Court overturns fee award against Auto-Owners Insurance Company; position of insurer is wrong but not "frivolous"

Several years ago, a vacationing family suffered severe injuries when the heating system at the Ludington Holiday Inn malfunctioned.  The Inn's insurer, Auto-Owners, refused to defend the family's action the hotel, charging that the pool chemicals that caused the injury were "pollutants" excepted from the Inn's liability coverage.  Ultimately, the Court ruled that while the chemicals might indeed be "pollutants" excluded from the hotel's basic insurance coverage, the policy did not recognize the pollution "vapor" exclusion under its heating system rider:  thus, a pollutant released by a mis-firing heating system was still covered under the policy.

The cases arising out of this incident have now been to appellate courts for several rulings, and this month the Court of Appeals issued a decision on the Hotel's claim that Auto-Owners should be required to pay its attorney's fees.   The trial court had held that Auto-Owner's initial defense based on the pollution exclusion was not "frivolous" but nevertheless awarded fees to the Hotel.  The judge apparently concluded that Auto-Owners should pay fees because it initially defended the claim on a legally-untenable interpretation of its own insurance policy.  The higher court rejected this holding and threw out the award of fees.  Since Auto-Owners' original defense was not "frivolous" [it had "some support" for its legal position], Michigan law did not allow the insured to hold the insurer accountable for the payment of fees.