Court Opinion

ID: 6452452
Source: CourtListenerOpinion
Date Created: 2022-06-25 12:35:26.732051+00
Date Added: 2024-06-11T15:51:42.814712
License: Public Domain

Spina, J.
We granted further appellate review in this case to consider the question of an insurer’s liability to its insureds for reasonable attorney’s fees incurred to establish the insurer’s duty to defend, where the insurer had neither failed nor refused to defend the insured. See Hanover Ins. Co. v. Golden, 51 Mass. App. Ct. 465 (2001). We agree with the Appeals Court and hold that, if an action for declaratory relief concerning an insurer’s duty to defend under , a liability insurance policy is resolved in favor of the insured, then the insured is entitled to recover attorney’s fees without regard to whether the insurer committed a breach of the terms of the policy.
1. Background. On November 14, 1985, a motor vehicle *585owned by Martin Golden and operated by Catherine Golden struck and injured a pedestrian, Carol Brisette. The vehicle was insured by Hanover. The Goldens notified Hanover of the accident in a timely manner and cooperated in the defense, as required under their policy. The third edition of the Massachusetts Standard Automobile Liability Policy applied at the time.
Brisette filed suit against the Goldens in 1986, seeking damages of $500,000 for herself and $100,000 for loss of consortium for her minor child. The Goldens’ policy provided bodily injury coverage limits of $100,000 per person and $300,000 per accident. Hanover appeared and defended the Goldens. On June 5, 1986, Hanover notified the Goldens that, because Brisette was seeking damages in excess of the policy limits, they could employ additional counsel at their expense to assist in the defense. The Goldens retained counsel for that purpose. On August 27, 1986, Hanover offered the policy limits to settle Brissette’s claim. The offer was rejected.
In August, 1988, after more than two years of discovery, Hanover commenced this action seeking a declaration that its obligations to defend would terminate on payment of the policy limits. The action was based on the provision in the policy that stated: “Our duty to settle or defend ends when we have paid the maximum limits of coverage under this policy.” The Goldens retained counsel to defend against Hanover’s action. On cross motions for summary judgment a judge in the Superior Court ordered judgment for the Goldens on Hanover’s complaint, and denied Hanover’s motion for summary judgment on the Goldens’ counterclaim. The judgment stated that Hanover’s duty to defend would not terminate on payment of the policy limits. The judge ordered, pursuant to Mass. R. Civ. P. 54 (b), 365 Mass. 820 (1974), that the declaratory judgment would enter as a final judgment. On June 5, 1989, Hanover timely filed a notice of appeal. It withdrew its appeal on July 19, 1989, for reasons that do not appear in the record. Hanover continued its representation of the Goldens in Brisette’s case, without interruption. That case eventually settled after Hanover paid the policy limits and the Goldens contributed $12,000.
Trial proceeded on the Goldens’ counterclaim in February, *5861997, before a different judge, sitting without a jury. The judge found that Hanover had not violated c. 93A.2 He did not rule that the Goldens were entitled to attorney’s fees for their defense of Hanover’s action for declaratory relief as Hanover had done nothing that constituted a breach of the terms of the policy. The judge noted that Hanover’s representation of the Goldens in the underlying action was uninterrupted, even after it filed its action for declaratory relief.
2. Discussion. Hanover argues that our decisions in Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93 (1997), and Rubenstein v. Royal Ins. Co., 429 Mass. 355 (1999), establish that an insured may recover attorney’s fees in an action for declaratory relief concerning an insurer’s duty to defend only if the insured prevails in that action and if the insurer is shown to have done something that constitutes a breach of the insurance policy, such as a failure or refusal to defend. Hanover further argues that, because it did nothing that constituted a breach of its insurance policy, the Goldens may not recover their attorney’s fees.
Although the Gamache and Rubenstein cases each involved circumstances that amounted to a breach of the terms of the policy, the principle we articulated does not require the insured to prove the existence of a breach. In Preferred Mut. Ins. Co. v. Gamache, supra at 98, we held “that an insured ... is entitled to the reasonable attorney’s fees and expenses incurred in successfully establishing the insurer’s duty to defend under the policy.” In Rubenstein v. Royal Ins. Co., supra at 359, we expressly stated that the holding in Gamache was not qualified by a refusal to defend.
We have rejected the approach taken by courts that hold that an insured seeking attorney’s fees for establishing the insurer’s duty to defend must show that the insurer “acted in bad faith or fraudulently, or has been stubbornly litigious,” Gamache, supra at 96, or committed a breach of the terms of the insurance *587policy. See Rubenstein, supra at 358-359 & n.3.3 It is immaterial whether the insurer proceeds in good faith or in bad faith to avoid the duty to defend under a liability insurance policy because “[t]o impose upon the insured the cost of compelling his insurer to honor its contractual obligation is effectively to deny him the benefit of his bargain.” Id. at 360, quoting Hayseeds, Inc. v. State Farm Fire & Cas., 177 W. Va. 323, 329 (1986). “The entitlement of an insured to attorneys’ fees and costs incurred in establishing contested coverage depends exclusively on whether that coverage is ultimately determined to exist. It does not depend on whether the denial of coverage by the insurer was reasonable or unreasonable, justified or unjustified, a close question of fact or a matter not even subject to legitimate dispute. The focus is exclusively on the bottom line” (emphasis added). Rubenstein, supra, quoting Commercial Union Ins. Co. v. Porter Hayden Co., 116 Md. App. 605, 713 (1997).
The existence of a breach of the terms of the policy is irrelevant because “a special relationship exists between the insured and the insurer under a liability insurance policy, [wherein] . . . insureds obtain liability insurance to avoid the prospect of being burdened by significant legal expenses.” Rubenstein, supra at 358, citing R. Keeton & A. Widiss, Insurance Law § 9.5, at 1056-1057 (1988), and 7C J.A. Appleman, Insurance Law and Practice § 4691, at 283 (rev. ed. 1979). “The intent of an insured in acquiring liability insurance is to transfer to the insurer the responsibility for defending the insured against any claim which may fall within the coverage of the policy.” Rubenstein, supra at 358. In this respect, liability insurance is “ ‘litigation insurance’ as well.” Id., quoting Bro-hawn v. Transamerica Ins. Co., 276 Md. 396, 409-410 (1975). Thus, as the Appeals Court noted, “[i]t should not matter whether (as in Gamache) the insurer announces withdrawal from the third-party action and sues for a declaration, or (as in the present case) brings a declaratory action and provisionally *588maintains defense of the third-party action pending instruction by the declaration. In either case the insured deserves reimbursement for his reasonable outlay ‘in successfully estabhshing the insurer’s duty to defend under the policy.’ ” Hanover Ins. Co. v. Golden, supra at 468, quoting Rubenstein, supra at 359.
The Goldens were forced to defend Hanover’s action and incur legal fees to establish Hanover’s duty to defend. If they failed to defend that action, they would have risked being defaulted and they would have incurred attorney’s fees they otherwise would not have incurred for the defense of the Bris-sette matter. Instead, they were successful in estabhshing that Hanover’s duty to defend extended beyond its payment of the pohcy limits. They are entitled to recover their attorney’s fees for that effort.
We are not persuaded by Hanover’s suggestion that our holding will provide incentive to insurers to abandon the defense of an insured pending the outcome of an action for declaratory relief. Our holding makes insurers accountable for attorney’s fees in cases where a court determines that abandonment is, or would be, wrongful. There is no incentive for insurers to abandon the defense or to seek abandonment where they have no reasonable likelihood of success, because they will be ordered to reimburse insureds their cost of estabhshing the insurer’s duty to defend, as well as the cost of defending the underlying action. “An insurer must tread cautiously regarding its duty to defend an insured against third-party actions in view of the expansive interpretation given to that duty.” Rubenstein v. Royal Ins. Co., supra at 360 n.4. Although a showing of bad faith is not required for an award of attorney’s fees under our holding in this case, evidence of a bad faith abandonment may provide the basis for other forms of rehef under G. L. c. 93A or other law.4
The judgment on count V of the Goldens’ counterclaim is reversed. The case is remanded to the Superior Court to *589determine the reasonable amount of attorney’s fees and costs incurred by the Goldens in defending Hanover’s action for declaratory relief, and for entry of judgment in such amount.

So ordered.

We are satisfied, as was the Appeals Court, see Hanover Ins. Co. v. Golden, 51 Mass. App. Ct. 465, 467 (2001), that the judge’s findings and rulings on the c. 93A claim were correct. The Goldens did not seek further appellate review of the decision of the Appeals Court.

Hanover also argues that attorney’s fees may not be awarded in the case absent express statutory authority. It did not make this argument in the trial court or in the Appeals Court. Nevertheless, we rejected this argument in Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 96-97 (1997).

The dissent suggests that the result here is inconsistent with the encouragement we gave to insurers in Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 15-16 (1989), to pursue an action for declaratory relief to settle quickly and efficiently the question of any duty to defend. Post at 589-590. The issue of attorney’s fees was not raised in that case, and we did not suggest that an insurer could avoid attorney’s fees in such litigation even if it *589did not prevail. We only intimated that pursuing an action for declaratory relief might be the prudent course where liability looms under G. L. c. 93A.