In Employers Mutual Casualty Co. v. Donnelly, No. — P.3d —-, 2013 WL 1693661 (Idaho Apr. 19, 2013), a majority of the Idaho Supreme Court affirmed a declaratory judgment action decision that an insurer was required to pay costs and attorneys’ fees taxed against the insured in the underlying action, while affirming that the awarded damages were excluded from coverage. Additionally, the majority affirmed that the plaintiffs in the underlying action were not entitled to attorneys’ fees in the declaratory judgment action under the relevant statutes.
David and Kathy Donnelly hired Rimar Construction, Inc. (RCI) to repair and remodel their home. The Donnellys filed suit against RCI alleging various causes of action, including breach of contract and breach of warranties, and damages. RCI had a commercial general liability policy issued by Employers Mutual Casualty Company (EMC).
EMC filed a declaratory judgment action in the state district court to establish that it did not have a duty to pay any damages claimed or awarded to the Donnellys in the underlying action. The declaratory judgment action was stayed pending the verdict in the underlying action; the Donnellys were ultimately awarded $128,611.55 in damages and $296,933.89 in costs and attorney fees against RCI. Thereafter, the district court entered summary judgment in the declaratory judgment action, concluding that although the policy did not afford coverage for the Donnellys’ damages because they were contractual, the policy afforded coverage for the costs and attorneys’ fees. The district court denied the Donnellys’ attorneys’ fees in the declaratory judgment action. Both EMC and the Donnellys appealed.
The majority of the Idaho Supreme Court affirmed the district court’s decision with respect to the attorneys’ fees and court costs taxed against RCI. The court reasoned that EMC’s duty to pay stemmed from its duty to defend as articulated in the supplementary payments section of the policy. Because the Donnellys alleged damages that implicated the applicable provisions of the policy, EMC was obligated to pay all costs and attorneys’ fees awarded against RCI in the underlying action.
The majority also affirmed the district court’s decision regarding the damages. It concluded that the damages awarded for breach of implied warranty of workmanship were contractual, and the policy expressly excluded contractual damages. Thus, EMC did not have a duty under the policy to indemnify RCI for the damages awarded to the Donnellys.
The majority went on to find that the district court did not err in denying attorneys’ fees to the Donnellys under Idaho Code §§ 12-120(3) and 41-1839.
The concurring opinion only addressed the dissent’s arguments. The dissent primarily found that the policy did not afford coverage for costs and attorneys’ fees in cases in which no covered damages were awarded against the insured, and referred to the reasonable expectations of the insured for payment. However, the concurring opinion disagreed with the dissent’s interpretation based on the clear and unambiguous wording of the policy, and further noted that the insured’s reasonable expectations could not have altered the wording.