If you agree by contract clause to pay the prevailing party’s attorneys’ fees, and the court would not have imposed those fees in the absence of the contractual obligation, the professional liability policy will not cover those fees as “damages.” The contractual liability exclusion in the policy applies to prevailing party fees and excludes them from coverage.
When my firm reviews contracts some of our insurance carrier clients like us to delete the clause altogether so as to avoid this uninsurable liability. I prefer, however, to leave the prevailing party clause in the contract but to carefully define who is the prevailing party. In the sample clause below, we state that if a party makes a claim and fails to win at least 67% of its claim, then the other party is deemed to be the prevailing party. We believe this can be beneficial to discourage firms, such as design-build contractors, from filing inflated claims against their subcontractors with the hope of getting a better settlement in their favor.
As we have reported in previous ConstructionRisk Reports, some courts have found that a party is deemed the “prevailing party” on a huge claim even if it only recovered on one small aspect of the claim in some minor dollar amount. Rather than allowing courts to interpret who is deemed the prevailing party, we prefer to define the terms like this:
“Prevailing party is the party who recovers greater than 67% of its total claims in the action or who is required to pay no more than 33% of the other party’s total claims in the action when considered in the totality of claims and counterclaims, if any. In claims for monetary damages, the total amount of recoverable attorney’s fees and costs shall not exceed the net monetary award of the Prevailing Party.”
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 27, No. 4 (May 2025).
Copyright 2025, ConstructionRisk, LLC
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