Litigant Not Entitled to Attorney's Fees Under High/Low Settlement Agreement

This matter arises from an October 2006 accident when a 3-year-old child, Kristen Jennings, suffered injuries while in the care of the defendant Carol Collins. Ms. Collins was a close family friend of the child’s family and would occasionally watch her. On the day of the accident, Ms. Collins had Kristen in a shopping cart and was pushing it at a jogging pace. Kristen lost her balance and fell out of the cart, causing serious injuries.

Kristen’s father filed a suit on behalf of his daughter seeking damages. Upon being served, Collins submitted the claim to her homeowner’s carrier, Bay State Insurance Company, for a defense and indemnification. During the course of litigation, a coverage dispute arose as Collins stated that she typically (but not always) received $35 per day for babysitting Kristen. Upon learning this information, Bay State filed a declaratory judgment action seeking a determination that it had no obligation to defend or indemnify Collins. Bay State took the position that coverage was not available as Collins was operating a business which was excluded from coverage under the policy.

During the course of litigation, the plaintiff and defendant entered into a high/low settlement agreement of $225,000 and $75,000. This agreement was drafted by the plaintiff and signed by the trial Judge. Under the agreement, Bay State reserved the right to appeal a previous ruling which found that coverage was available under its policy. If Bay State was successful in obtaining a ruling that no coverage was available, the plaintiff would only receive $75,000. If it was found that coverage was available, plaintiff would then receive $225,000. Ultimately, Bay State was unsuccessful on its appeal. This resulted in the high settlement amount being paid.

After the determination that Bay State owed coverage, plaintiff filed a motion seeking an award of counsel fees. Plaintiff’s counsel sought these fees pursuant to R. 4:42-9(a)(6) which provides that in the event that a third party successfully prosecutes a coverage case, attorney’s fees and costs can be available. Plaintiff argued that the high/low settlement agreement only applied to the negligence action and did not preclude them from seeking counsel fees and costs. Bay State maintained that the settlement agreement encompassed all aspects of the case.

Ultimately, the Appellate Division found that plaintiff’s argument was wrong. The court noted that while R. 4:42-9(a)(6) permits the award of counsel fees, it is not mandatory. Under equitable principles, the court should look at the totality of the circumstances surrounding the case. In this matter, the Appellate Division found that the high/low settlement agreement established a cap on the amount Bay State could be required to pay at the conclusion of both the personal injury and the coverage matters. The settlement agreement between the parties established that the plaintiff’s counsel’s fees would be deducted from the gross amount paid by Bay State. The settlement agreement did not provide that the plaintiffs could seek additional fees for a successful outcome in the coverage case.

In the order memorializing the settlement agreement, it is noted “plaintiff’s attorney’s fee will be based on the amount of the costs associated with these matters and the gross amount awarded based on the coverage appeal.” The Appellate Division found that this passage established that the settlement encompassed both the negligent and the coverage cases. The Appellate Division notes that if plaintiff wanted to reserve the right to pursue fees under the coverage action, it should have been included in the settlement agreement.

At the end of the day, this case serves as an important reminder that all litigants must think through the implications of entering into settlement agreements. If there is a question with regard to whether an aspect of the agreement encompasses an issue such as attorney’s fees, that issue must be specifically addressed in the agreement.

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