I have been talking about this a lot lately. A commercial general liability policy does not provide coverage for damages “for” “bodily injury” or “property damage” but, rather, damages “because of” “bodily injury” or “property damage.” There is a real difference. It seems like a day does not go by that I do not hear, or read, the mistaken use of “for” -- and not the correct “because of” -- when describing the nature of “bodily injury” or “property damage” coverage in a CGL policy. I’m counting myself here too. It’s an easy mistake to make and a hard habit to beak.

This distinction was clearly on display in Association of Apt. Owners of the Moorings v. Dongbu Ins. Co., No. 15-497 (D. Hawaii Aug. 18, 2016) where the court addressed the availability of CGL coverage for attorney’s fees awarded to a successful plaintiff in a construction defect-type suit.

The case goes like this. The Bradens filed a demand for arbitration against their homeowner’s association alleging that it failed to repair and maintain their lanai roof – a common element -- which caused water damage to the interior of their unit. The arbitrator found in favor of the Bradens and (1) awarded them $6,203.49, being the amount they had paid to repair their roof and interior damage; (2) required the association to contract with a licensed roofing contractor to perform all necessary and reasonable work on the roof; and (3) concluded that they were the prevailing parties and awarded them $85,644.30 in attorneys’ fees and $8,515.91 in costs.

Dongbu Insurance Co., the association’s insurer, agreed to reimburse the association $6,203.49 in special damages and $8,515.91 in costs, but would not pay the attorneys’ fees award, concluding that “the award of attorney’s fees is not covered under the relevant insurance policy because, simply put, attorney’s fees do not constitute ‘bodily injury,’ ‘property damage,’ or ‘personal and advertising injury’ as those terms are defined in the policy.”

The association was not convinced and filed a coverage action. The court described the issue like this. “The policy states that it ‘will pay those sums that the [association] becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.’ . . . The arbitrator found the Bradens suffered property damage due to leaks in their lanai roof. . . . Consequently, the sole question for this Court to decide is whether the arbitrator’s award of attorneys’ fees constituted ‘damages because of . . . [the Bradens’] ‘property damage.’”

The court, noting the absence of Hawaii law on the issue, looked to decisions nationally. Following this review it concluded that the attorney’s fees are covered and must be reimbursed to the association: “The terms ‘damages’ and ‘because of’ are not defined in the Policy. As noted by the APL Co. court, however, the ‘ordinary and popular definition’ of ‘damages’ is ‘any remunerative payment made to an aggrieved party, including restitutive and punitive measures.’ The Hawaii Supreme Court has not defined ‘because of,’ but it has defined the synonymous term ‘arising out of’ as ‘originating from,’ ‘having its origin in,’ ‘growing out of,’ or 'flowing from.’ Based on these definitions, the attorneys’ fees are covered by the Policy if they flowed from the Bradens’ property damage and constitute restitutive payment to the Bradens. This Court finds that the fees award is restitutive payment to the Bradens and flowed from their property damage; but for their property damage, they would not have pursued arbitration and been awarded fees.”

The court rejected the insurer’s argument that attorney’s fees do not constitute “property damage:” “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 insured] became legally obligated to pay because of property damage.” (emphasis in original).

As I said, it is easy to use “for” “bodily injury” or “property damage” and “because of” “bodily injury” or “property damage” interchangeably when discussing the nature of coverage in a CGL policy. But more precision is required.