A woman who defeated an insurance company in a lawsuit is entitled to prejudgment interest after a trial court judge awarded her counsel fees as part of her actual damages, the Massachusetts Appeals Court recently decided.
The insurance company argued it was illogical for the plaintiff to say she lost use of certain funds after filing the lawsuit since she and her lawyer had never entered into a formal fee agreement, and she had not paid him for his services.
But the court disagreed, saying equity favored the plaintiff in the case.
“[T]he case [the insurance company] cites in support of its argument … specifically indicates that if attorney’s fees are part of a plaintiff’s damages, interest should be awarded,” wrote Judge Raya S. Dreben on behalf of the court. “That [the plaintiff’s] counsel, recognizing that she had no assets, was willing to defer payment should not devolve to [the insurance company’s] benefit when its unfair and deceitful actions caused the necessity of legal action and the damages.”
The 10-page decision is Siegel v. Berkshire Life Insurance Co. (Docket No. 06-P-1659).

Costly deception

Richard A. Simons of Pittsfield, Mass., counsel for the plaintiff, said the decision to award prejudgment interest was predicated on the insurance company’s deceptive conduct, which caused his client to be denied a policy that was rightfully hers.
“They were denying her the right to have that policy, which had a value at that point. The only way for her to redeem that was to hire a lawyer and take steps in court to be declared the owner,” he said.
“What we were saying, and what the court agreed with, is that you have to balance the equities, and the record was clear that she had to hire a lawyer in order to obtain what was rightfully taken from her,” Simons said. “The fact that her lawyer did this and wasn’t crass enough to demand payment from her at the time shouldn’t benefit [the insurance company].”
Michael B. Keating of Boston, who represented the insurance company, declined to comment.

Policy decision

For the third time since 2001, the defendant, Berkshire Life Insurance Co., appealed a Superior Court judge’s order in a case in which the plaintiff, Carole Siegel, had sought to recover under her husband’s life insurance policy.
In 1995, the insurance company filed a suit seeking to rescind several of her husband’s insurance policies on grounds of misrepresentation.
Two of the husband’s creditors sued him and the insurance company seeking an assignment of rights in the policy.
In response, the wife filed a suit claiming she owned the policy.
The Appeals Court eventually declared the wife the owner and found the conditions imposed by the insurance company to effect the assignment unreasonable.
In a later ruling, the court held the company had violated the Massachusetts consumer protection law (Chapter 93A) when it conceded in the creditors’ lawsuit the husband was the owner of the policy, which created the misleading impression his creditors could reach it.
To the extent she had incurred legal fees in defending against the creditors’ efforts, the wife successfully claimed they amounted to actual damages resulting from the insurance company’s unfair and deceptive conduct.
“Because the trial judge was under the mistaken impression that he could not treat any portion of [the plaintiff’s] fees as damages, it is necessary to remand the case for findings on this issue,” the Appeals Court said. “The evidence was that [the plaintiff] and her attorney were personal friends, operating under an informal arrangement whereby the attorney would be compensated, if at all, upon successfully concluding the c. 93A case.”
Although there was no written fee agreement between the plaintiff and the attorney, Superior Court Judge Daniel A. Ford, on remand, said it was understood the plaintiff would be charged a reasonable fee for her attorney’s services if she recovered against the insurance company.
Ford also found that although the plaintiff and her lawyer had not made any attempt to “compartmentalize” the various aspects of his work, which included defense of the claims against the creditors, establishment of her ownership of the policy and the Chapter 93A claim, there was an implied agreement he would be compensated for all three.
Finding the insurance company’s violation willful, knowing and outrageous, the judge trebled damages at $195,000, an amount separate from time spent on the Chapter 93A claim.
On a motion for reconsideration, he awarded interest to the plaintiff from the date she filed her cross claim.

Wrongdoer windfall

The Appeals Court said the wife was still entitled to recover prejudgment interest even though she and her lawyer had never reached a formal fee agreement
Given the plaintiff’s circumstances and the insurance company’s conduct, Dreben wrote that to hold otherwise would give the windfall to the wrongdoer.
“[I]t would be unfair in these circumstances to allow [the insurance company] to profit, (i.e., have the use of funds) because of [the plaintiff’s] inability to pay for counsel before [the company’s] liability for its wrongful actions was established,” she said.
Dreben added that the cost of attorneys’ fees was necessary to restore the policy to its value before the insurance company’s misconduct.
In support of her position, she cited the 1997 Supreme Judicial Court case of Commonwealth v. Johnson Insulation, in which prejudgment interest was awarded on damages imposed for the cost of asbestos removal, although some of the costs had yet to be undertaken.
The judge noted that the projected abatement costs in the 1997 case were not future damages, but were instead an estimation of damages that had already occurred.
“Although the analysis in … Johnson Insulation has not been applied to attorney’s fees, it may be argued with some persuasiveness that the injury to [the plaintiff] occurred either when [the insurance company] imposed unjustifiable restrictions on assignment or, at the latest, when it took the position that [the plaintiff’s husband] owned the policy,” she said. “That stance clearly diminished the value of the policy to [the plaintiff] at that time – if upheld it would have reduced its value to her to zero.”