Friday, November 21, 2008

How to read an insurance policy: the known loss doctrine, part 2

I am making time to post again at the inspiration of Michael Aylward, a partner at Morrison Mahoney specializing in insurance coverage issues. I met Michael years ago when we represented codefendants in a rather silly copyright violation case. Since then I have relied on his excellent articles on allocation issues; been riveted (no, I'm not kidding) by his talks at seminars on insurance coverage; and imposed upon him for advice both legal and practical which he has always graciously given.

In my last post I discussed the known loss doctrine. One question that frequently comes up with respect to that doctrine is whether there is coverage when the insured knew of the facts that created tort liability before the policy period, but did not subjectively know that such facts could actually lead to liability.

The United States Court of Appeals for the First Circuit explored this issue under Massachusetts law in United States Liab. Ins. Co. v. Selman, 70 F.3d 684 (1995). In that case the insured was a landlord who was informed prior to the policy period that his apartment had lead paint in it and his tenant's child had lead paint poisoning. The court held that the lead paint injury was not a known loss because discovery had shown that the insured had not made a subjective connection between the lead paint in his building and the underlying plaintiff's future medical risks.

In my next post I'll discuss how the known loss doctrine should affect an insured's decision about reporting to its insurer a potential claim.

Tuesday, September 23, 2008

How to read an insurance policy: the known loss doctrine, part 1

The insuring agreement often incorporates the "known loss doctrine," generally with words to the effect that the policy covers "bodily injury or property damage that was not, prior to the policy period, known to have occurred by any insured."

The known loss doctrine is one of the most basic concepts of insurance coverage. Insurance is supposed to be a gamble: You pay $1.00 in premiums now as a gamble against the risk that without the insurance you would have to pay $10.00 in loss (or attorney's fees) in six months. You can play the odds by negotiating premiums against limits. If the premiums become too high vis a vis the chances of the insured event occurring (many people--but not me--say this is the case with disability insurance) or the maximum payout is too low (generally, dental insurance), you choose not to purchase the insurance.

The whole system falls apart if you purchase insurance for a loss you already know has occurred. In law school parlance, the insurance is no longer against a "fortuitous" event.

Litigation around the known loss doctrine predictably concerns what it means to be "known": who knew, what they knew, and when they knew it. The issue frequently comes up in environmental contamination litigation: An insured may argue that although there was some evidence of contamination at the time the policy began, the insured did not know the extent of the contamination. The Supreme Judicial Court of Massachusetts has stated in this context that the only requirement for the loss to be exempt from coverage is that "the insured has evidence of a probable loss when it purchases the policy." SCA Services, Inc. v. Transportation Ins. Co., 419 Mass. 528, 533 (1995).

Another common context for the known loss doctrine is construction defect litigation. Arguments frequently arise about punch lists demonstrating problems such as lack of caulking or other insufficiencies in the building envelope. Insurers argue that those punch lists show that the insured contractor was aware of probable water infiltration into the building, while the insureds argue that the punch list only demonstrated that the contractor had work to do before the job was finished.

In a future post I will discuss how the known loss doctrine applies where the insured knew of the occurrence but did not know that the occurrence could lead to liability.

Friday, September 19, 2008

Massachusetts Superior Court explores definition of "resident of your household"

Massachusetts Lawyers Weekly reports a new Superior Court case in which the court denied summary judgment to an insurer because of a factual dispute about whether the policyholder's brother was a household member. This post is based on the Lawyers Weekly summary as I have not been able to obtain a copy of the decision.

In Hingham Mut. Fire Ins. Co. v. Gee, a tree on the property of the policyholder, Michael Gee, fell on the policyholder's brother, Wan Xing. The policy excluded coverage for bodily injury to "if residents of your household, your relatives."

The insurer argued that Xing was a resident of Gee'shousehold, because the brothers and their families lived in the same apartment. The defendants argued that the brothers and their respective families maintained the apartment as two separate, financially independent households coexisting in a small space.

The court denied summary judgment, holding that there was a dispute of fact regarding Xing's financial dependence on his brother and the two families' day-to-day interactions with each other.

Wednesday, September 17, 2008

Getting business from insurers

Ryan Belka, an attorney at Cooke Clancy & Gruenthal LLP, emailed this question:

I am aware that insurance companies keep lists of lawyers who handle various matters and generally allocate work accordingly. My question is: as a firm or a lawyer, how do you make it on those lists? Is there a formal application process through the general counsel of the insurance company? Do insurance companies hire boards and panels in order to allocate the work? Do you apply directly to them? Can this information be found?

That's a great question and one that I would love an answer to myself, as I am expanding my own book of business with insurers.
So, for any insurance adjusters or supervisors: How do you find outside counsel? What is the best way for an attorney to get onto your list?

And for any insurance defense attorneys: What strategies have been effective for you in obtaining new business? What have you tried that has not worked?

Monday, September 15, 2008

A Texas view of occurrences

In an earlier post I noted that the Massachusetts Appeals Court has stated in unpublished opinions that a construction defect is not an occurrence vis a vis the contractor responsible for the defect. Mike Tracy at Rudolph Friedmann has brought to my attention a recent decision from the Supreme Court of Texas, which assumed that a construction defect is an occurrence without directly addressing that question. The case is also a good example of the timing issues with respect to occurrences, which I mentioned in my last post. Finally, for those of you keeping score, Texas, like Massachusetts, has declined to adopt a blanket approach to triggers of coverage.

In Don's Building Supply, Inc. v. Onebeacon Ins. Co. the Texas court answered questions certified from the Fifth Circuit Court of Appeals about when property damage "occurs" and, more specifically, whether an insurer's duty to defend is triggered where damage is alleged to have occurred during the policy period but was inherently undiscoverable until after the policy expired. The court stated with respect to the first question that the key occurrence date is "when the injury happens, not when someone happens upon it," and answered yes to the second question.

Don's Building Supply ("DBS") sold and distributed a synthetic stucco product called EIFS. The product was installed on various homes from 1993 to 1996, during which DBS had a CGL policy. From 2003 to 2005 homeowners filed suit against DBS, alleging that the EIFS was defective and not watertight. The homeowners alleged that moisture penetration began within six months to a year after the application of the EIFS.

DBS's insurer, OneBeacon, filed a declaratory judgment action. The Texas court held that under the policy definition, the property damage occurred when a home suffered wood rot or other physical damage; the date that the damage was or could have been discovered is irrelevant.

The court refused to adopt an overall approach to triggers of coverage, stating that the trigger determination should be driven by the contract language, which varies from one policy to another.

Thursday, September 11, 2008

Some occurrence issues

In a previous post I discussed occurrence-based policies. Basic to those policies is what the word "occurrence" means. Although policy definitions of occurrence have some variation, a typical definition is "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."

In the vast majority of cases, whether or not something is an occurrence is straightforward. A car accident is an occurrence. A doctor accidentally amputating the patient's wrong leg is an occurrence. A power saw malfunctioning and injuring someone's hand is an occurrence. A fire is an occurrence. An assault by an insured person is not an occurrence; but an assault by an employee of an insured business may be an occurrence.

Not surprisingly, disputes over whether or not an event was an occurrence have to do with the intentions of the insured. If the insured expected or intended to cause an injury, there is no occurrence.

About a year ago, in the case of Terra Nova Ins. Co. v. Fray-Witzer, the Supreme Judicial Court of Massachusetts addressed the question of whether unsolicited faxes sent by an auction company, Metropolitan, were an occurrence. Metropolitan had purchased and faxed, through a contractor, unsolicited advertisements, including 360,000 such advertisements to Massachusetts fax machines. Unfortunately for Metropolitan, it is illegal under federal and Massachusetts law to send unsolicited faxes. When Metropolitan was sued in a class action lawsuit over the faxes, it sought insurance coverage from its commercial general liability insurers.

The Supreme Judicial Court of Massachusets decided that the sending of unsolicited faxes were not an occurrence. The class action plaintiffs (who would benefit from the insurance coverage) argued that although Metropolitan may have intended to transmit the advertisements, they did not intend to violate the law. The court disagreed with that argument. It stated that the injury to the class members (the consumption of paper and toner and unwanted use of the fax machines) was an inherently foreseeable result of Metropolitan's conduct.

In future posts I will discuss other issues raised by the definition of occurrence.

Wednesday, August 27, 2008

Protecting yourself if you have a claims-based policy

In my last post I discussed the difference between claims-based and occurrence-based policies. I stated that if you have a claims based policy, your insurance provides coverage only if you receive and report to your insurer the claim during the policy period.

Claims can be brought years after you close out a project. The statute of limitations (the time period in which the law allows someone to bring a claim) for a negligence case in Massachusetts is three years. Other claims that might be covered by insurance have longer statutes of limitations. And there can be exceptions to statutes of limitations if, for example, the injured person was a minor or the injured person had no reason to learn of the injury at the time it occurred (for example, a misdiagnosis of an illness by a doctor).

Insurance companies deal with this by selling you "tail" insurance. Tail insurance covers claims that are brought against you in the future and is usually purchased by people who are closing down their businesses. You need to negotiate the terms of tail insurance, such as the period of time it will be in effect, based on your personal situation.

Monday, August 25, 2008

The difference between occurrence-based policies and claims-based policies

Liability insurance policies are either "occurrence-based" or "claims-based." An occurrence-based policy provides insurance coverage for a loss that "occurred" during the policy period, no matter when the claim is brought against the insured. A claims-based policy provides coverage for a claim that is brought within the policy period, no matter when the loss occurred.

Generally speaking, auto policies, homeowners policies, and commercial general liability policies are occurrence-based. Many professional liability policies are claims-based.

Let's say you had a policy that provides coverage for injury or damage caused by an apple tree you own. The policy was in effect from June 30, 2006 to June 30, 2007.

A plaintiff claims that as a result of your negligence, a branch of the apple tree broke and hit her on the head, injuring her.

If you had an occurrence-based policy, your insurance will cover you if the accident happened between June 30, 2006 and June 30, 2007. It doesn't matter if you were not notified of the accident until January, 2008; the insurance will still cover you.

If you had a claims-based policy, your insurance will cover you if you are notified, and notify your insurance company, of the accident between June 30, 2006 and June 30, 2007. If the accident happened between those dates but you don't receive notice of it until January, 2008, your policy will not cover you.

If future posts I will discuss the various issues that arise with respect to what "occurrence" means in an occurrence-policy, and the precautions you should take if you have a claims-based policy to make sure you do not have any gaps in coverage.

Wednesday, August 20, 2008

First steps for coverage attorneys

This is advice for attorneys working on their first insurance coverage cases.

If you represent the insurer, ask the insurer for a certified copy of the insurance policy or policies for every coverage year that may be triggered by the loss. Do this as soon as you receive the case. Certified copies are put together by the underwriting departments at the insurance companies, and it can take months for them to do it. I have had many experiences where the policy put together by the adjuster contains the wrong forms, is for the wrong policy years, or is just incomplete.

If you don't represent the insurer, or if other insurers are involved in your coverage dispute, immediately serve a request for production of documents requesting a certified copy of the policy or policies. You don't need to wait until you have an entire request for production of documents on all issues of the case; you can do your first request and then do a second, complete request when you are ready.

When you receive your certified copy, compare the forms listed on the schedule of forms and endorsements to the forms you have actually received. If there is a discrepancy, follow up immediately.

Make a copy of the policy you have received. Bates stamp your copy. When you refer to policy pages in motions (or memoranda to file), you can do it by Bates stamp numbers instead of making the judge flip through a dozen strangely-named forms trying to figure out which one you are referring to.

Friday, August 15, 2008

Drafting a demand letter to your insurer

In an earlier post I discussed how a 93A demand letter can help you if your insurer is acting in bad faith. This post discusses what you should say in a demand letter.

Your letter should be addressed to the adjuster you have been dealing with at the insurance company, and should be sent by first class mail and certified mail, return receipt requested. You should reference your claim number, which will be at the top of any correspondence sent to you by the insurer.

You should start the letter with, "This letter is a demand for settlement [or whatever you are asking for] of the above-referenced claim pursuant to Mass. Gen. Laws ch. 93A, the Massachusetts Consumer Protection Act, and Mass. Gen. Laws ch. 176D.

You should then state, "Pursuant to Mass. Gen. Laws ch. 93A, you are required to respond to this letter with a reasonable offer of settlement within 30 days. Failure to do so may result in your being liable for treble damages and my costs and attorney's fees."

You should then state what you are seeking insurance coverage for. Even if you have said this in previous correspondence, you should repeat it here. You should describe what happened; who is responsible (if applicable) and why; why the insurer has to pay the loss; and what your damages are. You should reference and include any supporting documentation.

You should discuss the history of correspondence or negotiations with the insurance company. This should include how and when you first notified the insurer of the claim, how the insurer responded, and all communications since then--at least to the extent that those communications support your claim that the insurer has not been properly responsive to your request for coverage.

You should state that the insurer's actions have violated Mass. Gen. Laws chs. 93A and 176D. You should specifically list any applicable subsections of Mass. Gen. Laws ch. 176D § 3(9). (If you click on the link, scroll down to (9).)

Finally, you should state the amount you are seeking in settlement (your "demand").

Wednesday, August 13, 2008

How to read an insurance policy: The insuring agreement

The "insuring agreement" is found on the first page of the "coverage form." (Note that this is generally not the first page of the insurance contract; that will be the declarations page. The other forms follow in more or less random order.)

The insuring agreement tells you in general terms what the insurance policy covers--but it doesn't actually provide much information. A typical first sentence of the insuring agreement of a commercial general liability policy is: "We will pay those sums the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." You still have to look elsewhere to figure out what "bodily injury" and "property damage" mean; I have been involved in cases where the meaning of "legally obligated to pay" has been an issue; "damages" can also be a term of the art. And of course, the phrase "to which this insurance applies" means that the policy covers what it covers and doesn't cover what it doesn't cover.

The insuring agreement also states that the policy doesn't cover exclusions, which are listed elsewhere in the policy; that it provides coverage up to the policy limits, which are listed elsewhere in the policy; and so on.

Although every word of an insurance policy can be and probably has been litigated, disputes over the insuring agreement generally focus on the meaning of the word "occurrence," which might or might not actually appear in the insuring agreement. I will discuss some of those disputes in future posts. (Additionally, not all policies are occurrence based. In a different future post I will explain the difference between occurrence based and claims based policies.)

Saturday, August 9, 2008

Appeals Court holds that insured's failure to cooperate with examination under oath discharges insurer's obligations

Mike Tracy at Rudolph Friedmann LLP brought to my attention a ruling handed down by the Massachusetts Appeals Court on Friday. In Hanover Ins. Co. v. Cape Cod Custom House Theater, Inc., the Appeals Court held that an insurer's failure to cooperate with an examination under oath excuses an insurer from its obligations under the policy, even if the insurer was not prejudiced by the lack of cooperation.

In Hanover the insured sought coverage under a business owner's policy for a break-in at the insured's place of business. After an investigation the insurer reasonably suspected that the break-in might be an inside job, and requested that the insured submit to an examination under oath.

The insured did not appear at the first scheduled examination, and on the advice of counsel refused to answer material questions at the next two examinations.

The trial judge ruled that the insured had materially breached the insurance contract, and that such breach had prejudiced the insurer. However, the trial court declined to relieve the insurer of its obligations under the policy, stating that the prejudice could be cured by an order requiring the insured to pay the attorney's fees of the insurer.

The Appeals Court reversed. The Appeals Court held that an insured's wilful, unexcused refusal to comply with a reasonable request for an examination under oath consititutes a material breach of a condition precedent to the insurance contract and discharges the insurer's obligations under the contract. The Appeals Court stated that this holding is an exception to the general rule that the insurer must show that it was prejudiced by the insured's breach of contract before it is excused from its obligations under the policy.

Friday, August 8, 2008

Laws that help you if your insurer is acting in bad faith

I published this post yesterday, but have revised it thanks to some comments from Andrew Caplan, a partner at Burns & Levinson,, regarding some overgeneralizations in my original post.

Massachusetts has a number of consumer-friendly laws, but you have to know how to use them for them to be of use to you.

Mass. Gen. Laws ch. 176D § 3(9) makes it unlawful for an insurer to use such tactics as ignoring communications from an insured with respect to a claim; failing to to make a prompt and fair settlement offer where claims are reasonably clear; or failing to provide a prompt and reasonable explanation of the reason for a denial of a claim.

With respect to insureds who are individuals (such as people making a claim under their homeowner's policy or personal automobile policy), a violation of 176D is also a violation of Mass. Gen. Laws ch. 93A, the Massachusetts consumer protection statute. Where the insured is a business, trial courts generally consider a violation of 176D to be sufficient proof of a violation of 93A, but are not required to do so.

When an insurer violates ch. 93A it is liable for the insured's court costs and attorney's fees, and may also be liable for double or triple damages.

The first step for an individual pursuing a claim for a violation of 176D and 93A is to write a "demand letter." The insurer has thirty days to respond to a demand letter with a reasonable offer of settlement. If the insurer does not respond with a reasonable offer of settlement within thirty days, it will be liable for double or triple damages if the court finds that the failure to make a reasonable offer was "in bad faith with knowledge or reason to know that the [original] act or practice complained of" was a violation of 93A.

In a future post I will discuss what you should say in a demand letter.

Sunday, August 3, 2008

Allocation question certified to Supreme Judicial Court

The United States Court of Appeals for the First Circuit has put hope into the hearts of those of us who deal frequently with questions of allocation of loss. In Boston Gas Co. v. Century Indem. Co., 529 F.3d 8 (1st Cir. 2008), the court certified questions to the Supreme Judicial Court of Massachusetts about how insurance in environmental damage cases should be allocated among insurers and between insurers and insureds.

Allocation is an issue that comes up most frequently in environmental and toxic tort cases, in which damage occurred over years or decades before it was discovered, thereby possibly triggering coverage by many insurance policies. The Boston Gas case is a typical example: over the course of decades, Boston Gas had factories that produced fuel along with hazardous by-products that leached into the environment. During one 18 year period, Boston Gas had insurance with three consecutive insurers. It sought coverage for the environmental damage from one of the insurers. That insurer wants the other two insurers to contribute to the loss. Whether they must do so is a question of allocation.

Another issue that came up in the Boston Gas case is whether coverage is triggered separately for each policy year. That issue is significant because Boston Gas had a yearly self-insured retention (a deductible) of $100,000. If each policy year is triggered separately, then Boston Gas will have to contribute several deductibles instead of just one.

There are numerous other issues with respect to allocation, from how to deal with periods where the insurance company that provided coverage no longer exists; to how to divide coverage where more than one insurer covers the same policy year; to how to allocate loss among insurers with different policy limits; to . . . I could go on and on.

But the answer to every such question that has come up under Massachusetts law, until now, has been: Who knows? The Supreme Judicial Court of Massachusetts has never issued a clear ruling on allocation. Other states are sharply divided on every issue.

The United States Court of Appeals has now asked the Supreme Judicial Court to answer three basic questions:

1. Should a pro rata (all insurers initially contribute) or joint and several (only one insurer initially contributes) allocation method be used?

2. If a pro rata method should be used, which pro rata method?

3. For an insurer who covered the risk for more than one policy period, should only one self-insured retention apply, or should the self-insured retention for each policy period apply?

Although some allocation methods tend to be more helpful to insurers and some more helpful to insureds (always with exceptions, depending on the case), in the long run clarity will help everyone. Here's hoping the Supreme Judicial Court agrees and chooses to answer the certified questions.

Wednesday, June 18, 2008

Reading an insurance policy: schedule of forms and endorsements

In my last post I began discussing how to read an insurance policy, beginning with the coverage selection page. The next thing you should understand is the order in which you should read a policy. (Hint: it's not necessarily front to back.)

The coverage selection page of many policies includes a section called "Schedule of forms and endorsements" or some variation of that. That section will contain a list of names of forms referred to by a combination of numbers and letters that make no sense to anyone who is not an underwriter (a person who puts together insurance policies). An example from a malpractice policy I had a few years ago:

U-PL-871-A CW (4/98)

The schedule identifies the forms and endorsements (which, for practical purposes are the same thing) that make up your policy. Some policies, such as a motor vehicle policy, may contain only a coverage selection page and the main policy form. Others, such as commercial general liability policy, will contain a coverage selection page and up to a couple of dozen forms, some as short as one page and others quite lengthy.

Generally the form identification, corresponding to the entries in the schedule of forms and endorsements, is at the bottom of each form. Each listing on the schedule of forms and endorsements should correspond to a matching form, and vice versa. If you have a form that is not listed on the schedule, or an entry on the schedule without a corresponding form, you should follow up with your insurer to see if the mistake is on the schedule or (more likely) in the insurer putting together the forms.

Wednesday, June 11, 2008

Reading an insurance policy: The first step

An insurance policy consists of several sections, and to understand what coverage you have purchased you need to understand what each section means.

The "coverage selection page," also called the "declarations page" or "dec page" is created for you personally when you purchase or renew your insurance. It indicates how much insurance you have bought ("the limits," discussed in a previous post) and any other information unique to the policy your policy. For example, the dec page of an auto policy will indicate what cars are included in the policy. A Commercial General Liability policy will indicate what premises are covered in the premises liability portion of the policy. A dec page may also indicate the names of the people or businesses that are covered under the policy.

Each and every time that you purchase or renew insurance, you should review the dec page to make sure that the insurer has issued to you the policy that you meant to purchase. In an auto policy it is not unknown for an insurance agent to raise your insurance limits (and your premiums) without discussing that with you. If your policy renews automatically, it is a good time to consider if the limits you chose still meet your needs.

In future posts I will discuss other parts of an insurance policy, beginning with the "insuring agreement."

Wednesday, June 4, 2008

How much insurance should you have?

The amount of insurance coverage you purchase is called the "limit" of the insurance--the maximum amount the insurance will pay. Most policies have two limits, the per person limit and the aggregate limit. The per person limit is the most that will be paid to any single person. The aggregate limit is the total amount the insurance policy will pay. If you have an auto policy with limits of $20,000/$40,000, and you injure three people in a car accident, the most any single person can recover from your insurer is $20,000. The total all three people can recover from your insurer is $40,000.

Of course, if you have severely injured someone, they can seek amounts in excess of your policy limits. If they win at trial, that excess amount will come from you.

In deciding the amount of insurance you should have, you should consider:

* The amount of damages you may cause if you are negligent. For example, in attorney malpractice insurance, the common advice is to have enough insurance to cover the full value of the largest cases you work on.

* What your own assets are. In a typical case, the plaintiff's attorney will not encourage the plaintiff to seek amounts in excess of the policy limits if you have limits that are reasonable in light of your personal situation. If you are rich, or even comfortably middle class, and you have the minimum auto policy coverage of $20,000, and you severely injure someone in an accident, it is likely that the injured person will seek to go after your personal assets. If you have very little income, savings, or assets, the injured person may seek a small contribution from you as a matter of principle, but the plaintiff's attorney will understand there is little to gain by forcing you into bankruptcy.

* The moral issues. How would you feel if, for example, you severely injured a person so that he is disabled, unable to work, and unable to take care of his kids, and the most he could get from your insurer is $20,000? A large financial settlement from your insurer obviously won't give him his health back, but it will help make his post-accident life easier. Such a settlement is only possible if you have higher coverage.

* The cost of the premiums. Until this year all personal auto policies in Massachusetts cost the same for whatever level of coverage you were purchasing, no matter which insurer you used. With deregulation you will need to shop around for the best price. While you're at it, compare prices for different levels of coverage.

Wednesday, May 28, 2008

Does your optional collision coverage cover rental cars?

Tom Raftery, a fantastic bankruptcy attorney who has answered many questions for me over the years,, wondered whether he should sign the loss/damage waiver when he rents a car, or pay the extra charge for insurance. I too always have that concern before I hope for the best and initial the waiver at the car rental counter.

Judy Bearfield at DeGuglielmo Insurance Agency in Medford (my own insurance agent, who I highly recommend) told me that the standard Massachusetts auto policy covers rental cars in the United States and Canada. Other countries, including Mexico, are not covered.

I confirmed this by reviewing the current standard Massachusetts Auto Policy ("the Seventh edition" for those in the know). The optional collision coverage provides coverage for "collision damage to other private passenger autos while being used by you or a household member with the consent of the owner." This would include rental cars.

So the bottom line is that your auto policy provides collision coverage on a rental car to the same extent as it does on your own car. Keep in mind that collision coverage is optional; if you have a low-value car you may not have purchased it. In addition, the rental car company may argue that it suffered damages (for example, loss of the rental value of the car while it is being repaired) that may not be covered by the collision coverage of your policy.

Following up on Judy Bearfield's comment that rental cars are covered only in the United States and Canada, the "Where You Are Covered Provision" of the auto policy states that the Compulsory Bodily Injuries To Others (providing $20,000 in coverage if you injure someone else in a car accident) applies only to accidents in Massachusetts. All other coverages apply only to accidents in the United States or Canada.

I should add that with the recent deregulation of auto policies in Massachusetts, as of April 1, 2008 each auto insurer can file its own endorsements that change the optional portions of the policy.

Finally, some credit card companies provide coverage for rental cars--but, given the constant changes to credit card terms, even if you think your card provides coverage you should double check, and ask closely about the terms.

Thursday, May 22, 2008

Change In Citation Rule Can Have A Big Impact

An issue that comes up frequently in construction defect litigation is whether a contractor's General Liability policy provides coverage for damages to the building itself caused by the contractor's faulty construction. Many such cases have to do with weatherproofing: for example, if a building's windows are not weathertight because the contractors made a mistake, will their insurance cover the cost of repair?

I have been personally involved in several such cases, bringing one to the United States Court of Appeals. (B & T Masonry Constr. Co., Inc. v. Public Serv. Mut., Inc., 382 F.2d 36 (1st Cir. 2004).) The issue has always been whether approximately six exclusions apply, separately or together, to exclude all or some of the damages. The analysis can never be a quick one because each exclusion has to be analyzed separately under the facts of the case. The exclusions vary in the timing of when the damages had to be discovered, where in the building the damages were, whether the work was done by the insured or a subcontractor, and other factors. The exclusions overlap but don't always exclude all damages.

If a new citation rule announced in February by the Massachusetts Appeals Court had been in effect just a few months earlier, though, the entire exclusion analysis would arguably be unnecessary. The Massachusetts Appeals Court has stated in at least two unpublished Rule 1:28 decisions that a construction defect is not an occurrence. Mello Constr. Inc. v. Acadaia Ins., 70 Mass. Ap. Ct. 1004 (2007); Davenport v. U.S. Fidelity & Guar. Co., 56 Mass. App. Ct. 1109 (2002).

Rule 1:28 is a rule of the Appeals Court that allows a panel of Appeals Court judges to decide a case without circulating it to all the judges on the court. The theory is that such cases are so clear-cut that additional work by the court is unnecessary. Until February, citation to Rule 1:28 decisions was prohibited by the Appeals Court.

In a footnote in Chace v. Curran, the Appeals Court announced that Rule 1:28 decisions issued after February 25, 2008 "may be cited for their persuasive value but . . . not as binding precedent."

If the new rule had been in effect when Mello was issued, I would be much more likely to recommend that an insurer deny coverage outright based on the theory that a construction defect is not an occurrence, rather than relying on exclusions which, after a long analysis, may not exclude all damages.

So, although citation rules may seem picayune, they have far-reaching consequences.

Wednesday, May 14, 2008

New SJC Decision Holds Medpay Provides Coverage Before Health Insurance

Mike Tracy at Rudolph Friedman,, has forwarded to me a decision handed down on May 12, 2008 by the Supreme Judicial Court of Massachusetts, upholding a clause of a health insurance contract that requires Medpay to be exhausted before the health insurer is required to pay. Metropolitan Property and Casualty Ins. Co. v. Blue Cross and Blue Shield of Mass., Inc. (I should note that Mike, who is on top of everything relating to insurance coverage issues, actually forwarded this decision to me on the 12th.)

MedPay is an optional coverage of motor vehicle insurance. It is not part of the PIP scheme, but provides medical coverage to an insured after PIP payments have been exhausted. I haven't run into MedPay issues very often. I think the main reason is that most people who have health insurance don't bother to purchase it, even though it can cover health insurance copayments or other gaps in medical insurance coverage. People who don't have health insurance, I imagine, tend not to purchase any optional coverages as they raise the price of their auto insurance.

In Metropolitan, Rice was injured in a motor vehicle accident. He had PIP and Medpay coverage under a Metropolitan auto policy and had health insurance with Blue Cross. Met paid the first $2,000 of his medical bills under PIP coverage. Rice submitted the remaining bills to Blue Cross.

Blue Cross denied coverage on the grounds that its subscriber certificate stated, "Unless required by law, coverage under this contract will be secondary when another plan [defined elsewhere to include MedPay coverage] provides you with coverage for health care services." Metropolitan brought a declaratory judgment action, seeking a declaration that it was not obligated to provide medical benefits to Rice after his PIP coverage was exhausted.

The SJC noted that by statute a health insurer may not deny coverage because of the existence of PIP benefits, but that no statute prohibits a health insurer from denying coverage because of the existence of MedPay benefits.

The SJC rejected Met's argument that if health insurance would not cover the additional medical bills, Met would cover it under PIP, not MedPay. The SJC stated that such an action would be illogical and contrary to the intent of the PIP statute of keeping the costs of compulsory PIP insurance low. The SJC went further and stated that when a health insurer denies coverage because of the existence of MedPay benefits, the motor vehicle insurer must cover those medical costs under MedPay, not PIP.

Thursday, May 8, 2008

A thumbnail sketch of PIP

In theory, PIP, or Personal Injury Protection, is a simple concept. It is Massachusetts' version of no-fault automobile insurance. Every insured driver's own insurance company will cover up to $2,000 in medical bills for that driver if he or she is in an motor vehicle accident, regardless of whose fault the accident is. If the driver doesn't have medical insurance, PIP will cover up to $8,000 in medical expenses. PIP can also cover lost wages and other expenses.

The counterpart to PIP is the "tort threshold", under which someone who has been injured in an automobile accident cannot bring a lawsuit against the other driver unless the injured person's medical bills exceed $2,000. If the person goes to trial and wins, the verdict will be reduced by the amount that was paid in PIP. That 's called the "PIP setoff."

There is also a scheme by which insurance companies reimburse each other for PIP payments, so that the insurer of the negligent party ultimately ends up paying. If X and Y are both injured in an accident and their respective insurers pay each of their medical bills through PIP, the insurers will decide who is at fault. If the insurers can't agree on who is at fault they will arbitrate the issue. If they decide, on their own or through arbitration, that X is at fault, X's insurer will reimburse Y's insurer the amount that Y's insurer paid on Y's behalf in PIP.

That's PIP in nutshell. In a future post I'll discuss what lawyers call "the PIP morass" (the complicated issues in this seemingly simple statute) and the related issue of why many top-notch personal injury attorneys can't answer seemingly basic questions about PIP.

Wednesday, April 30, 2008

Resolving a Coverage Conflict through a Declaratory Judgment Lawsuit

If you and your insurer disagree about whether the insurer has a duty to defend or indemnify you, either you or your insurer can file a "declaratory judgment" lawsuit. It is called a "declaratory judgment" because the plaintiff (the person filing the lawsuit) is seeking a "declaration" by the court that the plaintiff's interpretation of the insurance policy is correct.

The current law in Massachusetts is that if an insured wins a declaratory judgment lawsuit regarding the duty to defend, the insurer has to pay the attorney's fees incurred by the insured in the declaratory judgment lawsuit. This is true whether the insurer or the insured is the plaintiff in the lawsuit. Even if the insured wins a lawsuit regarding the duty to indemnify, however, the insurer is not obligated to pay the insured's attorney's fees.

There are a number of questions that remain unresolved about attorney's fees. For example, it is unclear what happens if a declaratory judgment lawsuit seeks a declaration about both the duty to defend and the duty to indemnify. In other contexts, where a party is entitled to an award of attorney's fees for some claims but not for others in the same lawsuit, the court will attempt to divide up the attorney's fees between the claims. That is always a difficult undertaking, but it would be particularly hard to divide the time spent by the attorney between the duty to defend and the duty to indemnify, because the two issues are so interrelated.

I will write more about the logistics of a declaratory judgment lawsuit in a later post.

Wednesday, April 23, 2008

New SJC Decision Regarding PIP and Rental Car Companies

Mike Tracy over at Rudolph Friedmann LLP,, an excellent insurance coverage litigator and a mentor to me over the last five years, has sent me a decision handed down yesterday by the Supreme Judicial Court of Massachusetts, Enterprise Rent-A-Car Co. of Boston, Inc. v. Arbella Mut. Ins. Co. In that case Joseph Navis rented a car from Enterprise. He was in an accident in which three of his passengers were injured. Enterprise was self-insured and paid the passengers a total of $16,171.60 in Personal Injury Protection ("PIP") benefits. Enterprise then sought to recover that amount in subrogation from Navis' own insurer, Metropolitan.

At issue was whether a rental car agency (Enterprise) that made PIP payments to the renting driver's passengers can seek subrogation from the renting driver's own insurer (Metropolitan).

The SJC first held that the question of whether Enterprise was entitled to subrogation was not one that must be decided by an arbitrator. Although under the PIP statute insurers seeking subrogation from one another must arbitrate the issue of whose insured is at fault, fault was not at issue in this case. Rather, the case involved the interpretation of the PIP statute, which the courts were entitled to determine.

The SJC held that Enterprise was entitled to seek subrogation from Metropolitan. The SJC rejected the argument by Metropolitan that such a decision would relieve car rental companies from the obligation to provide PIP coverage to renting driver's passengers if the renting driver has insurance. The SJC stated that the argument overlooks the fact that a subrogation claim will only be successful if the renting driver was at fault, and that not all renting drivers have a Massachusetts insurance policy.

More background on PIP in a later post.

Tuesday, April 22, 2008

When your insurer must pay your loss

As I discussed in my last post, an insurer has two duties: the duty to defend and the duty to indemnify. The insurer may have a duty to defend but ultimately no duty to indemnify.

While the duty to defend is determined by what is alleged in the complaint, the duty to indemnify depends on the "true" facts as determined by a court. So, going back to the example in the last post, if you are insured for injuries caused by apples falling from your apple tree, your insurer will defend you if someone states in a complaint that he or she was injured by an apple falling from your apple tree.

The case eventually goes to trial. Maybe you win at trial altogether. Your attorney convinces the jury that the plaintiff was not injured; or was not injured by something falling out of your tree. The plaintiff does not appeal. You are all set. The insurance company has paid an attorney to represent you; no damages have been found against you; and the case is over. While you have been inconvenienced and undoubtedly stressed by the lawsuit, you have not suffered any monetary loss.

But if you lose at trial, the insurer, having reserved its rights at the beginning of the case, will make a decision about whether to pay your damages awarded by the court to the plaintiff or to deny coverage. If the facts at trial demonstrated that the plaintiff was hit by an apple that fell from your tree--the very thing that your insurance policy covers--the insurer will pay the damages.

If the facts at trial showed that the plaintiff was hit by a falling acorn, then the insurer will "disclaim coverage"--refuse to pay the claim. Unless you have other insurance that will cover the claim, you will be personally liable to pay the damages assessed.

If you disagree with the insurer's view of the facts, you can file a "declaratory judgment" lawsuit. I will discuss that in a future post.

Friday, April 18, 2008

When your insurer must defend you

In my last post I talked about "reservation of rights letters" and what they mean. You might be wondering why your insurer will agree to pay for an attorney to defend you in a lawsuit but will not agree to pay any judgment against you that will come at the end of the lawsuit.

A liability insurer has two duties: the "duty to defend" and "the duty to indemnify." The duty to defend is the duty to pay an attorney to defend you in a lawsuit that is brought against you. The duty to indemnify is the duty to pay a judgment against you.

Whether or not the insurer has a duty to defend is determined by the allegations of the complaint that the plaintiff files against you in court. The insurer reads the complaint and determines whether, regardless of whether everything (or anything) in the complaint is true, the facts stated in the complaint could be covered by the insurance policy. If so, the insurer has to defend you.

For example, let's say that you have an insurance policy that provides insurance only if a person is hurt by an apple falling from your apple tree. Someone sues you and says in the complaint that they were injured when they were hit by an apple that fell from your apple tree. Your insurance company will have to defend you in that lawsuit. It doesn't matter that the person is lying and was actually hit by a falling acorn--your insurer still must defend you.

In a later post I will discuss the insurer's duty to indemnify, and why an insure might have a duty to defend but not to indemnify.

Wednesday, April 16, 2008

What does that letter from your insurer mean?

You have been sued. You immediately notify your insurance carrier. An adjuster--an employee of the insurance company assigned to your claim--contacts you, asks you some questions, and says the insurer will get back to you.

A few weeks later you get a letter from the insurer that quotes a lot of gobbledygook from your insurance policy. Towards the end, the letter states that the insurer will "defend you" in the lawsuit, but is "reserving its rights to disclaim coverage." What does this mean and what should you do?

The insurer is telling you that it will pay for an attorney to defend you in the lawsuit. This is called defending the suit. However, at the end of the lawsuit, if you lose, the insurer may decide that it will not pay the judgment against you. This is called the insurer reserving its rights.

If you receive a reservation of rights letter you have some options.

* You can take the path of least resistance and hope for the best. The insurer will choose and pay for an attorney to defend you in the lawsuit. Maybe you will win, and if you lose maybe the insurer will pay the claim. (In a later post I will talk about when this may happen.)

* The insurer will probably not tell you this, but in most cases when you have received a reservation of rights letter you can insist that the insurer allow you to choose the attorney that will defend you and that the insurer pay that attorney's fees.

* You can agree to the attorney the insurer hires on your behalf, but you also hire and pay for your own attorney to monitor the lawsuit and make sure that your rights are being adequately protected.