Massachusetts’ highest court ruled earlier this month that attorney’s fees awarded under the Commonwealth’s consumer protection statute are not covered damages under a general liability insurance policy. Consequently, the decision in Vermont Mutual Insurance Co. v. Poirier, Slip Op. SJC-13209 (July 6, 2022), means that companies sued for allegedly unfair or deceptive practices may be left to fund awards of attorneys’ fees under Chapter 93A, even where other aspects of their liability may be covered by insurance.

The Supreme Judicial Court’s decision stems from a case brought under Massachusetts General Law, Chapter 93A, which allows consumers to sue for unfair or deceptive practices. Successful petitioners under Chapter 93A may recover, among other remedies, their own attorneys’ fees. In Poirier, Douglas and Phyllis Maston sued the owners of a Massachusetts-based restoration business after hiring the restoration company to clean a sewage spill in the Maston’s basement. Due to the lack of proper warning, Phyllis Maston allegedly was exposed excessively to the disinfectant and subsequently developed ongoing respiratory problems. In addition to alleging that the restoration company failed to warn of the dangers posed by the disinfectants used in the basement, the Mastons alleged that the company engaged in unfair or deceptive trade practices under Chapter 93A. Following a bench trial, the court found that the Poiriers violated Chapter 93A and awarded over $215,000 in attorneys’ fees.

The Poirers’ commercial liability insurer, Vermont Mutual, paid the Mastons nearly $700,000 in liability in the underlying action, but it did not pay the attorneys’ fee award and, instead, sought a declaratory judgment that those amounts were not covered under the policy. The trial court found that the award of attorney’s fees came within the policy’s coverage grant for “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury.’” After taking the case up sua sponte, the Supreme Judicial Court reversed, finding that attorney’s fees under Chapter 93A are distinct from an award of damages. While “damages are to compensate for the injury,” the Court reasoned, “attorney’s fees are to deter misconduct and recognize the public benefit of bringing the misconduct to light.” The Court concluded, therefore, that the award of attorneys’ fees are “decoupled and treated differently” from damages that are awarded “because of bodily injury.” Thus, because the general liability insurance policy provided coverage only for compensatory damages that are awarded because of the sustained bodily injury, and not as a consequence of a statute or contract, the award of attorneys’ fees were not recoverable.

The Supreme Judicial Court also rejected the argument that attorney’s fees are encompassed by the policy provision extending coverage to “[a]ll costs taxed against the insured in the ‘suit.’” There, the Court reasoned that under Massachusetts law, the term “costs” must be read in context with its surrounding terms, including the term “taxed,” which carries a particular meaning in the context of legal proceedings. As the Court explained, the term “costs,” as used in legal proceedings, ordinarily means legal or taxable costs, not attorneys’ fees.

The Court’s decision should temper policyholder expectations of coverage for attorneys’ fees awarded under a Chapter 93A claim, at least with respect to general liability policies requiring damages “because of” bodily injury. Coverage may be available under other liability policies, however, especially for defense of suits alleging violations that never result in an adverse judgment.

The holding in Poirier may also not foreclose coverage for consumer protection violations under other states’ laws. In fact, interpreting an insurance policy similar to the one at issue in Poirier, the Ohio Supreme Court reached the opposite conclusion of the Supreme Judicial Court, holding that attorney’s fees are damages because of bodily injury. See Neal-Pettit v. Lahman, 928 N.E.2d 421, 424 (Ohio 2010). Businesses, even those in Massachusetts, may also escape a similar fate if the policy at issue is not governed by Massachusetts law, underscoring the importance of choice-of-law, forum selection, or similar provisions in policies that may steer insurance claims into states with less favorable precedent on key coverage issues. 

Of course, outcomes will turn on the specific policy language and facts of a particular claim, and whether Massachusetts or another state’s laws will benefit the policyholder or insurer is usually issue specific. But policyholders should carefully review policy provisions potentially impacting the law governing insurance claims, as it may have a significant impact on coverage.