Monday, March 30, 2009

Memo to adjusters: How not to act

In my last post I discussed the recent Superior Court decision in Sterlin v. Commerce Insurance Company. That case is a primer of how an insurer can get slapped with 93A damages.

An adjuster should not find that liability is unclear by:

1. ignoring the transcript of a 911 call in which the insured driver stated that he fell asleep at the wheel and hit the other car;

2. ignoring the statement made to the insurer by the father of the driver that the driver fell asleep at the wheel;

3. relying on photographs of a vehicle taken after the vehicle has been repaired as proof that there was no contact between the two cars; and

4. relying on the driver's statement that he did not cause the accident, made when he is facing criminal charges for operating to endanger and based on leading questions by the adjuster.

Thursday, March 26, 2009

Superior Court holds that insurer's demand for release of 93A/176D claim in exchange for settling underlying case violates 176D

In last month's Superior Court decision in Sterlin v. Commerce Insurance Company the insurer, Commerce, made an offer to settle of an automobile accident claim contingent upon receiving a release of its own liability for violation of Mass. Gen. Laws ch. 93A and 176D.

Judge Tucker held that such an offer was in itself a violation of those statutes. He wrote, "By seeking a release of itself upon the payment of its insured's benefits to the claimants, Commerce was in effect seeking to have the insurance coverage afforded to its insured, Mukesh Patel, cover its own liability to plaintiff for any statutory violations. Although the statute does not specifically define such actions as unfair claims settlement practices, it does set forth in § 3(9)(m) that it is a violation and an unfair claims settlement practice by 'failing to settle claims promptly . . . under one portion of the insurance policy coverage in order to influence settlements under other potions of the insurance policy coverage.' In a like manner, this court believes that an insurer's attempt to settle its own claims against itself by the payment of its insured's liability benefits is likewise a violation of the statute and an unfair or deceptive act or practice under G.L.c. 93A."

Thursday, March 19, 2009

SJC holds prevailing insurer not entitled to attorney's fees when it establishes another insurer's duty to defend

From my best source, Mike Tracy at Rudolph Friedmann LLP comes a decision issued today by the Supreme Judicial Court of Massachusetts:

As I have discussed in a previous post, an insured is entitled to recover attorney's fees and expenses incurred in successfully establishing in a declaratory judgment action that an insurer has a duty to defend.

In John T. Callahan & Sons, Inc. v. Worcester Ins. Co., the SJC held today that that rule does not apply when the insured's attorney's fees in the declaratory judgment action are paid by a second insurer.

Callahan was a general contractor on a construction site and was insured by Zurich. NEAC was its subcontractor, and was insured by Worcester. Callahan was an additional insured on the Worcester policy.

Lagoa, an employee of another subcontractor, was injured at the job site. He sued Callahan. Zurich agreed to defend and indemnify Callahan. Worcester refused to defend Callahan.

Callahan and Zurich brought a declaratory judgment action against Worcester, seeking a declaration that Worcester had a duty to defend and indemnify Callahan. Zurich paid the attorneys in the declaratory judgment action on behalf of itself and Callahan. Zurich and Callahan won the declaratory judgment action. Zurich sought reimbursement of the attorney's fees it incurred in the declaratory judgment action.

The SJC denied the claim for attorney's fees. It stated that the policy reason for awarding attorney's fees to insureds who are successful in establishing a duty to defend is not to punish wrongdoers or reward those who act responsibly. Rather, it is to protect the insured's right to receive the full benefit of its liability insurance contract. The court stated that Callahan received that benefit at no cost to itself because Zurich defended it.

Rather disingenuously, the court stated that Zurich also received a benefit from bringing the declaratory judgment action, because it received a judgment that Worcester reimburse it for one half of the settlement amount and attorney's fees in the underlying action. The court does not address whether that amount was more or less than the attorney's fees incurred in the declaratory judgment action.

Monday, March 16, 2009

New decision on collapse

I posted recently on the meaning of "collapse." The Massachusetts Appeals Court has issued an unpublished decision affirming that "there are no degrees of collapse."

In 529 E. Broadway Condo. Trust v. Vermont Mut. Ins. Co., an unpublished decision of the Massachusetts Appeals Court, condominium owners asked their all-risk insurer to cover the cost of structural repair when an outside brick wall was detaching from the building. The insurer's investigator concluded that the problem was a result of water infiltration.

The court held that the detaching wall did not meet the definition of collapse, which, as established by case law, includes "both a temporal element of suddenness . . . and a visual element of altered appearance that comprises a structural collapse, distinct from the degenerative process causing the collapse."

Thursday, March 12, 2009

U.S. Court of Appeals points out that duty to defend is determined by allegations of the complaint

In Narragansett Jewelry Co., Inc. v. St. Paul Fire and Marine Ins. Co., 555 F.3d 38 (1st Cir. 2009), the United States Court of Appeals for the First Circuit court reaffirmed that the "eight corners test" still determines the duty to defend under Rhode Island law.

Slane was a jewelry design company that contracted with Narragansett to develop jewelry models and molds based on Slane designs, and to produce jewelry ordered by Slane.

Slane sued Narragansett, alleging that Slane "owned certain models which it entrusted to [Narragansett] for use in the production of jewelry," and that Narragansett "caused physical damage to such models."

Narragansett sought defense and indemnity from its insurer, St. Paul. St. Paul denied coverage based on an exclusion for property damage to "[p]ersonal property that's in the care, custody, or control of [Narragansett]."

Narragansett filed a declaratory judgment action in Rhode Island. It argued that the alleged loss or damage "possibly" occurred during the shipment process, and thus not while the models were in Narragansett's care, custody or control.

The United States Court of Appeals for the First Circuit affirmed summary judgment for St. Paul, stating, "Regardless of what might be 'possible,' there are no allegations in the Slane lawsuit that support Narragansett's hypothesis." The court pointed out that the complaint specifically alleges that Narragansett caused the damages at issue.

Thursday, March 5, 2009

United States District Court interprets strictly exception to doctrine of implied coinsurance

Mike Tracy of Rudolph Friedmann LLP brought to my attention a recent case in which the United States District Court for the District of Massachusetts applied the implied coinsurance doctrine.

The implied coinsurance doctrine states that a residential tenant is an insured on a landlord's insurance even if the policy does not state that the tenant is an insured. Under that doctrine, a landlord's insurer is barred by the anti-subrogation rule from seeking reimbursement from a tenant for damages caused by the tenant. (The anti-subrogation rule bars an insurer from seeking from its own insured reimbursement of funds the insurer paid on a loss.)

In Fed. Ins. Co. v. Commerce Ins. Co. Roberts, a resident of Kimball Farms retirement home, negligently started a fire in her unit. The lease stated that any loss or damage to property owned by Kimball Farms will be paid for by Roberts, and that Roberts releases Kimball farms from all liability or responsibility for injury or damage to her personal property not caused by Kimball Farms or its employees. It also stated that Roberts "shall have the responsibility of providing any insurance desired to protect against such loss."

Federal Insurance Company insured the retirement home and paid the damages resulting from the fire. It sought to recover that amount from Roberts. The court held that it was barred from doing so by the implied coinsurance doctrine.

The court noted an SJC decision stating that the implied coinsurance doctrine does not apply where a provision of a lease expressly establishes "a tenant's liability for a negligently started fire." It interpreted that phrase literally, holding that since the lease did not discuss fire specifically, the exception to the implied coinsurance doctrine did not apply.

The court also held, sensibly, that the fact that Roberts purchased insurance was irrelevant to the application of the implied coinsurance doctrine.

Tuesday, March 3, 2009

The meaning of "collapse"

This has been a great winter for taking my kids sledding. But the snow is not so fun when its weight is bending the roof of your building. And it's even worse if your insurance doesn't cover the damage.

Policies with coverage for property damage may insure “against the risk of direct physical loss or damage involving collapse of a building or any part of a building” due to causes including the "weight of ice and snow or sleet.” “Collapse” is an undefined word in the policies.

Nationally, the cases discussing collapse coverage generally fall into one of three camps. The narrow view is that the coverage is limited to the actual falling down of a covered structure. The broad view is that any substantial structural impairment that threatens collapse comes within the coverage. A "moderate" view is that the coverage includes the threat of imminent collapse.

Massachusetts courts take the narrow view. In Dreiblatt v. Trustees of the Shipway Place Condominium Ass’n, 264 F.3d 126 (1st Cir. 2001), a building suffered roof damage as a result of a heavy snowstorm. The United States Court of Appeals for the First Circuit held that under Massachusetts law, “collapse” requires three elements: “suddenness, a perceptible change in appearance, and completeness.” Where the damage consists of the outside walls leaning inward, cracks appearing in the ceilings and interior walls, and a two-inch drop in the roof as a result of faulty design combined with the weight of snow, no collapse has occurred. Driscoll v. Providence Mut. Fire Ins. Co., 69 Mass. App. Ct. 341, 345 (2007).