A federal district court, applying Massachusetts law, has held that damages awarded under Massachusetts Code Chapter 93A based on a finding of knowing and willful conduct constituted “malicious” acts triggering the liability policy’s dishonesty exclusion.  Am. Guarantee & Liability Ins. Co. v. Lamond, 2014 WL 3735905 (D. Mass. July 29, 2014). The court also concluded that the statutory attorneys’ fees awarded under Chapter 93A are penal in nature and thus are not covered under a liability policy that excludes coverage for penalties.

The insurer issued a professional liability policy to an attorney.  The policy’s definition of “Damages” excluded coverage for criminal or civil fines, penalties (statutory or otherwise), fees or sanctions; punitive, exemplary or multiplied damages; and legal fees and costs paid to the insured.  The policy excluded from coverage any claim based on an act or omission that was intentional, criminal, fraudulent, malicious or dishonest.

A former client sued the insured attorney after the attorney represented the client in the purchase of land that the attorney knew, but did not disclose, was a protected Indian burial site.  The jury awarded the client $20,000 for the attorney’s professional negligence and $397,000 in damages for the attorney’s deceptive acts and practices under Chapter 93A, which amount was doubled to $794,000 based on a finding of willfulness on the part of the attorney.  The court also awarded the client attorneys’ fees.

The insurer argued that none of the client’s recovery was covered under the policy, and coverage litigation ensued.  The court in the coverage litigation held that, because the jury expressly found that the insured’s conduct was willful and knowing, the insured’s conduct was “malicious”, thus triggering the policy’s dishonesty exclusion.  Accordingly, the actual damages awarded under Chapter 93A were not covered under the policy.  The court also held that the policy excluded coverage for the multiplied damages under the punitive damages exception to the definition of “Damages.”  With respect to the statutory attorneys’ fees, the court concluded that the fee award is a statutory penalty intended to deter misconduct and to punish wrongdoers and, therefore, the exception to the definition of “Damages” for penalties barred coverage for the attorneys’ fees.  Finally, the court held that the exception to the “Damages” definition for any return of fees paid to the insured barred coverage for the damages based on the attorney’s professional negligence, because that amount represented a return of the fees that the client had paid to the attorney.