429 Mass. 355 | Mass. | 1999
The plaintiffs, the trustees of Security Mills Realty Trust (trust), commenced this declaratory judgment action in 1990 in the Superior Court, seeking a declaration that various insurance companies, including the defendant, had a duty to defend and indemnify them in an action brought against them for damages under G. L. c. 21E, §§ 4 and 5, and G. L. c. 93A, § 11, arising out of the environmental contamination of property formerly owned by the trust in Newton. The trustees claimed that, during the time the trust owned the property, they had purchased, and the insurance companies had issued, comprehensive liability policies covering the property. By November,
A judge in the Superior Court concluded that the trustees, who had been unable to locate the policies issued to them by the defendant, had sufficiently established the existence and terms of the missing policies, and that one of the defendant’s policies gave rise to a duty to defend the trustees in the damages action, and to indemnify them for the settlement paid to the new owner of the property. Although the judge determined that the trustees were entitled to recover defense costs not advanced by one of the other insurers, she denied their motion to recover the attorney’s fees they incurred in prosecuting the declaratory judgment action. The judge indicated that the trustees’ claim for attorney’s fees had “appeal as a matter of logic and also of fairness,” but she concluded that recovery of attorney’s fees was not permitted under then current Massachusetts law. The trustees appealed and the Appeals Court affirmed the judgment except as to the denial of attorney’s fees, which it directed the judge to award based on our decision in Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 98 (1997) (Gamache). Rubenstein v. Royal Ins. Co., 44 Mass. App. Ct. 842, 856 (1998). We granted the defendant’s application for further appellate review solely to consider whether the trustees are entitled to recover the attorney’s fees they incurred in successfully establishing the defendant’s duty to defend under its insurance policy.
1. As has been mentioned, in concluding that the trustees could recover their attorney’s fees in the declaratory judgment action, the Appeals Court relied on Gamache, supra, where we allowed an insured under a homeowner’s policy to recover the reasonable attorney’s fees and expenses he incurred in successful litigation to establish his insurer’s duty to defend. The Appeals Court decided that “[tjhere is no plausible reason why a comprehensive liability insurer should enjoy more freedom to litigate that issue without concern about the possibility of having to pay the insured’s attorney’s fees than in the case of a homeowner’s insurer.” Rubenstein v. Royal Ins. Co., supra. We agree.
In Gamache, supra at 95, we' acknowledged that allowing an insured under a homeowner’s policy to recover attorney’s fees
The defendant argues that the Appeals Court should not have applied our holding in Gamache to award attorney’s fees to the trustees. The defendant urges us to limit application of the rule to insurers who refuse to defend an insured under a homeowner’s policy, and who then lose a declaratory judgment action against the insured on the issue of coverage which the insurer initiated. The defendant also contends that the trustees should not be awarded their attorney’s fees because, unlike the insured in Gamache, who, because of his insurer’s refusal to defend, was required to retain his own counsel for the underlying action, see id. at 95, the trustees were advanced their defense costs by other insurers. These attempts to distinguish Gamache are not persuasive.
There is no sound reason to differentiate between homeowner’s insurance and other kinds of liability insurance in applying the rule in Gamache. Numerous courts have awarded attorney’s fees to an insured who successfully establishes an insurer’s duty to defend under a comprehensive liability policy. See Bankers & Shippers Ins. Co. v. Electro Enters., Inc., 287 Md. 641, 643-644 (1980) (insurer had duty to defend insured for claims resulting from airplane crash); Commercial Union Ins. Co. v. Porter Hayden Co., 116 Md. App. 605, 655 (1997) (insurer had duty to defend insured installer of insulation containing asbestos in connection with workers’ products liability claims); SCSC Corp. v. Allied Mut. Ins. Co., 515 N.W.2d 588, 593 (Minn. Ct.
Both legal commentators and courts have observed that a special relationship exists between the insured and the insurer under a liability insurance policy, and have offered the view that many insureds obtain liability insurance to avoid the prospect of being burdened by significant legal expenses. See, e.g., R. Keeton & A. Widiss, Insurance Law § 9.5, at 1056-1057 (1988); 7C J.A. Appleman, Insurance Law and Practice, supra. Whether the policy at issue is a homeowner’s policy or a comprehensive liability policy, the insured’s reason for purchasing the insurance remains the same. In Brohawn v. Transamerica Ins. Co., 276 Md. 396, 409-410 (1975), the Maryland Court of Appeals observed that “[t]he promise to defend the insured, as well as the promise to indemnify, is the consideration received by the insured for payment of the policy premiums. Although the type of policy here considered is most often referred to as liability insurance, it is ‘litigation insurance’ as well, protecting the insured from the expense of defending suits brought against him.”
The intent of an insured in acquiring liability insurance is to transfer to the insurer the responsibility for defending the insured against any claim which may fall within the coverage of the policy. The position advanced by the defendant would enable an insurer who wrongfully refused to defend to deprive its insured of the principal benefit of its contractual bargain, and for which the insured paid premiums. Even if the insured were eventually compensated for its defense of the third party action, it would remain permanently uncompensated for the costs as
As the defendant points out, we characterized the insurer’s conduct in Gamache as an “unjustified refusal to defend under its policy.” Gamache, supra at 95. That the same may not be said of the defendant in this case, where the policies issued by the defendant to the trustees were never retrieved, is of no consequence. Assessment of attorney’s fees against the insurer in Gamache was not dependent on a finding that the insurer had acted unjustly in refusing coverage. We expressly declined to follow the decisions of those courts which deny recovery of attorney’s fees and expenses in actions to establish an insurer’s duty to defend unless there is a showing that the insurer has acted in bad faith or has engaged in vexatious litigation. See id. at 96, and cases cited. Furthermore, we stated in Gamache, supra at 98, without the qualification advocated by the defendant, that an insured “is entitled to the reasonable attorney’s fees and expenses incurred in successfully estabhshing the insurer’s duty to defend under the policy.”
“Whether an insurer’s refusal to defend was in good or bad
Accordingly, the only considerations relevant to our inquiry are that the trustees paid premiums to, and purchased comprehensive general liability insurance from, the defendant covering the Newton property. At least one of the insurance policies covered the claims at issue in the damages action instituted by the new owners of the property. After the damages action was filed, the trustees requested that the defendant assume defense of the action, but the defendant declined. The trustees then commenced a declaratory judgment action, and secured a judgment that the defendant was obligated to provide a defense to the claims. Because the trustees established that the defendant violated its duty to defend them in the damages action, they are entitled to an award of the reasonable attorney’s fees and expenses incurred in the declaratory judgment action.
2. The case is remanded to the Superior Court for assessment of the reasonable attorney’s fees and expenses incurred by the
So ordered.
The defendant relies on the Maine Supreme Judicial Court’s decision in Gibson v. Farm Family Mut. Ins. Co., 673 A.2d 1350, 1355 (Me. 1996), to assert that an insured should only be awarded attorney’s fees “when the insurer resists a duty to defend that is clear from the policy and the pleadings filed against the insured.” The approach adopted by the Maine Supreme Judicial Court is in essence the “bad faith” standard we declined to adopt in Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 96 (1997) (Gamache). See Union Mut. Fire Ins. Co. v. Topsham, 441 A.2d 1012, 1019 (Me. 1982) (“When the duty to defend is clear from the policy and the pleadings, so that the insurer’s commencement of the declaratory judgment action must be attributed to a refusal in bad faith to honor its obligation under the policy, the insured should be entitled to his reasonable attorneys’ fees in defending the declaratory judgment action . . .”).
An insurer must tread cautiously regarding its duty to defend an insured against third-party actions in view of the expansive interpretation given to that duty. See, e.g., Simplex Techs., Inc. v. Liberty Mut. Ins. Co., ante 196, 197-199 (1999).
We reject the defendant’s argument that the rule in Gamache should not be applied retroactively. The trustees had requested an award of attorney’s fees in the Superior Court, and Gamache was decided the day after the appeal was entered in the Appeals Court.