Friday, July 24, 2015

Liberty Mutual approved to use drones to assess property damage

The Boston Business Journal reports here

My first thought was that the use of drones would allow insurers to make faster initial assessments of property damage after large- or largish-scale disasters.  Although insurers have in place the ability to mobilize adjusters from all over the country to descend on a region that has been hit by a hurricane, severe winter storm, or other event, it can still take weeks to get an adjuster to a particular property to assess damages. Sometimes after one look the adjusters realize they are from the wrong department and they need someone who can approve higher reserves to come out.

Unfortunately, though, the reality appears to be that, if anything, the use of drones will slow down initial assessments because they will require two people per drone -- an observer of the drone and a licensed pilot.  It's not clear whether the drone observer will also be an adjuster who can assess damages, including internal damage to a building; nor does the article say what type of specific training will be required for the drone-observer. 

Unless insurers team up to use a single drone team after a disaster, use of drones is unlikely to add much to efficiency, since in any neighborhood many homeowner's or general liability insurers provide coverage for the various properties located there. 

As the Boston Business Journal points out, however, use of drones will improve safety for adjusters and also allow photographs to be taken of otherwise inaccessible areas such as roofs shortly after the loss. 

As with any technological change, we'll see how it plays out in practice. 

Tuesday, July 21, 2015

Mass. Appeals Court holds insurer has 93A liability under doctrine of apparent authority

William Fiore worked as a bail bondsman as an agent for International Fidelity Insurance Company (IFIC).  Under the agreement between Fiore and IFIC, Fiore was to collect and deliver to IFIC collateral and to collect bond premiums.  Cash collateral received on behalf of IFIC was required to be held in a separate account and not comingled with other funds. 

The plaintiffs utilized Fiore's services as bail bondsman to obtain their own releases or the release of a third party on bail.  They each paid a premium and posted cash collateral. 

Fiore instructed the plaintiffs that ten percent of the total bond amount constituted a nonrefundable cash bail bond insurance premium payment.  According to the Massachusetts Appeal Court in Ramos v. International Fidelity Insurance Co.,  __ N.E.3d __, 2014 WL 10044905 (Mass. App. Ct. 2015)*, such practice violated rules governing professional bondsmen that prohibit charging fees in excess of five percent. 

When, at the end of their criminal cases most of the plaintiffs sought return of their collateral, they discovered that Fiore had died without having deposited their collateral in escrow. 

The plaintiffs sent 93A demand letters to IFIC.  IFIC responded that Fiore was a contractor and that it was not liable for his wrongdoing.  The plaintiffs sued for violation of ch. 93A and for breach of contract.

The trial court judge granted summary judgment to IFIC on the 93A claim, concluding that IFIC's response to the 93A demand letters, in which it asserted that Fiore was an independent businessman, did not cause the plaintiffs' harm. 

The Appeals Court noted that a jury could find that the response letters from IFIC falsely denying the agency relationship were sent when IFIC knew that it had an obligation because of that relationship to return the plaintiffs' collateral, and in an attempt to cause the plaintiffs to decline to enforce their rights, and that such conduct constituted an independent 93A violation.  But the trial court judge was correct that there was no evidence that such conduct injured the plaintiffs. They were not misled into failing to file suit before the expiration of the statute of limitations.

However, the court held, the overcharges themselves were violations of ch. 93A. 

IFIC argued in the alternative that vicarious liability under ch. 93A was unwarranted because Fiore's actions were not motivated by a desire to benefit it and it was wholly ignorant of Fiore's actions.  The court disagreed, holding that the doctrine of apparent authority applies to 93A claims. 

* Westlaw still hasn't corrected its error in 2015 Massachusetts case citations, making it appear that such cases are 2014 decisions.

Sunday, June 28, 2015

Declaratory judgment action filed on Bill Cosby defamation lawsuit

My favorite Boston news source, Universal Hub, has posted about a declaratory judgment complaint filed by Bill Cosby's insurer with respect to the defamation allegations against him. 

As is well-known, the plaintiffs in the underlying suit allege that Cosby gave them roofies and then raped them while they were unconscious.  Because the statute of limitations has expired on the sexual assault charges themselves, the underlying plaintiffs have alleged that Cosby defamed them by denying their allegations. 

Cosby's homeowners' policies and excess policy, all issued by AIG, provide coverage for personal injury, which includes defamation.

In the lawsuit just filed, AIG, seeks a declaration that coverage is excluded because the defamation claims were claims for personal injury "arising out of" actual, alleged or threatened sexual misconduct, molestation or harassment. 

It is well-settled under Massachusetts law that "arising out of" denotes an intermediate causation, more than causation-in-fact but less than proximate cause. 

The complaint does not say whether AIG is currently defending Cosby under a reservation of rights.  If it is, one can expect that the strategy from Cosby's attorneys will be to stall on the declaratory judgment lawsuit, because if the eventual ruling finds no coverage the longer it takes to make that decision the more of Cosby's attorney's fees in the underlying suit get paid by AIG.  Even if AIG is not currently defending the underlying claim, Cosby's side is unlikely to be in a rush to have the DJ action decided.  Unlike most people, Cosby is presumably in a financial position to pay whatever attorneys' fees are incurred in defending the underlying suit; if he wins the declaratory judgment action he will be reimbursed for those fees.  If he files a counterclaim for breach of contract he'll get interest on those fees as well. 

Tuesday, June 16, 2015

A reminder to keep your insurance policies forever

In 2013 Cardigan Mountain School received a demand letter asserting a claim about events that allegedly occurred in the 1967-1968 school year.  (While the parties did not give information to the court about what the allegations were, it's pretty easy to guess.)

The school tendered the defense to New Hampshire Insurance Company as the school's general liability carrier at that time.

New Hampshire rejected the tender of defense on the ground that it was unable to locate any policy for the relevant period of time and thus it was not the school's carrier at the time.

The school filed a declaratory judgment action seeking a decree that New Hampshire was the carrier. 

The United States District Court for the District of New Hampshire granted New Hampshire's motion to dismiss.  The school appealed.

In Cardigan Mountain Sch. v. N.H. Ins. Co., __ F.3d ___, 2015 WL 3393771, the First Circuit reversed. 

In its complaint the school relied on circumstantial evidence for the existence of the policy.  An audit report from September 1971 indicated that the school had a policy with New Hampshire.  One of the principals in the accounting firm that did the audit believes that if the school had changed carriers since the prior school year the auditors would have noted the change in the report. 

The school's business manager from 1967 to 1970 is certain that the school had insurance during his tenure and does not believe it changed carriers during that time. 

The complaint asserted that upon information and belief the insurance brokerage the school used had a close association with New Hampshire and advised most of its commercial clients like the school to place their policies with New Hampshire. 

The court held that the allegations in the complaint are entitled to the presumption of truth at the motion to dismiss stage because they are specific and factual and refer to individuals with relevant knowledge recalling facts plausibly known to them. 

The court then held that the allegations of the complaint make a plausible showing that New Hampshire issued a policy to the school for the 1967-1968 school year.  That was enough at the pleading stage to nudge the claim "across the line from conceivable to plausible." 

Saturday, June 13, 2015

First Circuit certifies question of selective tender and equitable contribution

In Ins. Co. of Penn. v. Great N. Ins. Co., __ F.3d __, 2015 WL 3440342 (1st Cir.), the First Circuit has certified to the Supreme Judicial Court of Massachusetts the question of whether, when an insured has two insurance policies that cover the same loss, the insured can opt to have one insurer cover the entire loss or if either insurer can insist that both share equitably in covering the loss. 

In the underlying case, an employee of Progression, Inc. was injured while on a business trip.  The employee pursued a worker's compensation claim.  Progression had two insurance policies that covered work-related injuries, one with ISOP and one with Great Northern.  It tendered its claim to ISOP only and did not notify Great Northern of the loss.  ISOP defended and indemnified.

ISOP later learned of the Great Northern policy, notified it of the claim, and requested contribution.  Great Northern informed ISOP that it had contacted Progression after receiving notice from ISOP and that Progression had purposefully tendered the claim only to ISOP.  Great Northern asserted that ISOP was legally obligated to handle the claim and that there was no practical reason for Great Northern to assume its handling. 

The First Circuit discussed the doctrine of equitable contribution, which allows a party to seek contribution from a co-obligor who shares the same liability as the party seeking contribution.  The SJC has never addressed whether equitable contribution is available to seek a claim for contribution by one insurer against another. 

The First Circuit noted that neither party disputes that the SJC would likely adopt equitable contribution in a case in which an insured looks to multiple, similarly-obligated insurers for payment.  But the issue before the court was whether it should apply where the insured does not want one insurer to pay anything and has intentionally avoided giving the insurer notice of the claim. 

It's important to note that the issue of selective tender comes up most frequently not, as in this case, with concurrent policies, but with consecutive policies in long tail losses.  The doctrine of selective tender in long tail losses favors policy-holders, because it allows them to force a single insurer to pay the entire loss up to its limits regardless of whether there are periods during the loss when the insured had no coverage or insurers for those periods are no longer in business.  In that context, selective tender would contradict the decision the SJC made five years ago in Boston Gas v. Century Indem. Co.

Thanks to Mike Tracy of The Law Office of Michael G. Tracy for bringing this case to my attention.

Thursday, June 11, 2015

Appeals Court holds trial court cannot award attorney's fees to insurer where underlying action never developed into a claim

I have been writing about OneBeacon Am. Ins. Co. v. Narragansett Elec. Co., 2014 WL 9865738 (Mass. App. Ct. 2015). 

The last subject the court addressed was a voluntary dismissal by NEC of claims with respect to some of the sites.

In 2011, after prosecuting its case against the insurers for over five years, NEC moved to voluntarily dismiss its claims with respect to three of the locations.  Although NEC had anticipated legal action by the Rhode Island Department of Environmental Management with respect to those sites, no such action had come.  Thus there existed no claim under the policies and no justiciable controversy. 

The trial court judge who heard the motion for voluntarily dismissal conditioned its allowance without prejudice on NEC's payment of the insurers' reasonable costs and attorneys' fees in responding to those claims.  A month later the parties reported that they had not reached agreement on how to proceed and the insurers had therefore not yet submitted their fee requested.  In the interest of "moving this case on," the judge dismissed the claims with prejudice and omitted the award of attorney's fees.

On appeal NEC argued that the claims should have been dismissed without prejudice.  The court agreed.  Because the claims presented no justiciable controversy, the court lacked subject matter jurisdiction to enter an order of dismissal with prejudice. 

The court also held that NEC's actions did not warrant dismissal with prejudice.  The evidence suggested that NEC was not recalcitrant in paying the insurer's fees but was waiting information from them regarding the amount of their fees. 

The court also held that the trial court judge had no authority to order that NEC pay the insurer's attorney's fees as a condition of dismissal without prejudice when the court lacked subject matter jurisdiction.