Tuesday, May 4, 2010

Public Policy, Punitive Damages And Fee Awards

The web page of the Ohio Supreme Court reports:

The Supreme Court of Ohio ruled today that an award of attorney fees in a civil lawsuit is distinct from an award of punitive damages, and the public policy of the state does not prevent an insurance policy from providing coverage for attorney fees when they are awarded solely as a result of an award for punitive damages.

Applying that analysis to a Cuyahoga County personal injury case, the Court found that an auto insurance policy issued to Linda Lahman provided coverage for a jury’s award of attorney fees to another motorist, Kimberly Neal-Pettit, who was injured in an auto accident caused by Lahman. The court’s 4-2 majority decision was authored by Justice Judith Ann Lanzinger.

Neal-Pettit was injured in 2003 when her vehicle was hit by Lahman, who was driving while intoxicated and fleeing the scene of an earlier collision. Neal-Pettit sued Lahman for damages arising from her injuries.

A jury awarded Neal-Pettit compensatory damages of $113,800 and an additional $75,000 in punitive damages. Based on a finding that Lahman had acted “with malice” in causing Neal Pettit’s injuries, the jury also awarded Neal-Pettit attorney fees that the court later set at $46,825 along with an additional sum for litigation expenses. Lahman’s insurance company, Allstate, paid Neal-Pettit the amounts awarded as compensatory damages, interest and expenses, but denied any coverage under its policy for either the punitive damages or attorney fees awarded by the jury.

Neal-Pettit filed suit against Allstate in the Cuyahoga County Court of Common Pleas seeking payment for the attorney fee portion of the jury verdict.  The trial court granted summary judgment in favor of Neal-Pettit.  Allstate appealed, arguing that it had not contracted to pay attorney fees and that an attorney-fee award is an element of punitive damages, which public policy prevents an insurer from covering. The 8th District Court of Appeals affirmed the trial court’s decision, holding that attorney fees are “conceptually distinct” from punitive damages and that attorney fees were not expressly excluded from coverage by the language of the Allstate policy issued to Lahman. Allstate sought and was granted Supreme Court review of the 8th District’s decision.

In today’s decision affirming the 8th District, Justice Lanzinger rejected Allstate’s argument that the attorney fee award is an element of the jury’s award of punitive damages because both types of relief are based on a finding that the defendant acted “with malice.” Quoting from the Supreme Court of Ohio’s 1859 decision in Roberts v. Mason, she wrote:  “(T)he fact that the awards have similar bases is irrelevant. We have recognized that attorney-fee awards and punitive-damages awards are distinct: ‘In an action to recover damages for a tort which involves the ingredients of fraud, malice, or insult, a jury may go beyond the rule of mere compensation to the party aggrieved, and award exemplary or punitive damages ...  In such a case, the jury may, in their estimate of compensatory damages, take into consideration and include reasonable fees of counsel employed by the plaintiff in the prosecution of his action.’”

With regard to an exclusion of coverage in Lahman’s policy for “punitive or exemplary damages, fines or penalties,” Justice Lanzinger wrote:  “(T)he exclusion does not refer in any way to attorney fees or litigation expenses.  It specifically mentions only punitive or exemplary damages, which, as we have discussed, are conceptually distinct from attorney fees. Therefore, the term ‘punitive or exemplary damages’ does not clearly and unambiguously encompass an award of attorney fees. We decline to read such language into the contract.  We instead construe the policy strictly against the insurer.  ... Allstate, as the drafter, is responsible for ensuring that the policy states clearly what it does and does not cover.”

Finally, the Court disagreed with Allstate’s claim that it would be against public policy for an insurer to pay attorney fees on behalf of a policyholder when those fees are awarded solely as a result of a punitive damages award. 

Justice Lanzinger wrote: “It is true that public policy prevents insurance contracts from insuring against claims for punitive damages based upon an insured’s malicious conduct. … In addition, R.C. 3937.182(B) prohibits insurance coverage of punitive damages:  ‘No policy of automobile or motor vehicle insurance  ...  shall provide coverage for judgments or claims against an insured for punitive or exemplary damages.’  But R.C. 3937.182(B) mentions only punitive and exemplary damages, not attorney fees.  The General Assembly chose not to mention attorney fees when it drafted the statute, and we decline to add them. ...  Our holding will not encourage wrongful behavior merely because it permits insurers to cover attorney fees for which tortfeasors become liable. The tortfeasors remain liable for punitive damages awarded for their malicious actions, and these punitive damages remain uninsurable.  Payment by the insurer of an attorney-fee award violates neither public policy nor R.C. 3937.182(B).”

Justice Lanzinger’s opinion was joined by Justices Paul E. Pfeifer, Maureen O’Connor and Robert R. Cupp.

Justice Evelyn Lundberg Stratton entered a dissenting opinion, joined by Justice Terrence O’Donnell, in which she disputed the majority’s conclusion that an award of attorney fees that is based solely on an award of punitive damages is nevertheless separate and distinct from those punitive damages.

Justice Stratton wrote: “The Allstate policy here agrees to pay for damages because of bodily injury and property damage. The policy excludes coverage for ‘punitive or exemplary damages, fines or penalties.’  There is an attorney-fee award in this case only because of the punitive-damages award; thus, the attorney-fee award is a ‘penalty’ designed to punish.  The attorney fees are not compensable damages ‘because of bodily injury.’  I believe that the award is punitive in nature and is expressly excluded by the Allstate policy. Because of the punitive nature of an attorney-fee award, I also believe that it is against public policy for an insurer to pay attorney fees on behalf of its insured when the fees are awarded in connection with and as a direct result of a punitive-damages award.”

Chief Justice Eric Brown did not participate in the Court’s deliberations or decision in the case.

The decision is linked here. (Mike Frisch)

http://lawprofessors.typepad.com/legal_profession/2010/05/the-web-page-of-the-ohio-supreme-court-reports----attorney-fees-when-they-are-awarded-solely-as-a-result-of-an-award-for-pun.html

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