Massachusetts SJC Denies Insurer’s Attempt to Net Attorney Fees

Gamache Exception to American Rule is For Insureds, Court Says

Where an insurance company successfully brought a declaratory judgment action establishing another insurer’s duty to defend a policyholder, the successful insurer is not entitled to an award of the counsel fees incurred in prosecuting the declaratory judgment action.

“It is well settled that an insured is entitled to recover reasonable attorney’s fees and expenses incurred in successfully establishing the insurer’s duty to defend under the terms of the policy. See Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 98 (1997) (Gamache). What happens when the party incurring attorney’s fees and expenses to establish the insurer’s obligation to defend is not the insured but a different insurer that has defended and provided coverage to the insured? That is the question raised in this case. We answer that the exception to the American Rule in Gamache and its progeny does not extend to allow the prevailing insurer recovery of its attorney’s fees associated with an action brought to establish the defense and coverage responsibility of another insurer. …

“The policy underlying the Gamache exception to the American Rule is not to punish wrongdoers or to reward those who act responsibly. Rather, it is a policy designed to protect the insured’s right to receive the full benefit of its liability insurance contract. Through the successful declaratory judgment action, [John T.] Callahan [& Sons, Inc.] did receive that benefit at no cost to itself, thanks to Zurich [American Insurance Company]. But Zurich also received a separate and very real benefit from the action: the requirement that Worcester [Insurance Company] reimburse Zurich for one-half the settlement amount and one-half the attorney’s fees. Application of the American Rule to Zurich in this context deprives the insured, Callahan, of nothing, and comports with established practice.”

John T. Callahan & Sons, Inc., et al. v. Worcester Insurance Co. (Lawyers Weekly No. 10-046-09) (8 pages) (Botsford, J.) (SJC) Case heard by Chernoff, J., on motions for summary judgment, and a motion for entry of final judgment and award of attorney’s fees also heard by him. Aaron R. White, of Boyle, Morrissey & Campo, for the plaintiffs; David F. Hassett and Scott T. Ober, both of Hassett & Donnelly, for the defendant (Docket No. SJC-10180) (March 19, 2009).

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