Wednesday, November 25, 2015

Federal District Court transfers hazardous waste coverage case to state of the contaminated site

XTRA Intermodal leased and eventually purchased property in Fairmont City, Illinois.  The site was later discovered to be contaminated with hazardous waste.  XTRA requested coverage for the contamination claims from Federal Insurance Company under policies Federal had issued it in the 1980's and 1990's.

Federal filed a declaratory judgment action in the United States District Court for the District of Massachusetts, seeking rulings on the applicability of pollution exclusions and on how damages and costs of defense should be allocated among all of XTRA's insurers. 

In Federal Ins. Co. v. XTRA Intermodal, Inc., 2015 WL 4275181 (D. Mass.) (unpublished), the United States District Court for the District of Massachusetts allowed XTRA's motion to transfer the case to the federal court in Illinois.

Federal asserted that venue was proper in Massachusetts because when it issued the policies to XTRA XTRA's corporate headquarters were located in Boston.  Additionally, some of the policies were brokered by insurance agencies in Massachusetts. 

The court noted that the insurance policies were issued more than twenty years ago and that there do not appear to be any modern-day connections linking the parties to Massachusetts.  XTRA moved its principal executive office out of Boston in 1999.   None of the insurers are headquartered in Massachusetts.

The court held that venue was more proper in Illinois because that state has a stronger, more immediate and more relevant connection to Illinois than to Massachusetts.  The underlying litigation is  there; additional insurance claims relevant to the site are likely to arise there; the site is located close to the federal courthouse there; and the interpretation and application of the policies will depend at least in part on the factual circumstances surrounding the contamination. 

The court  held that it was premature to conduct a choice of law analysis.  Even if Massachusetts law applied, that fact is given significantly less weight in a venue analysis when the law involves basic or well-established issues of law.

The court rejected Federal's argument that Illinois did not have a paramount interest in the resolution of the matter because the case would determine only who paid for the loss.  The court held that host states have a "paramount interest in the remediation of toxic waste sites, which extends to assuring that casualty companies fairly recognize the legal liabilities of their insureds." 

Tuesday, November 17, 2015

Appellate Division holds that lienholder gets free insurance

Source One was a lienholder on a vehicle owned by Eric Santos.  On January 28, 2013, Progressive Insurance issued a "verification of insurance," or binder, that was provided to Source One. 

Santos's first premium payment bounced.  On February 8, 2013.  Source One received a notice of rescission from Progressive.  The notice was dated February 1, 2013 and was purportedly effective on January 28, 2013.

On March 3, 2013, the vehicle was towed as a result of a loss and Source One received possession of the vehicle.  Progressive refused to pay the claim filed by Source One on the ground that the policy had been rescinded. 

In Source One Financial Corp. v. Progressive Direct Ins. Co., 2015 WL 6739184 (Mass. App. Div.), the Massachusetts Appellate Division held that Progressive did not follow the cancellation procedure required by Mass. Gen. Laws ch. 175 § 113(A)(2).  Under the statute, "no cancellation of the policy . . . shall be valid unless written notice thereof is given by the party proposing cancellation . . . at least twenty days in each case prior to the effective date thereof."  The statute does not provide for rescission.

The court held that failure to comply with the requirements for cancellation means that the parties are in the same position as if no notice were ever sent.

The court rejected Progressive's argument that the insurance policy was a nullity due to failure of consideration.  "The promise to purchase the policy made by Santos at the time the binder was issued" satisfied the consideration requirement.  "The failure of consideration is not available to Progressive to avoid this policy.  The failure of performance, that is, Santos's failure to pay the promised premium, is different even under contract law than utter lack of consideration." 

The court held that the policy could not be rescinded because there was no fraud, accident, mistake, or gross inequity. 

I understand this case in principle.  By retroactively cancelling (or "rescinding") the insurance, Progressive failed to comply with the statutory requirement of giving twenty days notice.  Therefore, the insurance was never cancelled.

But what if Progressive had complied with the statutory requirements, and the accident had happened within the twenty day notice period?  A policy that was never paid for would nevertheless provide coverage. 

Tuesday, October 27, 2015

Another view

Randy Maniloff's  article on Bridge of Spies in Coverage Opinions is way better than mine.  Of course, Maniloff is addressing the actual facts -- James Donovan, the person on whom the Tom Hanks character was based in the movie, argued in court that a multi-vehicle accident is one occurrence.  Tom Hanks argued in a bar that plaintiffs' counsel should accept a low settlement offer because of that then-undetermined question of law. 

(Maniloff doesn't mention it, but Donovan also argued in court that the Russian spy he defended should not be executed because the spy might be useful in a trade if the USSR ever captured an American spy.  In the movie Tom Hanks argued it as an ex parte communication in the judge's living room.)

Thursday, October 22, 2015

Incompetent insurance defense lawyers make good spies, apparently

I just saw Bridge of Spies, the much-praised Steven Spielberg movie in which Tom Hanks plays an insurance defense lawyer who ends up negotiating a spy-swap with the Soviet Union. 

In Hanks' first scene in the movie, he demonstrates an incompetence that should get a real lawyer fired.

Hanks is negotiating settlement of a claim.  Apparently the sticking point is how many occurrences there are in a multi-vehicle crash for the purposes of a per occurrence limit.  Typically the starting point for this type of discussion would be the policy definition, followed by legal research on both sides.  If the issue is still open for debate, there might be some analogizing.  Hanks' character, perhaps anticipating his future role as a bit player in the cold war, decided to do the equivalent of Khrushchev banging a shoe on the table at the United Nations. 

Sure, that'll work.  (Not.)

In the same scene, Hanks says repeatedly that he does not represent the tortfeasor, but the insurance company.  Huh?  Any second year insurance defense associate should have a thorough understanding of the tripartite relationship--a cornerstone of an insurer's duty to defend that  says that an insurance defense lawyer fully represents the insured in all cases assigned to that attorney.  It's true that the attorney also fully represents the insurer -- that's the third "partite" in tripartite -- but generally that only comes into play as a reason that insurance defense counsel can't advise on coverage issues, or when there is a possibility of an excess judgment.

The response of any competent personal injury attorney to Hanks' negotiation strategy:  See you at trial.

Which brings us to the courtroom scenes in the movie.  During them I kept forgetting I was watching Tom Hanks in a Serious Movie About Serious Matters and thought I was watching James Spader in Boston Legal.  Same apparently senile crazy old coot judge who made rulings he admitted from the bench were wrong but he made them because he felt like it.  Same utterly inappropriate over-the-top goading of opposing counsel.  Same ex parte communications with the judge that could get both attorney and judge disbarred.  

Spoiler alert:  Hanks succeeds in negotiating the hostage exchange.  He uses the same tactics he uses in his insurance defense negotiations:  No research whatsoever and a lot of bluster.  The fact that he does succeed is a testament not so much to his skill as to the fact that when both parties really want a settlement , and what they are each willing to give is within the other side's settlement parameters,  a settlement will generally be reached.  That doesn't take heroics; it takes a telephone call. 

Tuesday, October 20, 2015

Appellate Division holds that release of uninsured motorist benefits did not release PIP claim

Chiropractic Care Centers, Inc. provided medical treatment to Rafael Jimenez after he was injured in a motor vehicle accident. 

Chiropractic sought payment of medical bills from Allstate Insurance, the patient's PIP insurer.  Allstate asserted that Chiropractic's claims were extinguished when the patient signed a release of his uninsured motorist coverage arising from the same accident. 

In Chiropractic Care Centers, Inc. v. Allstate Ins. Co., 2015 WL 5783605 (Mass. App. Div.), the Massachusetts Appellate Division held that Jimenez did not have authority to release the PIP claim because he had previously assigned the claim to Chiropractic and Allstate had notice of the assignment. 

Allstate asserted that Jimenez falsely claimed in the release that there were no outstanding medical bills and that any such bills would be paid from the proceeds of the uninsured motorist benefit settlement.  The court held that any recourse Allstate has for such statements is against Jimenez and does not affect the rights of Chiropractic. 

The court also held that the release did not encompass PIP benefits because the release was  specific to uninsured motorist benefits. 

Tuesday, October 13, 2015

At least Jezebel commenters understand insurance

Jezebel, like several other online magazines and newspapers, is running an article today shaming a woman for suing her young nephew who accidently broke her wrist by hugging her too hard.

I was pleased to see that many commenters chimed in to point out that, contrary to the article's assertion, this does not appear to be a situation where a crazy, hateful, greedy aunt is suing a kid and breaking a family apart; it is more likely a case of someone trying to achieve a fair settlement with a homeowner's insurer where she was injured due to the negligence of an insured under the policy.  Negligence does not mean bad intentions, and a broken wrist is not less injurious because it was caused by a hug. 

Or, who knows?  Maybe she is a crazy, hateful, greedy aunt who is breaking a family apart -- that's why we have jury trials. 

Monday, October 5, 2015

First Circuit holds that pro rata allocation does not apply to attorney's fees in long tail loss

In a case with odd facts, the United States Court of Appeals for the First Circuit has held that under Massachusetts law, in long tail losses attorney's fees are not subject to pro rata allocation. 

I'm not going to go into great detail of the facts of the case.  Suffice it to say that the First Circuit's recitation of those facts and the procedural history fairly drip with disdain for the insurer's actions and litigation strategy.  Rather than stating a straightforward prediction that the SJC would not apply pro rata allocation to defense costs (a subject of debate among insurance coverage attorneys), it chided the insurer for removing the case to federal court where new state law cannot be made. 

The reasoning of the First Circuit that the duty to defend is a broad duty that should not be subject to pro rata allocation is sound.  But in the context of the case the court has left room for insurers to argue that bad facts make bad law and that Massachusetts state courts should ignore the decision for that reason.

A substantial oil spill occurred on property owned by the Peabody-Essex Museum, and eventually migrated off-property to land owned by Heritage Plaza.  Heritage Plaza discovered the oil in 2003 and made a claim against the Museum.  The Massachusetts of Department of Environmental Protection issued a Notice of Responsibility to the museum.

The museum sought coverage from U.S. Fire Insurance Company, its insurer from December, 1983 to December, 1985.  U.S. Fire denied a duty to defend the private demand from Heritage Plaza, but accepted defense of the DEP claim with a reservation of rights.

The museum retained legal counsel and an environmental consultant and tendered the bills to U.S. Fire.  It received no payment for the defense of the public claim even though U.S. Fire had agreed to defend that claim.  It finally sent a payment totaling $611.41, which it calculated by unilaterally reducing the hourly rate of counsel to $200 per hour and unilaterally reducing the bills to what it considered to be the percent spent on the public claim.  It made no payment for the environmental consultant,

The museum sued U.S. Fire and, in 2013, was awarded judgment of over $1.5 million in the United States District Court for the District of Massachusetts. 

In Peabody Essex Museum,Inc. v. U.S. Fire Ins. Co., __ F.3d__, 2015 WL 5172841 (1st Cir. 2015), the United States Court of Appeals for the First Circuit held that US Fire's persistent failure to make any payment towards defense costs "despite having nominally accepted that duty may be treated as a wrongful refusal to defend upon receipt of notice of a claim." 

The court then turned to the issue of how the costs and fees should be divided between the insurer and insured. 

The court first held that the US District Court did not abuse its discretion in finding that the beginning of the 1983-1985 policy period was the start date for the allocation period even though that date "has a make believe quality." 

The District Court had applied a fact-based allocation rather than the default time on the risk method set forth in Boston Gas Co. v. Century Indem. Co., 454 Mass. 337 (2009).  In a fact based allocation, costs are attributed to a policy period based on the percentage of damage that occurred during that period.  Courts generally agree that a fact-based allocation is best, but it is often impossible to produce facts indicating how much damage occurred in one 12-month period versus another of a 30 year long undiscovered contamination.  Some courts have applied it in sexual abuse cases, where an institution allowed sexual abuse of many minors over a period of time, because in that instance it is possible to determine how many allegations of abuse occurred in one year over another.

The time on the risk method, as set forth in Boston Gas, allocates damages based on the percentage of time a particular insurer provided coverage out of the entire period of the loss.

The District Court apparently allocated loss based on a finding that 9,000 square feet of oil damage occurred during the two year policy period.  (The total square feet damaged is not clear from the opinion.)

The First Circuit affirmed the holding of the District Court that time on the risk proration of Boston Gas Co. v. Century Indem. Co., 454 Mass. 337 (2009) does not apply to defense costs.  It held that the arguments of U.S. Fire "appear diminutive next to the long-standing state precedent on the broad and formidable contractual duty to defend that heavily favors insureds and hat stands apart from indemnity obligations."    It tempered its holding by adding, "we have warned, time and again, that litigants who reject a state forum in favor of federal court under diversity jurisdiction cannot expect that new state-law trails will be blazed" by the federal court.

Thanks to Mike Tracy for bringing this case to my attention.