Wednesday, September 30, 2009

Appellate Division holds that established standards for expert witnesses apply to PIP claim

In Kaplan v. Hanover Ins. Co. a chiropractor, Kaplan, sued Hanover Insurance Company to recover pursuant to PIP payments for treatment provided to Hanover's insured.

A chiropractor employed by Kaplan had treated the insured. Kaplan sought to offer expert testimony about the necessity of the treatment provided and its causal relationship to the accident. For some inexplicable reason the trial judge refused to allow his testimony on the grounds that he had not treated the insured himself.

The Massachusetts Appellate Division held that the judge's ruling was an abuse of discretion. It pointed out that there is no requirement that an expert have personal knowledge of a case and may rely on materials prepared by others.

Thursday, September 24, 2009

Determining what state's law applies to a coverage dispute

In a coverage dispute the first question is what state's law will determine the coverage issue. That, in turn, is decided by the choice of law rules in the state where the lawsuit is filed.

As described in Clarendon Nat'l Ins. Co. v. Arbella Mut. Ins. Co., 60 Mass. App. Ct. 492, 495 (2004), Massachusetts uses a "functional choice-of-law approach that responds to the interests of the parties, the states involved, and the interstate system as a whole." In this approach Massachusetts courts rely on the Restatement (Second) of Conflict of Laws, sections 193, 188, and 6.

As described by the court in Clarendon, Section 193 "provides that the rights created by a contract of casualty insurance are to be determined by the local law of the State that the parties to the insurance contract understood would be the principal location of the insured risk, unless some other State has a more significant relationship under the principles of § 6."

The principal location of a homeowners policy insuring one house is the state where the house is located and the insured resides. The principal location of an auto policy issued for a single car is the state where the car is garaged and usually driven.

The issue becomes more complicated when a policy insures risks in many states. For example, a general liability policy may insure a business that has factories in several states. A motor vehicle policy could be issued to a trucking company that transports products all over the country.

In such instances a Massachusetts court turns to Section 6 of the Restatement, which lists seven factors to consider:

a) The needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied.

My opinion is that taken as a whole those factors add up to gibberish. They give permission to a judge to apply the law of whatever state he or she feels like applying. The only caveat is that the location or locations of the underlying insured events is not a factor. See W.R. Grace & Co. v. Hartford Accident and Indem. Co., 407 Mass. 572 (1990); Michaud v. U.S. Fire Ins. Co., 2000 WL 16767.

Tuesday, September 22, 2009

Insurer for Pring-Wilson's mother argues no coverage for civil wrongful death suit

The sad, sordid tale of Alexander Pring-Wilson has made its way into the insurance coverage realm.

Pring-Wilson was a Harvard University graduate student who allegedly stabbed to death townie Michael Colono in an early morning fight in 2003. He was convicted of voluntary manslaughter; had the conviction overturned in an appeal that set new precedent regarding the admissibility of a history of violence by an alleged victim; had a second trial that resulted in a hung jury; and pleaded guilty to involuntary manslaughter.

Colono's estate then filed a civil action for wrongful death against Pring-Wilson.

In the latest chapter, last month Fire Insurance Company, which issued homeowners and umbrella policies to Pring-Wilson's mother, has filed a declaratory judgment action in the United States District Court for the District of Massachusetts seeking a declaration that Pring-Wilson is not covered under the policy. According to the complaint, Pring-Wilson's mother lives and the insured property is located in Colorado. Pring-Wilson was an emancipated adult attending school in Massachusetts.

Fire Insurance alleges that there is no coverage because Pring-Wilson is not a member of his mother's household and because the stabbing was not an "accident" within the meaning of the policy.

Under the Massachusetts choice of law doctrine, the federal court in Massachusetts will most likely apply the law of Colorado to determine the coverage dispute. (I'll discuss choice of law issues generally in a future post.) While I have never looked at the definition of "member of an insured's household" under Colorado law, I have looked at it under Massachusetts law. There are several cases that hold that an adult child not living with a parent is a member of the parent's household only if the absence from the household is intended to be temporary; financial dependence is also a factor.

Saturday, September 19, 2009

Appellate Division holds that insured's fraudulent statements regarding lost income void all coverage for loss

In Lee v. Premier Ins. Co., 2009 WL 2438331 (Mass. App. Div.), the Massachusetts Appellate Division (a non-precedent setting court that hears appeals from the District Court)held that an insurer's fraudulent statements about his income voided his coverage not only for lost income but also for medical expenses.

The plaintiff, Lee, allegedly sustained injuries from a rear-end collision while operating a vehicle insured by Premier. Premier denied Lee's PIP claim, on the grounds of non-cooperation. Lee then sued Premier.

The evidence showed that in his PIP application and in an examination under oath Lee more than doubled the average weekly wage that he earned, and that he also exaggerated his annual income in 2003 in his examination under oath and at trial.

The Massachusetts Appellate Division held that in light of Lee's false statements with respect to his income Premier permissibly denied Lee's entire claim, including his claim for medical expenses. The court relied on Gechijian v. Richmond Ins. Co., 298 Mass. 487 (1937), which held:

when it is established . . . that the insured has knowingly made false statements, even in such a matter as value, for the purpose of influencing the adjustment of the loss, public policy demands that the contract be so construed as to discourage such conduct and to give full protection to the insurer.

Thursday, September 17, 2009

Appellate Division all but states that judges are crazy to deny motion to sever and stay 93A claim against insurer

In my last post I discussed the decision of the Massachusetts Appellate Division in Rodriguez v. Alvelo, 2009 WL 2438328 (Mass. App. Div.) to uphold the trial judge's decision not to sever a 93A claim against an insurer from the underlying claim against the insured.

The court also addressed the insurer's request that discovery against it be stayed. The insurer argued that it was entitled to a stay until after the adjudication of the underlying action to protect it from the irreparably prejudicial disclosure of confidential, privileged information contained in its claims file.

The court stated that the insurer "has an undeniably legitimate, if not compelling, interest" in protecting its work product, privileged communications, and other information the disclosure of which would prevent or impair its full defense of the underlying claim.

The court noted that there are non-precedential decisions on both sides of the issue (which many plaintiffs' and insurance defense attorneys can easily recite, having copied the same briefs over and over).

The court held that trial judges have discretion to decide whether discovery against an insurer should be stayed until resolution of the underlying matter. It noted that discovery of privileged or otherwise protected material is not allowed. It held, however, that the insurer in this case made no showing that materials in its file were not discoverable. Rather, the insurer had filed a "general motion to sever and stay" simultaneously with its answer, at a point at which there had been no request for any discovery of any kind by the plaintiff. The trial court therefore did not abuse its discretion in denying the motion.

The court then all but begged the insurer to move the trial judge to reconsider the decision, and the trial judge to do so:

In so ruling, we caution that prejudicial error would almost certainly result from any order for complete or unbridled discovery in this case. Having rejected the simpler, arguably more expeditious alternative of immediately severing and staying Rodriguez's G.L. c. 93A case, the trial judge has shouldered the potentially more time-consuming, labor-intensive tasks of scrutinizing Rodriguez's anticipated discovery requests and Premier's expected motions for protective orders, of fairly balancing the parties' competing discovery rights and interests, and of ruling in careful compliance with governing discovery rules. Permissible, practical procedures, including in camera review . . . of specific documents under seal identified by Premier as qualifying for protection, are available and must be undertaken by the trial judge. Nor is the judge precluded from reconsidering the question of a severance and stay, at least early in the procedures.

Tuesday, September 15, 2009

Appellate Division holds that decision to sever and stay 93A/176D claim from underlying claim is in trial judge's discretion

In Rodgriguez v. Alvelo, 2009 WL 2438328 (Mass. App. Div.) the Massachusetts Appellate Division affirmed a trial judge's decision not to sever a 93A claim against an insurer from the underlying action.

Following an automobile accident Rodriguez sued the driver of the car he was in for negligence and the driver's insurer, Premier, for breach of Mass. Gen. Laws 93A and 176D for failing to effectuate a prompt settlement.

Premier moved to sever the claim against it from the underlying claim, and to stay all discovery against it until the final disposition of the underlying claim. Insurers make such a motion in almost every case in which a bad faith claim is brought against it in the same lawsuit as the claim against the insured.

The trial judge denied the motion. At Premier's request, the judge reported the interlocutory finding the the Appellate Division.

The Appellate Division held that the denial of the motion to sever was within the discretion of the trial judge. The decision contains a lengthy discussion of the limited case law on the issue.

Friday, September 11, 2009

Massachusetts Appellate Division rules in favor of insurer in 93A/176D claim because insured presented no evidence of inadequate investigation

In O'Sullivan v. Hingham Mut. Fire Ins. Co., 2009 WL 2438329 (Mass. App. Div.), the Massachusetts Appellate Division overturned a trial judge's ruling that an insurer violated Mass. Gen. Laws ch. 93A.

O'Sullivan owned a building with a package store in it. (For blog readers not familiar with Massachusetts vernacular, a package store is a liquor store.) The store had a walk-in beer cooler. O'Sullivan discovered in October, 2004 that the back of the cooler had fallen through the floor to the crawl space below. She sought coverage from her businessowner's policy with Hingham.

The policy covered "loss caused by direct physical loss involving collapse . . . ." According to the policy terms collapse "does not include cracking, shrinking, bulging, or expanding."

Hingham sent an adjuster to inspect the floor. He concluded that the floor had "settled," not "collapsed."

A jury returned a verdict for O'Sullivan, finding that a collapse had occurred within the coverage. The trial judge then ruled that Hingham had violated Mass. Gen. Laws chs. 93A and 176D because its adjuster had conducted only a "cursory" inspection.

On appeal the Massachusetts Appellate Division upheld the jury's finding that the cooler had collapsed. However, the Appellate Division reversed the trial judge's ruling on the 93A count:

To prevail in an action for unfair settlement practices under G.L. c. 176D, § 3(9)(d), the plaintiff must show that the defendant "refus[ed] to pay claims without conducting a reasonable investigation based upon all available information." O'Sullivan made no such showing. She presented no evidence, expert or otherwise, of what Popoli had failed to do, or what additional steps he should have taken, in other words, what a reasonable investigation would have entailed. To the contrary, evidence was presented that Popoli spend between 30 and 45 minutes inspecting the outside and inside of the store, inspecting and taking measurements of the cooler, viewing the rot and deterioration beneath the floor though gaps in the raised boards, taking a number of photographs, and collecting a history from O'Sullivan. Far from a "cursory" inspection, the trial judge noted in his findings that [the adjuster] had "much probity and experience" and merely erred in this case.

Wednesday, September 9, 2009

More on an exception to the eight corners test

I posted here about an exception to the eight corners test stated in Farm Family Mut. Ins. Co. v. Whelpley, 54 Mass. App. Ct. 743, 747 (2002).

Andrew Caplan, a partner at Burns & Levinson, sent me a comment that made me realize that my post was not as clear as it should have been. Andy wrote:

Massachusetts state and federal cases go both ways on the issue of whether information derived from outside the complaint may serve to negate the duty to defend.

Yes. Farm Family Mut. Ins. Co. v. Whepley, 767 N.E.2d 1101, 1104 (Mass. App. Ct. 2002)( finding “rare exception” to general rule); Gateway Group Advantage, Inc. v. McCarthy, 300 F. Supp. 2d 236, 246 (D. Mass. 2003) (following Farm Family); Dash v. Chicago Ins. Co., 2004 WL 1932760, *5 (D. Mass. Aug. 23, 2004) (dicta).

No. Millipore Corp. v. Travelers, 115 F.3d 21, 35-36 (1st Cir., 1997), citing Nashua Corp. v. Liberty Mut. Ins. Co., 1997 WL 89163 (Mass. Super. Ct. Feb. 18, 1997) ("Where a complaint is susceptible on its face of a reading that brings the claim within the policy, the insurer cannot rely on facts outside the complaint to justify a unilateral refusal to defend."); Sterilite Corp. v. Continental Casualty Co., 17 Mass. App. Ct. 316, 324 n. 17, 458 N.E.2d 338 (1983)("[I]t is the claim which determines the insurer's duty to defend; and it is irrelevant that the insurer may get information from the insured, or anyone else, which indicates, or even demonstrates, that the injury is not in fact covered."); Essex Ins. Co. v. Berkshire Envtl. Consultants, Inc., 2002 WL 226172, *2 (D. Mass. Feb. 7, 2002); Metallized Prods., Inc. v. Travelers Ins. Co., 2003 WL 22481398, *3 (Mass. Super. Ct. Sept. 17, 2003).

Andy is correct that in most cases an insurer may not use information outside the underlying complaint to deny defense to an insured (although such information can be used to compel a duty to defend). The exception stated in Whelpley is quite narrow: it applies to facts that are (1) undisputed and (2) will not be litigated at the underlying trial, because they are irrelevant to the underlying claim.

In my previous post I discussed an example where an insurance policy covers only blue cars. The color of the car is undisputed. It will not be litigated at trial because the color of the car is irrelevant to liability. That would fall into the Whelpley exception.

Friday, September 4, 2009

Superior Court discusses distinction between "leased worker" and "temporary worker"

In Central Mut. Ins. Co. v. True Plastics, Inc., 2009 WL 2603151, the Superior Court held that whether or not a worker was a leased worker, in which case there would be no insurance coverage pursuant to a general liability policy, or a temporary worker, in which case there would be coverage, was a disputed issue of fact.

Sanchez was injured while working on the premises of True Plastics, the insured. She was an employee of Dynamic Staffing, Inc., a company in the business of placing its employees at client companies.

True Plastics had a general liability policy which excluded coverage for a "leased worker" but provided coverage for a "temporary worker." Leased worker was defined in the policy as:

a person leased to you by a labor leasing firm under an agreement between you and the labor leasing firm, to perform duties related to the conduct of your business. "Leased worker" does not include "temporary worker."

Temporary worker was defined in the policy as:

a person who is furnished to you to substitute for a permanent "employee" on leave or to meet seasonal or short-term workload conditions.

The court denied summary judgment to both True Plastics and the insurer because whether Sanchez was a leased worker or a temporary worker was a disputed issue of fact. Evidence supporting the conclusion that Sanchez was a leased worker included an affidavit that Sanchez was assigned to True Plastics for an indefinite time, and the agreement between Dynamic Staffing and True Plastics suggesting a leasing arrangement.

Evidence tending to show that Sanchez was a temporary worker included testimony that Sanchez was hired to fill a large new order for products and was manufacturing that product at the time of her injury.

The court's decision denying summary judgment is in line with the United States Court of Appeals in the case of Scottsdale Ins. Co. v. Torres, 561 F.3d 74 (1st Cir. 2009), which I discussed here. In Torres the court also denied summary judgment to both sides. It held that a placement for an indefinite period of time is not necessarily incompatible with the possibility that the worker was furnished to address a short-term workload condition. The court remanded the case for resolution of the question of how the injured worker's placement fit within the insured's ordinary course of business and the nature of its work flow.

Wednesday, September 2, 2009

Superior Court holds that binder trumps subsequent amendments to insurance policy

In Kopin Corp. v. One Beacon Am. Ins. Co., 2009 WL 2449880 (Mass. Super.), the Massachusetts Superior Court held that an insurance company was bound by the terms of a binder, despite its subsequent efforts to change the policy.

Kopin had an ocean marine open cargo insurance policy. As the court explained, an open marine cargo policy insures goods in transport from point of origin to final destination.

In March, 2005, Kopin contacted its insurance agent, GHM, to request to amend the policy to cover used merchandise it would export. GHM eventually issued a quote for coverage from IMU that included a used machinery clause.

Kopin requested that GHM provide the quoted coverage. GHM responded with an email stating, "You are bound."

In May, 2005, IMU informed GHM that it was moving its "new and renewal business" to a different division of its parent company. It offered a renewal quote "effective 4/20/05" for Kopin's policy. The quoted policy included endorsements that limited coverage.

In June, 2005, Kopin learned that two pieces of equipment it had shipped to Hong Kong had suffered rust and corrosion damage. The insurer, IMU, denied coverage on the grounds that the endorsements included in the May, 2005 quote excluded coverage.

The Superior Court held that the original quote trumped the subsequent endorsements and the renewal quote. The court stated:

One reason the Court so concludes is that the Quote, once accepted by Kopin and acknowledged by [the insurer], constituted a temporary, binding contract, known in the industry as a "binder." . . . As is the case here, a "binder contract, a commercial document, is to be read in accordance with its terms and not in accordance with the unexpressed terms which a party later wishes had been written into it."