Although attorney fees are not generally awarded to successful litigants under Ohio law, Ohio courts have long-recognized that “attorney fees may be awarded as an element of compensatory damages where the jury finds that punitive damages are warranted.” Columbus Finance, Inc. v. Howard, 42 Ohio St. 2d 178, 183 (1975). The Ohio Supreme Court’s recent decision in Neal-Pettit v. Lahman, 125 Ohio St. 3d 327 (2010), is significant because it held that an insurer was required to cover an award of attorney fees against its policyholder despite Ohio’s prohibition on insuring punitive damages awards and the policy’s corresponding exclusion for punitive damages. While, without question, this decision has significant implications in the insurance context, it may impact the recoverability of attorney fees in the context of business torts and commercial contracts. Because of the Neal-Pettit decision, when negotiating damages exclusions in any contract governed by Ohio law, unless the clause at issue specifically excludes “attorney fees,” a contracting party, or a defendant and its insurer, may find itself liable to pay attorney fees in Ohio.
The insurance policy involved in Neal-Pettit covered damages from bodily injury and, as expected, excluded “punitive or exemplary damages, fines or penalties.” Neal-Pettit, 125 Ohio St. 3d at 330. The insurer, Allstate, argued that it was not obligated to pay the attorney fee award because this award was based on a finding of malicious conduct by its insured and, as a result, was a component of punitive damages that was not subject to coverage pursuant to the policy, Ohio statute, and Ohio public policy. Id. at 329-330.
The Court rejected this argument for two reasons. First, relying on precedent from the 1800s and its more recent decision in Zappitelli v. Miller, 114 Ohio St. 3d 102 (2007), the Court emphasized the compensatory nature of an attorney fee award and reaffirmed its prior holdings that such an award is an element of compensatory, not punitive, damages.
The second reason that the Court rejected Allstate’s argument was based on the specific language of the policy. Allstate’s argument that the policy’s definition of “damages because of bodily injury” did not include attorney fees was rejected because it did not specifically exclude such costs and, as a result, was construed against the drafter-insurer. Neal-Pettit, 125 Ohio St. 3d at 330. Moreover, Allstate’s argument that the policy’s exclusion for “punitive and exemplary damages” precluded coverage for the attorney fees was also rejected because the Court reiterated that the attorneys fee award was an element of compensatory damages and, also, because the policy exclusion did not specifically include the language “attorney fees.”
As a result of the Neal-Pettit decision, parties to an insurance policy need to be mindful of whether and how the policy specifically deals with the issue of attorney fees. If you are the insured, silence on the issue may serve you well given this recent decision. If you are the insurer, absent a specific policy exclusion -- separate from the punitive damages clause -- the tortfeasor and the injured party may be looking to you to pay the injured party’s attorney fees irrespective of whether the claim is resolved through settlement or trial.
In the business tort or commercial context, contracting parties may believe that a contract’s exclusion for punitive and/or exemplary damages precludes recovery of attorney fees for a successful claim. However, given the Neal-Pettit decision and its reaffirmation that attorney fees are compensatory in nature, parties negotiating contracts governed by Ohio law should be mindful of this potential issue. It could be an unforeseen windfall, pitfall or, at the very least, a point of leverage when negotiating a settlement.