Wilkinson v. Citation Ins. Co.

• Decision Date: 17 November 2006
• Docket Number: SJC-09683
• Citation: 856 N.E.2d 829,447 Mass. 663
• Parties: Joseph WILKINSON & another<SMALL><SUP>1</SUP></SMALL> v. CITATION INSURANCE COMPANY & another.<SMALL><SUP>2</SUP></SMALL>
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

856 N.E.2d 829

447 Mass. 663

Joseph WILKINSON & another¹ v. CITATION INSURANCE COMPANY & another.²

SJC-09683

Supreme Judicial Court of Massachusetts, Worcester.

Argued September 6, 2006.

Decided November 17, 2006.

Richard W. Jensen, Boston (William A. Schneider with him) for the defendants.

James J. Walsh for the plaintiffs.

The following submitted briefs for amici curiae:

Anna K. Bennett, Quincy, for Massachusetts Insurance Federation, Inc.

David L. Elkind & John A. Gibbons, of the District of Columbia, Martin C. Pentz, Jonathan M. Ettinger, & Karen Crocker, Boston, for Boston Gas Company.

Guy A. Cellucci & Shane Heskin, of Pennsylvania, & David B. Chaffin, Boston, for Century Indemnity Company.

Laura A. Foggan & John C. Yang, of the District of Columbia, Richard Riley, Boston, & William Mekrut for Complex Insurance Claims Litigation Association.

Present: MARSHALL, C.J., GREANEY, IRELAND, COWIN, & CORDY, JJ.

CORDY, J.

In Preferred Mut. Ins. Co. v. Gamache, 426 Mass. 93, 686 N.E.2d 989 (1997) (Gamache), and its progeny, we articulated an exception to the "American Rule," under which parties to litigation generally bear the expense of their own attorney's fees regardless of the outcome of the case. The Gamache exception allows those who purchase insurance contracts containing a duty to defend provision to recover their attorney's fees when they must resort to litigation against their insurer to enforce that duty. In the present case, we must consider whether to extend that exception to circumstances where the dispute between an insured and an insurer concerns whether a claim falls within the coverage of a policy, that is, whether the insurer has a duty to indemnify the insured for its loss.

For the reasons set forth below, we decline to expand the Gamache exception beyond the duty to defend. Consequently, although we affirm summary judgment granted to the plaintiff insureds on the issue of coverage, we reverse the award of attorney's fees to them.³

1. Background. This case arises out of a fire at the home of Joseph and Darlene Wilkinson. The fire broke out in the home's garage and destroyed, among other items, tools and equipment owned by the Wilkinsons but used by their son, Todd, to maintain his racing cars. The Wilkinsons filed a claim under their homeowner's policy with their insurer, Citation Insurance Company.⁴ The claim included the racing equipment.

A provision in the policy limited coverage for property used for "any `business' purpose" to $3,000. The policy defined "business" as "trade, profession or occupation." After investigating the Wilkinsons' claims, Citation denied coverage beyond the $3,000 limit, concluding that the racing equipment was used for a "`business' purpose" within the meaning of the policy. The Wilkinsons made a written demand under G.L. c. 93A and G.L. c. 176D, alleging that, in denying coverage, Citation had construed the policy incorrectly and engaged in an unfair trade practice. Citation responded with a timely letter denying the allegations. The Wilkinsons then instituted the present action. Their complaint sought a judgment of coverage under the policy, along with damages and attorney's fees under G.L. c. 93A. A Superior Court judge heard the case on cross motions for summary judgment and granted summary judgment for the Wilkinsons on the coverage claim and for Citation on the G.L. c. 93A claim.

The Wilkinsons then filed a motion and application for attorney's fees, arguing that the language of Rubenstein v. Royal Ins. Co., 429 Mass. 355, 708 N.E.2d 639 (1999), provided a right of recovery for attorney's fees in any action in which an insured party must resort to legal action "to obtain the full benefit of his insurance contract." Id. at 359, 708 N.E.2d 639, quoting Olympic S.S. Co. v. Centennial Ins. Co., 117 Wash.2d 37, 53, 811 P.2d 673 (1991). A different Superior Court judge agreed and ordered judgment for attorney's fees in addition to the indemnity amount owed under the policy. Citation appealed from both judgments to the Appeals Court. The Wilkinsons did not appeal from the dismissal of their G.L. c. 93A claim. We transferred the case here on our own motion.

2. Undisputed facts. The following facts are undisputed in the summary judgment record. Todd Wilkinson is employed full time as an operator of heavy equipment in the excavating business owned by his father, Joseph. Most of Todd's time outside of work is devoted to car racing, a pursuit he began in his early teens. Since that time, Todd has taken several specialized training courses in automobile racing and maintenance. Todd races at tracks throughout the northeastern part of the country.

Todd's racing involves many of his friends and family, who contribute time and effort to help Todd maintain his cars, and who serve as his crew and mechanics during races. In addition to occasional prize money, Todd also receives two types of sponsorships from local businesses in connection with his racing. One type allows him to use engines and other components in his racing cars, with the businesses still maintaining ownership of the parts. The other provides him with revenue in exchange for advertising painted on the side of the car he is racing. On the advice of his accountant, Todd opened up a separate banking account to hold these and other funds used for racing. Although Todd uses the name "Wilkinson Racing" in his racing activities, he has not organized a corporation, partnership, or other separate entity by that name. The bank account uses his own Social Security number, and the profit and loss from racing are stated on the personal tax return Todd files jointly with his wife.

Todd's racing activities brought him a substantial amount of income in the years before the fire: approximately $20,000 in both 1998 and 1999, and over $26,000 in 2000. In each of those years, however, the costs of racing exceeded the income it generated, resulting in a net loss for that three-year period of over $12,000. On his tax return, Todd treated those amounts in accordance with the "hobby loss" provisions of the Internal Revenue Code of 1986 (I.R.C.). See I.R.C. § 183(b) (2000). That section allows a taxpayer to offset hobby losses against hobby gains. Any net gain is then taxed at the usual rate for regular income, but a net loss may not be offset against regular income. Accrued hobby losses may only be applied against future hobby gains. This treatment of loss is the opposite of that for "ordinary and necessary expenses paid or incurred ... in carrying on any trade or business," which may be applied to reduce taxable ordinary income for the current year. I.R.C. § 162(a) (2000).

3. Coverage. Citation first asks us to reverse the judge's determination that the "`business' purpose" coverage limits do not apply to the car racing tools and equipment damaged in the fire.

"The standard of review of a grant of summary judgment is whether, viewing the evidence in the light most favorable to the nonmoving party, all material facts have been established and the moving party is entitled to a judgment as a matter of law." Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120, 571 N.E.2d 357 (1991), citing Mass. R. Civ. P. 56(c), 365 Mass. 824 (1974). We therefore construe the facts in the summary judgment record in the light most favorable to Citation.

Before examining the facts, however, we must first determine the meaning of the relevant contractual provision. This is done "according to the fair and reasonable meaning of the words in which the agreement of the parties is expressed." Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146, 439 N.E.2d 234 (1982), quoting MacArthur v. Massachusetts Hosp. Serv., Inc., 343 Mass. 670, 672, 180 N.E.2d 449 (1962). If some ambiguity remains, "doubts as to the meaning of the words must be resolved against the insurance company that employed them and in favor of the insured." Cody v. Connecticut Gen. Life Ins. Co., supra, quoting August A. Busch & Co. of Mass., Inc. v. Liberty Mut. Ins. Co., 339 Mass. 239, 243, 158 N.E.2d 351 (1959). The interpretation of an insurance contract is a question of law. See Cody v. Connecticut Gen. Life Ins. Co., supra.

The critical provision here is the $3,000 limitation on property "used at any time or in any manner for any `business' purpose." The question thus posed is whether Todd Wilkinson's car racing was a "`business' purpose." If so, the equipment he used is subject to the coverage limitation; otherwise, it is not.

The policy gives a brief and general definition of the relevant term, providing only that "`[b]usiness' includes trade, profession or occupation." As these predicate words are not further defined, they add little meaning to the term "business" other than to suggest its use in common parlance, which our cases have taken to be "an activity engaged in for the purpose of gain or profit." Newell-Blais Post #443, Veterans of Foreign Wars of the U.S., Inc. v. Shelby Mut. Ins. Co., 396 Mass. 633, 636, 487 N.E.2d 1371 (1986). We so interpret the contract term.

Citation argues that Todd Wilkinson engages in racing "for the purpose of gain or profit" by reason of the significant amounts of money he received in contributions and prizes, his extensive training, and the sophistication of his crew's operation. Yet none of these standing alone helps differentiate an amateur's hobby from a professional's occupation. Many people undertake competitive activities that consume much time, energy, and money. Prizes and outside contributions may help defray these costs—particularly in a pursuit as expensive as racing cars. For the amateur, though, the "gain or profit" is for the purpose of continued engagement in the pursuit, and not (as in business) vice versa. The amateur may manage his affairs in an orderly and responsible way, much as one would run a business. Indeed, Todd did so, both by keeping a separate accounting of his racing on his tax...