A Massachusetts trial court recently held that an insurer must pay the attorneys’ fees incurred by its insured in the successful defense of a duty to defend declaratory coverage action brought by the insurer. Western World Ins. Co. v. Meridian Builders, No. 063696BLS1, 2007 WL 4707802 (Mass.Super.Ct. Dec. 3, 2007). Although well-established Massachusetts law has for some time required an insurer to pay the attorneys' fees of an insured that brings a successful declaratory judgment action concerning coverage, this appears to be one of the first decisions to extend the requirement to the converse circumstance where an insurer brings an unsuccessful declaratory judgment action.
In Western World, the court had previously dismissed the insurer's duty to defend declaratory judgment action as premature. In so ruling, the court held that, where an underlying claimant had done nothing more than serve the insured with a demand letter and had not filed any actual complaint against the insured, no justiciable dispute yet existed as to whether the insurer owed a duty to defend the insurer for the as yet non-existent claims.
Upon dismissal, the insured sought to recover the attorneys’ fees it had incurred in defending the declaratory judgment action. In support of its argument, the insured argued that the court should extend the doctrine created in Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93 (1997), in which Massachusetts' highest court ruled that, despite the usual American rule concerning litigants paying their own attorneys' fees, insurers were required to pay the attorneys’ fees of insureds who successfully sue their insurers to enforce their rights under duty to defend policies. The court agreed, extending the Gamache exception to include insureds who successfully defend against insurers in litigation over the duty to defend and, therefore, permitting the insured to recover its attorneys fees.