another subcontractor on the project. The general contractor was insured under a general liability insurance policy with Zurich American Insurance Company (Zurich). The subcontractor also had a policy issued by Worcester Insurance Company (Worcester), and was required by contract to list the general as an additional insured.

Upon filing of the complaint, the general called upon the subcontractor and Worcester to defend. They refused and Zurich defended. Zurich also brought a declaratory judgment action in the general’s name, seeking indemnification from the subcontractor and Worcester for their refusal to defend. Ultimately, the negligence case settled, with the general contributing $75,000 to the settlement.

The general contractor prevailed in the declaratory judgment action and Worcester was ordered to pay one half of both the settlement amount and the costs of defending the negligence action. However, the general contractor also sought an award of the attorney’s fees incurred to file and prevail in the declaratory judgment action, even though it was evident that it was Zurich who had paid the fees. The Superior Court judge denied the request and the general contractor appealed.

The SJC affirmed and discussed at length its reasoning. Massachusetts generally follows the customary approach to the award of attorney’s fees in civil litigation, known as the “American Rule”. In the absence of some statute or other rule, successful litigants must nonetheless pay their own attorney’s fees and expenses.

However, one well established exception is where an insured seeks to recover reasonable attorney’s fees and expenses incurred in successfully establishing the insurer’s duty to defend under the terms of a policy. The leading case is Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 98 (1997). In Gamache, the Supreme Judicial Court determined that an exception was appropriate largely to fulfill the purpose of purchasing liability insurance, including the cost of defending a suit. Where an insurer declined to defend, allowing recovery of attorney’s fees was necessary to give the insured the full benefit of the insurance policy.

zurich.jpgIn this case, the SJC refused to extend the Gamache exception to the American Rule, in part because it was clear that both insurers had obligations to the general contractor under separate policies. Further, there was no dispute that Zurich had retained and paid for the attorneys who brought the declaratory judgment action. It was therefore clear that the insurer, and not the insured, would benefit from an award of attorney’s fees.

Zurich had cited a Maryland case, Travelers Indem. Co. v. Insurance Co. of N. Am., 69 Md.App. 664 (1987), where an insurer recovered fees in a successful declaratory judgment action based on evidence that the insurer had wrongfully and improperly failed to defend. The SJC declined to follow this approach, in the absence of any proof that the insurer wrongfully or in bad faith refused to defend. It also pointed out the fact Zurich had directly benefited from the action to the extent that Worcester was ordered to share equally in the costs of settling and of defending the action.

Callahan v. Worcester Insurance