Sixth Circuit Holds Attorneys’ Fee Award Does Not Constitute Damages Under Professional Liability Policy

Kent Crocker | PropertyCasualtyFocus

The Sixth Circuit Court of Appeals affirmed an order granting summary judgment in favor of the insurer in Wesco Insurance Co. v. Roderick Linton Belfance LLP, holding that the award of attorneys’ fees was a “sanction” and thus was not covered damages under the Wesco professional liability policy.

This matter concerned an award of attorneys’ fees stemming from claims that were brought against schools under the Individuals with Disabilities Education Act (IDEA). The IDEA provides federal funds to states to ensure that students with disabilities receive an appropriate education tailored to their needs. When parents believe that a school has failed to live up to the IDEA’s expectations, they can raise their concerns via an administrative process. If that process fails, the IDEA provides parents a cause of action against schools to obtain judicial relief. However, if the suit against the school is frivolous or was filed for improper purposes, the IDEA has a fee-shifting provision that permits the school to recover its attorneys’ fees from the filing attorney.

Here, three attorneys jointly pursued four IDEA claims against four school districts in Ohio, alleging a failure to provide their student clients with an appropriate education. After significant administrative litigation, a hearing officer found for the school district in each proceeding. Two of the three attorneys then pursued one of the claims in court against the Akron School District. The trial court ruled in favor of the Akron School District, and the Sixth Circuit affirmed. The school districts then sued the firm that employed the attorneys, alleging that the claims were frivolous, and sought an award of attorneys’ fees pursuant to the IDEA’s fee-shifting provisions.

Wesco issued a professional liability policy to the law firm that employed the attorneys that was in effect during the IDEA proceedings. Wesco refused to defend and indemnify the attorneys and then sought a declaratory judgment that the policy did not apply. Wesco contended that the policy defined “damages” to exclude an award of “sanctions” under “federal” law. The district court granted summary judgment for Wesco, agreeing that the attorneys’ fee award for the school districts under the IDEA was a “sanction” and thus was not “damages” under the policy. Two of the three attorneys then appealed.

The Sixth Circuit reviewed the policy’s definition of “damages,” which stated that “damages” did not include, among other things, “civil or criminal fines, sanctions, penalties or forfeitures, whether pursuant to federal, state or local law, statute, regulation or court rule and injuries that are a consequence of any of the foregoing.” Ultimately, the Sixth Circuit held that because the school districts had shown the attorneys violated their duties not to file complaints that were “frivolous” or for an “improper purpose,” it was clear that the awarded attorneys’ fees constituted a “sanction” under the ordinary meaning of the term. Accordingly, the Sixth Circuit affirmed the district court’s ruling that an award of attorneys’ fees under the IDEA constituted a sanction that was not covered under the Wesco professional liability policy.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

California Appellate Court Rules That Mistakenly Grading The Wrong Land Is Not An Accident

Jared De Jong and Scott S. Thomas | Payne & Fears

In a decision that further muddies the already murky waters of “occurrence” jurisprudence, the California Court of Appeal has ruled that a general liability policy does not cover a homeowner who mistakenly grades the wrong piece of land because the act of grading land is not “accidental.”

In Ghukasian v. Aegis Security Insurance Company, ___ Cal. App. 5th ___, 2022 WL 1421511 (2022), a homeowner instructed her contractor to clear and level a piece of land that the homeowner believed was part of her property. Unfortunately, the land was owned by a neighbor, who sued the homeowner and the contractor for trespass and negligence. The homeowner tendered to her insurer, Aegis. The homeowner’s policy contained a standard insuring agreement creating coverage for property damage caused by an “occurrence,” defined by the policy as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The insurer denied coverage, arguing that intentionally grading land is not an accident. Coverage litigation ensued.

The trial court granted summary judgment in the insurer’s favor. On appeal, the homeowner argued that the California Supreme Court’s most recent “occurrence” decision, Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., 5 Cal. 5th 216 (2018), overruled two prior decisions holding there is no coverage for intentionally – but mistakenly – encroaching on land because such conduct is not an “accident.” Ledesma involved claims of negligent hiring and retention against an employer. After surveying the history of occurrence law, the Supreme Court in Ledesma concluded that an employer’s negligence in hiring an employee is accidental, even if the employee commits an intentional tort. In Ghukasian, the Court of Appeal rejected the homeowner’s reliance on Ledesma. The appellate court explained that Ledesma did not change California occurrence law or overrule prior cases. The court noted that unlike Ledesma, where the employer was one step removed from the non-accidental conduct, the homeowner here committed the deliberate act herself. In addition, the court explained that coverage does not exist simply because the neighbor sued for negligence, since coverage is determined by analyzing the factual allegations, not the labels attached to causes of action.

The takeawayGhukasian is troubling case. It shows that Ledesma, which policyholders assumed would clarify and correct earlier decisions, might not be as far reaching or helpful as anticipated. Ghukasian also shows that some courts will accept aggressive “no-occurrence” arguments by insurers. Ghukasian offers a cautionary tale: Many acts that result in unintended damage, such as hiring an employee or grading land, can be characterized as deliberate and, according to Ghukasian, not covered by liability insurance. Moving forward, we expect to see more denials and disputes on the occurrence issue, particularly in industries like construction, where policyholders do not “accidentally” build things.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Construction Defect Claims Not Covered

Tred R. Eyerly | Insurance Law Hawaii

    The court found that the insured’s negligent acts causing damage to only the structure of the home it built were not covered under the CGL policy. Westfield Ins. Co. v. Zaremba Builders II LLC, 2022 U.S. Dist. LEXIS 36189 (N.D. Ill. March 2, 2022).

    Zaremba contracted to build a house for the Vrdolyak Trust. After completion of the home, the occupants found many problems, including painting defects such as bubbling and peeling, leaving the basement full of water for months, causing damage to ductwork, framing and piping in the house, etc. The Trust sued and Westfield denied a defense.

    Westfield filed a declaratory judgment action for a ruling that it had no duty to defend or indemnify. On Westfield’s motion for summary judgment, the court determined there was no property damage. Property damage included “physical injury to tangible property.” When the alleged damage occurred in the course of a construction project, tangible property had to be property outside the scope of the contract for project. 

    Zaremba’s construction project encompassed the entire home. The underlying complaint alleged only damage to the structure itself, or damage that fell within the scope of Zaremba’s contract. All the alleged damage constituted damage to the very house Zaremba was contracted to build. Therefore, it did not quality as “property damage” under the policy.

    Zaremba argued he purchased Products-Completed Operations coverage. But purchase of the coverage did not mean that, once the project is complete, any damage to the project itself was covered. While the Products-Completed Operations provision extended the grant of coverage in the insuring agreement to completed products or operations, it remained limited by the terms of that grant of coverage. Here, the insuring agreement required that an “occurrence” result in “property damage’ to trigger coverage. There was no property damage here when the underlying complaint alleged only construction defects causing damage within the scope of the contracted-for project. 

    Therefore, summary judgment was granted to Westfield. 

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Illinois Appellate Court Finds No CGL Coverage for Defective Elevator Suit

Andrew Daechsel | PropertyCasualtyFocus

In the recent decision of Korte & Luitjohan Contractors Inc. v. Erie Insurance Exchange, the Fifth District Appellate Court of Illinois reaffirmed that, under Illinois law: (1) construction defects generally do not trigger coverage under commercial general liability insurance policies; (2) such policies generally do not cover the cost to repair construction defects or economic losses resulting from construction defects; and (3) parol evidence is irrelevant to the interpretation of an unambiguous insurance policy.

image of a pair of elevators

The case involved Korte & Luitjohan Contractors Inc.’s claim for coverage under its commercial general liability policy issued by Erie Insurance Exchange for an underlying lawsuit filed against K&L by a library. In the underlying lawsuit, the library alleged that it hired K&L to complete a construction project at its building, which included the installation of two elevators. The elevators allegedly failed to perform properly. For example, the library alleged that the elevators occasionally trapped individuals, failed to go to the correct floors, failed to close, and failed to respond when called. Additionally, one of the elevators allegedly was out of order for approximately one month. The library alleged that it “incurred damages as a result of the failure of [K&L] to provide reliable, functioning elevators.” Based on these allegations, the library asserted claims against K&L for breach of contract, breach of implied warranty of merchantability, breach of warranty of fitness for a particular purpose, and breach of an express, written warranty.

In the coverage action, the trial court entered summary judgment in favor of Erie, holding that Erie had no duty to defend or indemnify K&L as to the underlying lawsuit. The appellate court affirmed. The appellate court explained that, for the underlying lawsuit to trigger the policy’s insuring agreement, it needed to allege “property damage” caused by an “occurrence.” Like many CGL policies, the policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,” and the policy defined “property damage” as:

  1. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
  2. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

The appellate court explained, “Although the policy does not define ‘accident,’ it has been defined throughout Illinois case law as ‘an unforeseen occurrence, usually of an untoward or disastrous character or an undesigned sudden or unexpected event of an inflictive or unfortunate character.’” Furthermore, “under Illinois law, construction defects do not constitute an accident or occurrence necessary to trigger coverage under commercial general liability policies.” The appellate court also stated: “[T]he policy at issue contains the standard policy definition of property damage … and ‘differentiates between physical damage to tangible property and intangible property losses, such as economic interests.’ ‘Courts do not consider the latter types of losses to be ‘property damage.’”

Based on this legal framework, the appellate court held that the policy did not provide coverage for the underlying lawsuit, explaining as follows:

[T]he underlying complaint alleges that [K&L] breached its contract by providing, through its subcontractor, elevators that were faulty and/or installed ineffectively. The complaint does not allege that any of the [library’s] property was damaged because of the faulty elevators. The complaint does not seek money damages for any property damage, but rather, seeks compensation for correctly completing the installation of the elevators, and for economic losses the [library] sustained because of having to use the faulty elevators until they could be repaired. Accordingly, we find that the underlying complaint does not allege “property damage” caused by “an occurrence” as required by the policy to trigger coverage.

The appellate court also affirmed the trial court’s order denying K&L’s motion to compel discovery of information regarding Erie’s correspondence with the Insurance Service Office (ISO) and other ISO information. The appellate court stated that this information was parol evidence, which was irrelevant because the policy was unambiguous and “[p]arol evidence is not appropriate to interpret policy language that is facially unambiguous.”

Furthermore, in the trial court, K&L had attempted to introduce expert testimony regarding the correct interpretation of the policy. The appellate court affirmed the trial court’s decision to bar this expert testimony because the policy was unambiguous and, “[i]n the absence of ambiguity, expert testimony is inappropriate.”

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email

Tricky Insurance Endorsements Can Weaken Your Liability Coverage

Carolyn Mount and Seth Row | Miller Nash

Every contractor and subcontractor is required to carry liability insurance referred to as Commercial General Liability or “CGL” coverage. These policies are fairly standardized and most people assume that the coverage that is presented on the front declarations page is all that they need to know: the policy’s coverage limits, time period, and deductible. But increasingly insurance companies are adding endorsements (additional forms modifying coverage) to these policies that can weaken the coverage that is actually provided if there is an accident. In this article, we’ll discuss two particular endorsements to look out for—but these aren’t the only ones that can cause problems! At renewal time, make sure to talk to your broker about every endorsement to your policy.

  • The “Limited Coverage” Endorsement Can Reduce Your Limits to Almost Nothing Based on an Obscure Rule of Coverage Law: “Efficient Proximate Cause.” When there is an accident that is caused by more than one cause, and one of those causes is excluded under the policy, courts often apply the “efficient proximate cause” rule. Under that rule, if the initial (or “incepting”) cause of loss is covered, then there is coverage under the policy regardless of whether subsequent events within the chain of causation are excluded by the policy. For example, if a fire (a covered cause) erupts, triggering sprinklers and causing water damage to the floors, an insurer cannot deny coverage based on a “water damage” exclusion, because the first link in the causal chain—fire—is a covered cause of loss.We are seeing increasing use of an endorsement called “Limited Coverage for Bodily Injury, Property Damage or Personal and Advertising Injury Involving Efficient Proximate Cause (Defense Within Limits).” The endorsement sets a sub-limit of $100,000 when the efficient proximate cause rule results in coverage. That’s a very low sublimit in a policy that usually provides upwards of $2,000,000 in coverage. Adding insult to injury, the Limited Coverage endorsement includes defense costs in the sub-limit—meaning that once $100,000 is incurred to defend the insured, no money remains to indemnify the insured.We believe that this endorsement could exacerbate conflicts between the insurer and the insured. What motivation does an insurer have to provide a competent and vigorous defense when the maximum amount it is liable for both defense and indemnity is already established? It also raises questions about whether the insurer will have to defend until the sub-limit is exhausted or wait until after the proximate causation question is answered by a court. We suggest that policyholders avoid this endorsement as much as possible.
  • The “Defense Costs” Endorsement Can Require You to Repay Your Insurer for “Uncovered” Defense Costs. One of the key benefits of a CGL policy is that the insurer will hire a lawyer to defend you in a lawsuit that alleges damage covered by the policy. Sometimes it is not clear whether the damages are covered are not, but in those situations courts have held that the insurer has to provide a defense anyway, until the issue is resolved at the end of the case. Insurance companies have tried in several cases to force policyholders to reimburse defense costs paid for by the insurance company if it turns out that the damages were not covered after all. Courts have not allowed that to happen, pointing out that nothing in the policy gives the insurance company a right to reimbursement.
     The insurers accepted the invitation and crafted the “Defense Costs” endorsement. The endorsement provides that if the insurer initially defends or pays for an insured’s defense costs, but later “determines that none of the claims” are covered, the insurer has the “right to reimbursement” for the costs incurred. This right to reimbursement only applies only to costs incurred after the insurer has given written notice to the insured “that there may not be coverage and that we are reserving our rights to terminate the defense,” and to seek reimbursement.We are increasingly seeing insurers include in their “reservation of rights” letters that the insurer intends to demand reimbursement of defense costs if it turns out there is no coverage for damages– even when the policy does not carry a “Defense Costs” endorsement. This is an attempt to change the insurance contract after the fact, and should be rejected. But if your policy has a “Defense Costs” endorsement, your options are more limited. This endorsement will incentivize insurance companies to wait to clarify coverage issues until the end and then spring a giant “surprise” defense costs bill on the policyholder. The relationship between insurance companies and their insureds is frequently fraught already—this will make it even more contentious.

These are just two examples of endorsements that we are seeing more and more frequently added to standard-form CGL policies that significantly weaken coverage. Because they are tucked away at the back of long and dense legal documents, they may go unnoticed. Besides, who wants to think about a lawsuit coming out of the woodwork when there is work to be done? But the reality is that lawsuits are a part of being in the construction industry. So make sure you are getting what you think you’ve paid for, and when you renew your liability insurance this year, watch out for sneaky endorsements.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email