The Ohio Supreme Court held on May 4, 2010 that attorneys fees
awarded as a result of a judgment for punitive damages are
insurable under an automobile policy. Lahman et al. v. Allstate
Insurance Company, 2010-Ohio 1829. While affirming Ohio's
longstanding prohibition on insuring punitive damages, the court
drew a bright line between coverage for punitive damages and
coverage for attorneys fees based solely on a punitive damage
award.
Allstate insured Linda Lahman under an automobile policy in which
it agreed to "pay damages which an insured person is legally
obligated to pay because of: ... bodily injury sustained by any
person." Kimberly Neal-Pettit sued Ms. Lahman for compensatory
and punitive damages arising out of injuries sustained in an
automobile accident allegedly caused by Ms. Lahman while
intoxicated. In addition to compensatory damages, the jury awarded
Ms. Neal-Pettit $75,000 in punitive damages. The jury also awarded
Ms. Neal-Pettit $46,825 for attorneys fees based on its finding
that Ms. Lahman acted with malice supporting a punitive damage
award.
Allstate denied payment of both amounts. Following the trial
court's entry of summary judgment for Ms. Neal-Pettit on her
supplemental complaint against Allstate, the Eight District Court
of Appeals affirmed. Neal-Pettit v. Lahman, 2008-Ohio-6653
(8th Dt. 2008). By a vote of 4-2, the Ohio Supreme Court affirmed
the Court of Appeals on three grounds. Justice Lanzinger authored
the majority opinion.
First, the court held that the attorney fee award constitutes
covered "damages" under the policy. The court
acknowledged that attorneys fees could not have been awarded but
for the punitive damage verdict. However, the court concluded that
the two awards, while related, are distinct. Determining that
attorneys fees are not an element of the punitive damage award, the
court held that attorneys fees are compensatory, not punitive, and
therefore constitute "damages" under the policy.
Second, based on the very same reasoning, the court held that
Allstate's policy did not exclude coverage for attorneys fees
simply by virtue of excluding coverage for punitive damages.
Third, the court held that Ohio's public policy does not
prohibit coverage for attorneys fees derived from a punitive damage
verdict. The court recognized Ohio Revised Code section
3937.182(B), which prohibits automobile policies from providing
punitive damage coverage. Nevertheless, the court declined to read
what it deemed to be an additional prohibition on coverage for
attorneys fees into the statute.
The court also recognized its prior decisions holding that, as to
all insurance policies, coverage for punitive damages is against
Ohio's public policy. Those decisions hold that Ohio law may
not encourage malicious behavior by allowing insurance coverage for
such behavior. However, the court determined that because
uninsurable punitive damages are available to discourage malicious
wrongdoers, coverage for related attorneys fees will not encourage
wrongful behavior.
Justice Lundberg-Stratton dissented, joined by Justice
O'Donnell. The dissent agreed with Allstate that an award of
attorneys fees is punitive in nature because it is directly
dependent on the award of punitive damages, and would likely have
to be reversed if the punitive damage award were reversed. Justice
Lundberg-Stratton would have reversed the Court of Appeals because
Allstate's policy unambiguously bars coverage for punitive
damages, because attorneys fees are punitive and not compensatory,
and because public policy bars such coverage.
Notwithstanding the dissent's recognition of what Allstate
expected based on its policy language and certain prior cases, the
law is now clear. Absent an express prohibition on coverage for
attorneys fees in the policy, such fees will be covered even if
based on an excluded punitive damage award for which public policy
would not allow coverage in any event.
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