*By Stephen S. Zashin, Esq.
Generally, Ohio public policy prohibits insurance companies from covering punitive damage awards. Until now, this prohibition presumably included attorney fees awarded solely as a result of a punitive damage award. This month, the Ohio Supreme Court addressed whether an insurance policy provided coverage for attorneys’ fees awarded due to a punitive damage award.
In Neal-Pettit v. Lahman, No. 2009-0325, 2010-Ohio-1829 (May 4, 2010), the Ohio Supreme Court refuted that presumption of non-coverage of attorney fees. The 4-2 majority held that, “Attorney fees are distinct from punitive damages, and public policy does not prevent an insurance company from covering attorney fees on behalf of an insured when they are awarded solely as a result of an award for punitive damages.”
This issue arose from a personal injury automobile lawsuit. The accident involved an intoxicated driver who fled the scene of an earlier collision. The jury awarded compensatory and punitive damages. The jury also awarded the plaintiff attorneys’ fees because the jury found that the driver acted with malice. The insurer denied payment of both punitive damages and attorneys’ fees.
The insurance policy did not mention coverage for attorney fees. The policy included language concerning “damages” for “bodily injury.” Although “bodily injury” was defined, “damages” was not. The policy also excluded coverage of “punitive or exemplary damages, fines or penalties.”
The insurer contended that: (1) attorney fees did not constitute “damages because of bodily injury”; (2) the policy’s exclusion of “punitive or exemplary damages, fines or penalties” excluded coverage of attorney fees; and (3) Ohio public policy precluded coverage of an attorneys’ fee award made in conjunction with a punitive damage award. The Court rejected all three arguments.
On the issue of inclusion, the Court phrased the controlling question as “whether the attorney fees awarded are damages that [the defendant] is legally obligated to pay because of the bodily injury sustained by [the plaintiff].” The Court held that, “although an award of attorney fees may stem from an award of punitive damages, the attorney-fee award itself is not an element of the punitive-damages award.” The Court added that, “The language of the policy does not limit coverage solely because of bodily injury.” Thus, “insofar as the parties have offered their own separate interpretations of the language of the policy, both of them plausible, we must resolve any uncertainty in favor of the insured.”
On the issue of exclusion, the Court held that “the exclusion does not refer in any way to attorney fees or litigation expenses. . . . Therefore, the term ‘punitive or exemplary damages’ does not clearly and unambiguously encompass an award of attorney fees.” The Court also noted that the insurer never argued that attorney fees are a “fine” or “penalty” under the exclusions or cited any cases to that effect. Thus, whether attorney fees constitute such an exclusion remained unresolved.
Finally, on the issue of public policy, the Court explained that the language of the statutory prohibition of insurance coverage extends only to punitive and exemplary damages, and not attorney fees. Thus, the Court declined to add to the prohibition what the General Assembly declined to do. The Court also commented that, “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.”
The impact of the Ohio Supreme Court’s holding is clear: an insurance policy covers attorneys’ fees unless it expressly excludes them. Equally clear is that while Ohio public policy permits coverage of attorneys’ fees, it also does not require coverage. Also, the decision reinforces the Ohio Supreme Court’s position that punitive damages are uninsurable in the state of Ohio.
*Stephen S. Zashin, an OSBA Certified Specialist in
Labor and Employment Law, has extensive experience in all aspects of
workplace law, including the defense of employment practices liability
claims. For more information about Ohio employment law, please contact
Stephen at 216.696.4441 or ssz@zrlaw.com.
