Insurer Must Pay Attorney’s Fees and Costs Awarded against Insured Even Though Damages Were Not Covered by the Policy

The Idaho Supreme Court has ruled that an insurance company was obligated to pay costs and attorney’s fees awarded in an action against its insured ? even though the compensatory damages awarded against its insured were not covered by the policy.

The Case 

After a fire at their home, David and Kathy Donnelly hired Rimar Construction, Inc. (“RCI”) to do repairs. The couple subsequently sued RCI, which was defended by its commercial general liability insurer, Employers Mutual Casualty Company (“EMC”). A jury found that RCI had breached the implied warranty of workmanship, and the court awarded the Donnellys $128,611.55 in compensatory damages and $296,933.89 in attorney’s fees and costs.

EMC filed a declaratory judgment action against the Donnellys and RCI to establish that it had no duty to pay any of the amounts awarded to the Donnellys. In that action, the court ruled that as contract-based damages there was no insurance coverage for the compensatory damages awarded to the Donnellys, but that there was coverage for the award of $296,933.89 in attorney’s fees and costs.  EMC appealed.

The Idaho Supreme Court’s Decision 

The Idaho Supreme Court affirmed the court’s decision thatEMC had a duty to pay the attorney’s fees and court costs taxed against RCI even though no part of the damages awarded to the Donnellys was covered by the policy.

It explained that the Donnellys had alleged damages that triggered coverage, that EMC therefore had defended RCI, and that the policy provided that EMC would pay all costs taxed against RCI in any suit defended by EMC.  Accordingly, the court concluded, EMC had to pay “[a]ll costs taxed against the insured in the ?suit,'” and it affirmed the district court’s decision that EMC was obligated to pay the $296,933.89 in attorney’s fees and costs awarded against RCI in the Donnellys’ action.

The case is Employers Mutual Casualty Co. v. Donnelly, No. 38623 (Idaho Apr. 19, 2013).