Ohio Supreme Court Expands Scope Of Covered Damages

May 10, 2010

On May 4, 2010, the Ohio Supreme Court affirmed an appellate decision which ordered an insurance company to pay a third-party claimant's attorney fees after those fees were awarded as part of a judgment against the company's insured based on the insured's malicious underlying conduct. According to the Court's Syllabus in Neal-Pettit v. Lahman et al, "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 decision should cause insurers to re-examine their policy exclusions and consider excluding coverage for "attorney fee" awards, either by:

(1) adding a specific exclusion which would preclude such indemnification; or
(2) modifying an existing punitive damages exclusion. 

In the events giving rise to this decision, Kimberly Neal-Pettit filed suit against Allstate Insurance Company insured Linda Lahman for damages sustained in an automobile accident. The suit proceeded to trial, and the jury awarded Neal-Pettit $113,800 in compensatory damages and $75,000 in punitive damages. In addition to the punitive damages, and based on a finding that Lahman's underlying conduct (drunk driving) was malicious, the jury also concluded that Neal-Pettit was entitled to recover her attorney fees from Lahman. The court set the recoverable fees at $46,825. 

After the verdict, Allstate paid Neal-Pettit the amount awarded as compensatory damages, but denied an obligation to pay the punitive damages and attorney fee awards. Allstate argued that the attorney fee award (1) did not constitute damages owed due to "bodily injury"; (2) was excluded from coverage as a "punitive or exemplary damage, fine or penalty"; and (3) was excluded from coverage pursuant to Ohio public policy. 

Affirming the Court of Appeals' decision, the Ohio Supreme Court rejected each of these arguments. The court held that (1) an award for attorney fees based on malicious conduct giving rise to bodily injury is a result of "bodily injury"; (2) there is a distinction between attorney fees and "punitive or exemplary damages," such that the "punitive or exemplary damages" exclusion must be narrowly construed to permit recovery of attorney fee awards; and (3) Ohio public policy only precludes coverage for "punitive damages," not for attorney fee awards, even if the punitive damages and attorney fee award arise out of the same conduct. According to the court, while an attorney fee award "may stem from an award of punitive damages, the attorney-fee award itself is not an element of the punitive-damage award." 

If you have questions about these matters or would like a copy of the Neal-Pettit decision, please contact Bill Harter at wharter@fbtlaw.com or call or email any member of Frost Brown Todd's Tort Defense and Insurance Group.