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

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.