Tuesday, October 16, 2018

US District Court holds professional liabilty insurer has duty to defend action relating to breakup of law firm

Massachusetts Lawyers Weekly quoted me in an article about a recent U.S. District Court case on coverage under a lawyer's professional liability policy for a claim arising from the breakup of a law firm.  The departing attorneys sued the firm, alleging in part that the firm refused to release client file materials and property to their new firm. 

In Governo v. Allied World Ins. Co., __ F. Supp. 3rd __, 2018 WL 4685566 (D. Mass.), the court held that the firm's professional liability insurance had a duty to defend.  The allegation of refusal to release client material came within coverage for Legal Services Wrongful Acts, which the court held implicates the specialized professional obligations and ethical standards of attorneys. 

More specifically, the policy provided coverage for claims “arising out of” a Legal Services Wrongful Act.  The court noted that  there might not have been coverage if the policy language had provided coverage for claims occurring “by reason of” such an act. And that, ladies and gentlemen, is why insurance coverage law is a specialty in the practice of law. 

Wednesday, August 29, 2018

Attorneys beware: Insurance agents generally have no duty to ensure you have the professional liability insurance coverage you need

Attorney Simon Mann settled a legal malpractice claim brought against him for failure to file a wrongful death claim within the statute of limitations.  As part of his settlement he assigned to plaintiff Kenneth Perreault his rights against AON, the malpractice insurance broker that had sold to him or his firms three consecutive insurance policies.  At issue was whether there was a special relationship between Mann and AON, such that AON had a duty to make certain that Mann had adequate malpractice insurance to cover all of his work as an attorney. 
 
In Perreault v. AIS Affinity Ins. Agency of New England, Inc., 93 Mass, App. Ct. 673 (2018), the Massachusetts Appeals Court held that there was no such special relationship. 
 
Like almost all malpractice policies, the three policies sold by AON were claims made and reported policies that required that the alleged misconduct and resulting claim arise during the policy period. 
 
The earliest  policy was issued to a firm that Mann had worked for.  Mann had no involvement in purchasing the policy.
 
The second policy was issued to a firm in which Mann was a partner.  Mann was responsible for acquiring the coverage.  Mann claims that he relied exclusively on the advice of an AON employee, Burns, but Burns was not asked to provide risk management services or consultation with respect to the scope of coverage. 
 
The third policy was issued to a firm in which Mann was the sole partner.  Mann relied on Burns to purchase a new policy.  Although Mann had received a demand on the Perreault claim by this time, he did not disclose the Perreault claim on the application.  He told Burns that he needed coverage for all his past work since he became an attorney.  The policy that was issued did not have prior acts coverage.  The earlier two policies were canceled. 
 
When Perreault sued Mann, the insurer, Liberty, declined coverage under the second policy because it had been cancelled. It declined coverage under the third policy because that policy did not have prior acts coverage.  It agreed to provide a defense (but presumably not indemnity) under the first policy. 
 
The Massachusetts Appeals Court noted that there is no general duty of an insurance agent to ensure that insurance policies provide coverage that is adequate for the needs of the insured.  However, an agent may acquired a greater duty if special circumstances exist.  Among the factors creating such special circumstances are a prolonged business relationship; the complexity and comprehensiveness of the customer's coverages; the frequency of contact between the customer and agent with respect to insurance needs; and the extent to which the customer relies on the advice of the agent by reason of the complexity of the policies. 
 
The court held that no no such special circumstances existed between AON/Burns and Mann.  Their business relationship spanned only three years.  Mann's insurance needs were not complex.  His communications with Burns were perfunctory.  Burns was not asked to provide risk management services or consultation with respect to the scope of insurance. 

Saturday, August 25, 2018

Massachusetts Appeals Court holds that contractual limitations period in life insurance policy does not apply to 93A claim

Daniel Brown purchased a life insurance policy from SBLI.  Ten years later, the premium on the policy was due to increase by more than ten times.  An SBLI sales agent left Daniel and his wife Michelle a voicemail message pointing out that the premium was going through the roof and that they had options available to keep the coverage going.  He recommended that they purchase a new policy. 
 
Daniel did not pay the increased premium, so his policy lapsed.  He also did not  purchase a new policy.  When Michelle learned of this, the SBLI agent advised her that Daniel should apply for a new policy.  He did not offer the option of reinstating Daniel's policy pending approval of the new policy.  Daniel's application for a new policy was denied.  Michelle, who had separated from Daniel, was not informed of the denial until after Daniel's death a month later. 
 
Michelle sued SBLI more than two years after Daniel's death, for breach of contract, deceit by failing to recommend that she should continue to pay the premium on the old policy while the application for the new policy was pending, negligent supervision of the agent, and breach of ch. 93A. 
 
SBLI argued that the suit was untimely because the policy set forth a two year contractual limitations period for any suit "brought on or in respect to this policy." 
 
Michelle agreed that her breach of contract claim was time-barred.  In Brown v Savings Bank Life Ins. Co., 93 Mass App. Ct. 572 (2018), the Massachusetts Appeals Court held that the contractual limitations periods did not apply to the deceit and negligent supervision claims.  It also held that the contractual limitations period did not apply to the 93A claim.  The court gave a number of interrelated reasons for that decision.  First, the claim was based on deceit and did not arise "in respect to" the policy.  Second, the term "on or in respect to" is ambiguous and must be interpreted against the insurer.  Third, imposition of a contractually shortened limitations period on a tort-based consumer protection claim would violate public policy. 

Friday, June 8, 2018

First Circuit affirms coverage for defamation claims against Bill Cosby

I've posted here, here, and here about the declaratory judgment lawsuit brought by AIG Property Casualty Company asserting that it has no duty to defend Bill Cosby in the defamation lawsuits brought against him.  Those suits allege that Cosby lied when he denied allegations of rape, thereby defaming his accusers.
 
In AIG Property Casualty Co. v. Cosby, __ F.3d __, 2018 WL 2730762 (1st Cir.), the United States Court of Appeals for the First Circuit has affirmed the decision of the United States District Court for the District of Massachusetts holding that AIG must defend Cosby. 
 
The AIG homeowner's and umbrella policies provide coverage for defamation claims.  The issue in dispute is whether  exclusions for claims "arising out of" sexual misconduct apply.  The District Court had held that the meaning of arising out of is ambiguous and therefore AIG must defend. 
 
The court noted that in a different coverage of the umbrella policy there is an exclusion for damages "arising out of, or in any way involving, directly or indirectly, any sexual misconduct."  The exclusion applicable to the defamation claim did not include that specific language.  Since every word in an insurance contract must be presumed to have meaning, the less specific language in the applicable exclusions must be interpreted as requiring a closer connection between the alleged defamation and the alleged sexual assaults. 
 
The court added that the phrase arising out of is not inherently ambiguous, and that its holding is limited to this case, where the ambiguity question is close to begin with and where a similar exclusion in the same policy was more broadly worded. 
 

Thursday, June 7, 2018

U.S. District Court weighs in on innocent coinsured doctrine

Massachusetts Lawyers Weekly quoted me in an article about Shepperson v. Metropolitan Prop. & Cas. Ins. Co., 2018 WL 2324089 (D. Mass.), in which the United States District Court for the District of Massachusetts addressed the innocent coinsured doctrine.  That doctrine applies to property policies that insure more than one person.  If one of them commits an intentional act that causes damage to the insured property, that insured is not covered because damages from intentional acts are excluded.  Under the innocent coinsured doctrine, the other, innocent, insured person also cannot recover under the policy. 
 
In Shepperson, the court held that an insured homeowner cannot be denied coverage for a fire loss even if the fire was set by another household member who is an insured on the homeowner’s policy, as long as two conditions are met.  First, the homeowner did not participate in the arson.  Second, the household member was made an insured by the operation of the policy language, such as a definition of insureds that includes any relatives who are household members, rather than by a conscious decision to make them an insured listed by name on the policy.   
 
The case started in Massachusetts state court and was removed by the insurer to federal court.  The federal judge predicted that even though a 1951 decision of the Massachusetts Supreme Judicial Court held that there was no coverage for the innocent coinsured under similar facts, if the case were before the SJC today it would hold that there is coverage.  He based that prediction on changes to the statute regulating fire insurance policies and on Massachusetts Superior Court decisions. 

Thursday, May 31, 2018

Massachusetts Appeals Court interprets alcohol exclusion in PIP coverage

Margarita Rodriguez was injured in an auto accident. A police report indicated that an occupant of the other vehicle said that Rodriguez's car "came out of nowhere."  The report did not provide any other statements with respect to causation.  It did not indicate whether alcohol was involved in the crash.
 
Rodriguez was taken to the hospital.  Hospital records indicated that she was intoxicated. 
 
Rodriguez's insurer was Commerce. Commerce refused to reimburse a medical provider under PIP coverage, citing an exclusion applicable if the insured "contributed to his or her injury by operating an auto while under the influence of alcohol." 
 
The Massachusetts Appeals Court overturned the granting of summary judgment to Commerce.  In Dorchester Chiropractic & Rehab Centers Inc. v. Commerce Ins. Co., 2018 WL 2247343 (Mass. App. Ct.) (unpublished), the court held that the exclusion required that two distinct elements be met: (1) the insured was operating under the influence of alcohol, and (2) the insured's conduct contributed to her injury.
 
The court held that there was no evidence showing how the car accident occurred, or of how Rodriguez contributed to it.  Therefore, the second element necessary for the exclusion to apply was not met. 
 
The court also held that whether or not Rodriguez was under the influence of alcohol at the time of the accident was a disputed question of fact, since the police officer who had interacted with her at the accident scene did not mention alcohol in the police report. 

Monday, January 1, 2018

Massachusetts Appeals Court holds that under New Hampshire law insurer can settle claim over objection of insured

Dr. Ellen Johnson was sued for medical malpractice.  She was insured by Proselect.  A jury found against Johnson and awarded her patient $5 million in damages. 
 
The Proselect policy gave Proselect the right to settle a case after verdict without the consent of the insured.  Proselect chose not to file post-trial motions or to appeal.  Instead, it settled the case for $3.75 million, an amount within Johnson's $4 million coverage limit. 
 
Johnson then sued Proselect, alleging that it breached its duties to her by settling the case without her consent.  She asserted that the settlement harmed her professional reputation and her career prospects and caused her emotional distress. 
 
In Johnson v. Proselect Ins. Co., 92 Mass. App. Ct. 1118, 2017 WL 6327844 (unpublished), the Massachusetts Appeal Court affirmed summary judgment to Proselect.  Applying New Hampshire law, it held that the duty of reasonable care in the defense of a claim applies only where the insurer's misconduct exposes an insured to personal liability.  Because the settlement extinguished the excess judgment, Proselect had met its duty of reasonable care and did not violate the covenant of good faith and fair dealing. 

The lesson here:  If you want to have control over whether or not a case against you will be settled, buy a policy that gives you that control.