D&O policy covered multiplied portion of attorneys’ fees

by Chris Graham and Joseph Kelly

Carolina Casualty Ins. Co. v. Merge Healthcare Solutions, Inc., Case Nos. 12-2275 & 12-2341 (7th Cir. July 16, 2013)

D&O insurer sought summary judgment that multiplied portion of attorneys’ fee award was multiplied damages and not covered. Applying Illinois law, Judge Easterbrook denied insurer’s summary judgment motion.

Amicas, Inc. agreed to merge with Thoma Bravo, LLC with Amicas shares valued at $5.35 for the transaction. Some Amicas shareholders filed suit in Massachusetts seeking an injunction. That case settled after Merge offered $6.05 per share. The court awarded the shareholders’ lawyers their fees – namely, $3,150,000 based on a lodestar of $630,000 multiplied by five based on the risk of nonpayment and the favorable result.

Carolina Casualty, in litigation in the Northern District of Illinois, didn’t dispute the $630,000 lodestar was covered, but disputed coverage for the multiplied portion of the fee award. The District Court found the entire fee award was covered. Carolina Casualty appealed.

Carolina Casualty relied on the policy’s definition of Loss, which stated in pertinent part:

“Loss shall not include civil or criminal fines or penalties imposed by law, punitive or exemplary damages, the multiplied portion of multiplied damages, taxes, any amount for which the Insureds are not financially liable or which are without legal recourse to the Insureds, or matters which may be deemed uninsurable under the law pursuant to which this Policy shall be construed.”

The 7th Circuit concluded that an award of attorneys’ fees is different than “damages”.

The Court stated “[t]he context of the phrase ‘multiplied portion of multiplied damages’ tells us that treble damages and the like are the target.”

The Court focused on the list of items excluded from “Loss” “covers a category of losses that insurers regularly exclude to curtail moral hazard—the fact that insurance induces the insured to take extra risks.”

The Court further noted “Adversaries’ attorneys’ fees in commercial litigation are not remotely like punitive damages, trebled damages, or criminal fines and penalties.”

The Seventh Circuit thus concluded the entire $3,150,000 fee award was covered under Carolina Casualty’s policy.

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