One of the most misunderstood provisions in a Commercial General Liability policy is the first sentence, which provides that the insurance company promises to provide coverage for damages “because of” bodily injury or property damage. Many people, including seasoned insurance professionals, believe CGL policies merely provide coverage “for” bodily injury or property damage. We see this every day, including in motions filed by insurance companies.
Insurance companies often attempt to restrict coverage to only the bodily injury or property damage at issue in the underlying suit without any consideration of consequential damages. But the term “because of” demonstrates the insurance company’s promise to pay not only for the bodily injury or property damage but also all damages that are “because of” that bodily injury or property damage.
In Assoc. of Apt. Owners of the Moorings, Inc. v. Dongbu Ins. Co., a federal district court in Hawaii recently gave effect to the term “because of” and awarded coverage for the plaintiff’s attorney fees in an underlying property-damage dispute. Following an arbitration award against the policyholder, which included damages for property damage caused by the policyholder and the plaintiff’s attorney fees incurred in prosecuting the action, the policyholder’s insurance company agreed to pay for the property damage, but it refused to pay for the plaintiff’s attorney fees. The insurer argued, like many do, that the attorney fees are not damages for bodily injury or property damage.
After assessing national caselaw on this issue, the court held that the attorney fees awarded “because of” the underlying “property damage” were covered by the clear terms of the policy:
The issue before the Court is not whether attorneys’ fees and costs can be characterized as ‘property damage,’ but whether they can be characterized as damages that [the policyholder] became legally obligated to pay because of property damage. (emphasis in original)
A word to the wise: be wary when an insurance company says “our policy only covers damages for bodily injury or property damage.” That’s simply not true. It covers all damages because of bodily injury or property damage.
Opinion reprinted from WestlawNext with permission of Thomson Reuters. If you wish to check the currency of this case by using KeyCite on WestlawNext, please visit www.next.westlaw.com.