Wednesday, December 29, 2010

SJC holds that separate limits apply to family members seeking coverage under Massachusetts Insurers Insolvency Fund

I wrote here about the Superior Court decision in Mass. Insurers Insolvency Fund v. Smith, which held that the statutory claim limit of $299,999 applies separately to individual family members seeking primary and loss of consortium damages from the Massachusetts Insurers Insolvency Fund.

In 458 Mass. 561 (2010) the Supreme Judicial Court affirmed that decision. The court held that allowing only one limit would substitute the word "occurrence" for the word "claim" in the statute.

Friday, December 24, 2010

Wednesday, December 22, 2010

Appeals Court holds that ch. 176D applies to captive insurer

Lemos was injured in 2001 as a result of defects in a lawnmower manufactured by Electrolux. He obtained a jury award of $550,500. He then brought an action against Electrolux's captive insurer, Equinox, alleging that it engaged in unfair claim settlement practices in breach of Mass. Gen. Laws chs. 176D and 93A.

As explained by the court in Lemos v. Electrolux North Am., Inc., 78 Mass. App. Ct. 376 (2010), a captive insurance company is formed to bear the risks of the parent company. Premiums paid to a captive may be tax-deductible, and a captive has the potential to produce lower insurance costs.

Electrolux was the parent and sole shareholder of of Equinox. The director of risk management at Electrolux, who was also the president of Equinox, stated that Equinox had no employees, only a board of directors. Its role was purely that of a funding vehicle for the reimbursement of Electrolux for claims that are paid by Electrolux.

Equinox argued that because it is a captive company, Electrolux is in effect a self-insurer, and that Equinox is therefore not engaged in the business of insurance so that the requirements of ch. 176D to not apply to to it.

The Superior Court agreed and granted summary judgment to Equinox.

The Appeals Court reversed. It noted that Equinox is a separate, for-profit entity that calculates the premiums it charges based on loss experience and costs, calls itself an insurance company, and issued a policy that states it provides commercial general liability and other coverage. It also noted that Electrolux receives a financial benefit from using a captive insurer rather than being self-insured.

Thursday, December 16, 2010

The real downside to the secondary mortgage market: consecutive mortgagees can't get their paperwork to insurer

WMC was the mortgagee of property in Athol, Massachusetts. (Reminder: the mortgagee is the entity such as a bank to whom the homeowner makes mortgage payments.) MPIUA issued a homeowners policy for the property which provided coverage to both the homeowner, Brohl, and WMC.

WMC transferred the mortgage note to UBS. UBS retained Ocwen to service the loan. The MPIUA policy was amended to add Ocwen as a mortgagee.

On January 25, 2007, Brohl notified MPIUA that the property had sustained water damage. On February 4, 2007, there was a fire at the property.

On June 12, 2007, Ocwen sent MPIUA a notice of claim seeking damages under the policy. The letter defined Ocwen as "the mortgagee." (Meanwhile, Brohl was being foreclosed upon.)

MPIUA requested documents from Ocwen. On July 16, 2007, the mortgage note was sold back to WMC, and Ocwen never provided MPIUA with the requested documents.

On December 20, 2007, WMC resold the mortgage loan to Credit Suisse. SPS serviced the loan for Credit Suisse.

On June 19, 2008, SPS submitted a claim to MPIUA on behalf of SPS "as the insured mortgagee under the policy." SPS enclosed with the letter a number of documents regarding the transfer of the loan. MPIUA responded with a request for documentation showing SPS' or Credit Suisse's status as proper claimants, including a paper trail from WMC to SPS. It also requested documents showing that SPS had notified MPIUA of its mortgagee status or any efforts to amend the declarations page of the policy.

SPS provided documentation regarding the mortgage transaction, and stated that it was unaware of notices to MPIUA regarding the change in mortgagees.

MPIUA responded to SPS that the documentation it provided was insufficient, and requested copies of the agreements assigning the mortgage from WMC to any subsequent mortgagee. SPS did not provide the requested information.

On September 28, 2008, WMC repurchased the loan from Credit Suisse.

WMC did not notify MPIUA that it had repurchased the mortgage. Instead, on March 23, 2009, it sued MPIUA, claiming that MPIUA breached its contract by failing to pay WMC’s mortgagee claim and had engaged in unfair settlement practices.

After the lawsuit was filed MPIUA continued to request evidence of WMC’s status as mortgagee. On September 22, 2009, WMC produced documents proving that it was now (again) the mortgagee. However, MPIUA did not pay the loss.

MPIUA argued that it was entitled to summary judgment because prior to filing suit WMC and its predecessors failed to provide satisfactory proof of their right and title as mortgagees. In WMC Mortgage Corp. v. Mass. Property Ins. Underwriting Ass’n, 2010 WL 3734120 (D. Mass.), the court held that MPIUA was entitled to summary judgment on the claim that it failed to act in good faith when it refused to provide coverage without additional documentation.

The court also held that MPIUA could not avoid coverage of the loss. Under Mass. Gen. Laws ch. 175 §97, a statute regulating fire insurance, MPIUA’s obligation to provide coverage to a mortgagee named in the policy arose upon satisfactory proof of the mortgagee’s rights and title as a mortgagee.

WMC was named as a mortgagee in the policy, and after the lawsuit commenced it provided sufficient evidence to establish its status as the current owner of the mortgage.

Finally, the court found that the various mortgagees breached the duty to cooperate when they failed to comply with MPIUA’s requests for information and that MPIUA was thereby prejudiced. The court held that the prejudice would be remedied by an order directing WMC to pay MPIUA’s attorney’s fees and costs incurred in the lawsuit.

Wednesday, December 8, 2010

First Circuit holds that bouncer's unintentional injury to bystander comes within assault or battery exclusion

Zachary Eaton was minding his own business at a nightclub in Maine called Ushuaia. Another patron got into a skirmish with a bouncer. The bouncer kicked open a glass-and-aluminum door, which struck and injured Eaton.

Eaton sued Ushuaia, which submitted to judgment and assigned its rights against its insurer, Penn-America, to Eaton. Eaton then sued Penn-America to satisfy the judgment.

Penn-America denied coverage on the basis of an exclusion for "damages resulting from assault or battery or physical altercations."

In Eaton v. Penn-Am Ins. Co., __ F.3d __, 2010 WL 472287 (1st Cir.), the United States Court of Appeals determined the coverage issue under the law of Maine.

The court held, first, that while it is acceptable for appellate decisions to be pretentious, they should not "wax longiloquent." (Okay, to be fair, that was just dicta.)

It then held that because the door was dislodged in the course of the assault, Eaton's injuries resulted from the assault and the exclusion applies. It further held that the fact that the bouncer did not intend to injure Eaton was irrelevant to the exclusion, which does not have the same definition as assault and battery in a criminal context.

Wednesday, December 1, 2010

Welcome to the Cavalcade of Risk

I am honored to be hosting the Cavalcade of Risk, a blog carnival dedicated to all types of risk.

Liability insurance posts:

Tred Eyerly discusses a new case from Washington state about one of my favorite topics: triggers of coverage for a long-tail loss. The case he discusses held that coverage for water infiltration was triggered when the damages manifested: Policy Language Restricts Ongoing Damage to One Occurrence posted at Insurance Law Hawaii.

Posts about keeping personal documents safe:

Miranda Marquit at Moolanomy posts about keeping personal identification documents safe.

Edward Webber discusses obtaining and keeping safe a UTR, or Unique Taxpayer Reference number (I assume this is the same as a TIN, or taxpayer identification number): UTR Numbers For the Self Employed posted at

Financial posts:

Free Money Finance writes about protecting your job and money against the possibility of being laid off: Career Insurance: Insuring Your Most Valuable Asset posted at Free Money Finance.

Health Insurance posts:

Freefrombroke posts about reimbursement for over-the-counter medication.

Hank Stern argues that medical insurers should not cover birth control: Medical Necessity vs (Stupid) Mandates posted at InsureBlog. Although I completely disagree with his post I include it here as a courtesy because Hank runs the Cavalcade of Risk. And because, unlike the last three posts I've considered for this Cavalcade, his post prsents information and a point of view rather than an advertisement. (Sometimes I think I would like to have a separate blog that discusses only medical insurance issues. Not, like my regular blog, having anything to do with what I do for a living or can write knowledgeably about. Just the trials and travails of my family dealing with health insurance when my husband and I are both self-employed and over-income for any government help. I'm sure there would be a post in that imaginary blog about how all health insurance plans should fully cover everything that helps society as a whole--such as birth control, Hank!)

Jaan Sidorov notes the consistency between the Genetic Information Non Discrimination Act (GINA – or the law that keeps insurers from collecting genetic information) and the recent Transportation Security Administration kerfuffle. In his estimation, our national distaste for profiling leads to everyone being treated equally badly: Can't Trust Health Insurers or Government With Private Data: The Irony of the Genetic Information Non-Discrimination Act & Airport Security Pat Downs

David Williams discusses how Google makes money from free healthcare sites: The downside of free health care sites posted at Health Business Blog.

Life Insurance posts:

Silicon Valley Blogger writes about the different types of life insurance policies: Comparing Whole Life Insurance vs Term Life Insurance posted at The Digerati Life.

Random posts

Jason Shafrin at HealthCare Economists discusses The Drunkard's Walk, a book about randomness and, oh yeah, the price of car insurance. The Drunkard?s Walk posted at Healthcare Economist. Snark alert: If you get irritated when someone says "two categories" and then lists three categories, skip this post.

Friday, November 26, 2010

SJC holds that workers' compensation self-insurance group is an insurer

I posted here about a Superior Court decision in Mass. Care Self-Ins. Group, Inc. v. Mass. Insurers Insolvency Fund . That case held that a worker's compensation self-insurance group, Mass Care, is an insurer within the meaning of Mass. Gen. Laws ch. 175D, which creates a fund that provides insurance benefits when an insurer that would otherwise provide coverage has become insolvent.

Mass Care provided coverage up to a self-insured retention limit to an injured employee of one of its members. The group had an excess carrier over the SIR that had become insolvent. When the damages paid to the injured employee exceeded the SIR, the group sought coverage from the fund.

The Superior Court held that the group was not entitled to reimbursement, because the Fund does not reimburse insurers.

In Mass. Care Self-Ins. Group, Inc. v. Mass. Insurers Insolvency Fund, 458 Mass. 268 (2010), the SJC affirmed.

The SJC adopted the dictionary definition of insurer as "[o]ne who agrees, by contract, to assume the risk of another's loss and to compensate for that loss." The court noted that Mass Care accepts premiums in exchange for the provision of workers' compensation coverage, and described its functions as including many operations ordinarily associated with the insurance business. Without more, Mass Care would be considered an insurer.

The court then turned to the enabling statute, Mass. Gen. Laws ch. 152 §§25E-25U, under which Mass Care and other worker's compensation self-insurance groups are created. It noted that §25E states that self-insurance groups are not to be deemed insurers, and that the reason is to prevent such groups from being subject to the traditional framework of insurance regulation. However, the definitions section of the statute, Mass. Gen. Laws ch. 152 §1(7), makes self-insurance groups subject to consumer laws and regulations applicable to workers' compensation insurers.

The court reconciled the clauses and concluded that Mass Care is a member of the insurance industry whom ch. 175D was not intended to benefit.

Tuesday, November 16, 2010

U.S. District Court holds that unsigned insurance application makes policy voidable

In RLI Ins. Co. v. Santos, __ F. Supp. 2d __, 2010 WL 4183836, RLI issued an umbrella policy to Beli Lima. Lima's 17 year old son was involved in an automobile accident. RLI denied coverage, in part on the ground that Lima had never signed the insurance application.

Lima had submitted an insurance application in July, 2006. RLI rejected it because it was incomplete. In August, 2006, RLI received an application by fax. Lima testified that she does not recall seeing the August form, completing it, or signing it. She testified that the signature on it was not hers. The implication is that the application was filled out and signed by the insurance agent. The application form included the statement, "APPLICATIONS WILL NOT BE ACCEPTED WITHOUT APPLICANT'S ORIGINAL SIGNATURE."

RLI issued to Lima an umbrella policy in September, 2006. When Lima sought coverage for the accident, the court ruled that the policy was voidable by RLI as a matter of law because the signature was a condition precedent to the insurance contract.

The court held in part,

There is no question that a reasonable insurer would consider an applicant's original signature important to its intelligent decision to issue a policy. An original signature assures the insurer that the applicant has attested to the verity of her answers and that she consents to entering into the insurance contract.

Saturday, November 6, 2010

Insurance Library looking for donations of insurance-related fiction

At the end of its latest email newsletter, the Insurance Library, one of my favorite resources, announced:

We have started a fiction section in our collection. So far, we've got the entire collection of Sue Grafton mysteries starring the former claims adjuster turned detective Kinsey Millhone. If you have any insurance fiction looking for a home, we'd welcome your donation!

I can't think of any liability insurance fiction at the moment, probably because I'm not a big fan of mysteries. But in the movie/tv category there's the great Double Indemnity; this Partridge Family episode; and wasn't there a Brady Bunch episode where Mike threw a briefcase in the courtroom and made the plaintiff ignore his fake neck brace and turn around?

Anyone know of any pop culture liability insurance plots that don't revolve around insurance fraud?

Wednesday, November 3, 2010

Appeals Court affirms that subrogation agreement does not transfer ownership

About a year and a half ago I wrote about a Superior Court decision in Apthorp v. OneBeacon Ins. Group, LLC. In that case an insurer had paid a claim of $25,000 for a stolen painting. Decades later the painting was found and had increased in value to between $400,000 and $800,000. The insurer claimed ownership of the painting, because the insured subrogated to the insurer all its right, title and interest in the property. Judge Garsh disagreed, stating that subrogation of rights and transfer of ownership are not the same.

The Massachusetts Appeals Court has affirmed the decision in 78 Mass. App. Ct. 115 (2010), adopting the reasoning of Judge Garsh.

Tuesday, October 26, 2010

First Circuit holds that company is entitled to coverage for claim against its directors and officers for unfair stock redistribution

About a year ago I wrote several posts about Genzyme Corp. v. Fed. Ins. Co., 657 F.Supp.2d 282 (D. Mass. 2009) , a case concerning coverage for settlement of a shareholder claim for unfair stock redistribution. Judge Gertner of the U.S. District Court held that there was no coverage.

In Genzyme Corp. v. Fed. Ins. Co., __ F.3d __, 2010 WL 3991739, the First Circuit has reversed in part, and remanded. It disagreed with Judge Gertner's conclusion that coverage for the loss is barred as a matter of public policy. It also held that while the policy's "Bump-Up" clause does not cover the amount paid by the corporation to settle the claims against it, the policy does cover any settlement amounts paid under an indemnification obligation with respect to the directors and officers. Because a portion of the claim may have been paid to settle claims against directors and officers, the First Circuit remanded the case to the District Court to consider the question of allocation.

Tuesday, October 19, 2010

U.S. District court holds that Automatic Extended Reporting Period requires that claims be reported but not made during extended period

NEET is a small environmental consulting business. It purchased from American Safety consecutive claims-made policies, with the policy periods ending on March 2 of each year.

A claims-made policy provides coverage if a claim is made and reported during the policy period, regardless of when the loss occurred. That's in contrast to the more usual occurrence-based policy, which provides coverage if the loss occurred during the policy period, regardless of when the claim was made.

The policies contained an Automatic Extended Reporting Period which provided that they will cover a claim made and reported to American Safety within 30 days of the end of the policy period, but only if no other similar insurance is in force during that time.

In February, 2008, NEET received a demand that it pay for remediation of an oil spill caused by heating oil tanks NEET allegedly installed improperly. NEET forwarded the demand detter to its insurance agent on March 6, 2008.

In a motion for summary judgment American Safety argued that for the Extended Reporting Period to apply the claim had to be both made and reported to the insurer during the 30 days after the policy expired. In New England Environmental Tech. v. Am. Safety Risk Retention, __ F. Supp. __, 2010 3622250 (D. Mass.) the court disagreed, holding that the policy could reasonably be construed to require only that the claim be reported to the insurer within 30 days after the policy expired. It also held that denying coverage to claims reported within the 30 day period would not assist the goal of claims-made policies of setting future premiums.

American Safety then argued there was no coverage because NEET had "other similar coverage" (the next consecutive American Safety policy) in effect for the policy period beginning on March 3, 2008. In somewhat convoluted logic the court held that the consecutive policy was not "other similar coverage." The heart of its decision is that failure to provide coverage because a consecutive policy was in place "is counterintuitive to a reasonable insured."

The court granted summary judgment to American Safety on NEET's 93A and 176D claims, on the grounds that American Safety's interpretation of the policy was plausible and there was no evidence it had acted in bad faith.

Wednesday, October 13, 2010

Another decision finding wiggle room for attorney's fees in PIP case after insurer tenders payment of medical bills

I wrote here about a recent Appellate Division case, Metro West Med. Assocs. v. Amica Mut. Ins. Co., which held that payment of outstanding PIP bills by an insurer does not necessarily prevent the award of attorney's fees under the PIP statute. Another Appellate Division decision has come to the same conclusion.

Howard Physical Therapy provided medical services to Joel DaSilva for injuries he suffered in a motor vehicle accident. Howard submitted to DaSilva's insurer, Premier, a request for PIP reimbursement of medical expenses. Premier paid some of the bills and refused to pay the remainder, asserting that the balance was unreasonable "upon review by an outside company."

Howard took no further action for more than four years, when it filed suit. Two weeks after Howard filed suit, Premier offered to pay the balance plus costs incurred by Howard in filing and serving the complaint. Howard rejected the offer. Premier then sent Howard a check for only the unpaid bill amounts, and moved for summary judgment. The District Court allowed the motion for summary judgment.

In Howard Physical Therapy, Inc. v. Premier Ins. Co., 2010 WL 3855302 (Mass. App. Div.) the Appellate Division reversed the summary judgment decision. It cited Metro West for the proposition that "the mere payment of the balance, in and of itself, would not justify summary judgment for Premier." Rather, the insurer must show that it had "a valid reason not to pay, and that it paid an invalid claim for reasons unrelated to its merits."

The court noted that although Premier had based its original decision, not to pay the full bill, on a review of the bill by "an outside company," there was no indication that the bill was reviewed by a registered or licensed practitioner in the same field as the practitioner submitting the bills, as required by statute. For that reason the Appellate Division reversed the District Court's summary judgment decision.

The court held, however, that Howard could not amend the complaint to add a count for breach of G.L. c. 93A, where Howard had not sent a demand letter prior to suit and Premier made a reasonable offer of settlement within 30 days after suit was filed.

Tuesday, October 5, 2010

Appeals Court addresses exclusion for residential construction work

FSS Automatic Sprinkler Corporation subcontracted with CB Construction Company to install fire protection sprinklers at the Stoneleigh Condominium project. The project converted the former Norfolk County Jail into a building of luxury condominium units. (I find that to be the most interesting thing about this case.)

In April, 2003, a sprinkler pipe leaked and caused water damage. FSS's insurer, Tudor, declined coverage, citing an exclusion for residential construction work.

In FSS Automatic Sprinkler Corp. v. Tudor Ins. Co. 77 Mass. App. Ct. 1122, 2010 WL 3629579 (unpublished), the Massachusetts Appeals Court held that the exclusion was ambiguous and therefore does not exclude coverage.

The decision does not quote the entire exclusion, and its discussion of it is so confusing that I can't figure out what the exclusion actually says. (That appears to be a result of the court's drafting, not the policy's.)

So, I can't provide an analysis. If you're dealing with an exclusion for residential construction work, this case might provide guidance in context.

Tuesday, September 28, 2010

Appellate Division discusses wiggle room for attorney's fees in PIP cases

Although the PIP statute allows attorney's fees in cases against a PIP insurer, such fees may only be awarded if a judgment is recovered from the insurer on the PIP claim. That rule has been generally understood to mean that an insurer can avoid attorney's fees by paying the disputed amount at any time, even after trial has begun. (Of course, attorney's fees can still be awarded on a 93A claim, but a violation of 93A is much harder to prove.)

In Metro West Medical Assocs., Inc. v. Amica Mut. Ins. Co., 2010 WL 3118636 (Mass. App. Div.), the Appellate Division discussed wiggle room for attorney's fees in a PIP claim.

Metro West alleged that it provided medical services to Cuevos, who was entitled to PIP benefits from Amica. Amica paid some of the bills but rejected the additional bills on the grounds that the services were unreasonable and unnecessary. A few weeks later Amica sent a check for the amount it had originally rejected. Metro West's attorney returned the check and demanded payment for attorney's fees under the PIP statute.

The court stated that it would not be inconsistent with prior case law "to require that the insurer on the § 34M [PIP] claim show more on summary judgment than simply that the bills have all been paid. It should also have to show that there is no genuine issue of fact concerning whether it had a valid reason not to pay, and that it paid an invalid claim for reasons unrelated to its merits, for example, to avoid the cost of litigation or to remove a potential liability off its books."

The court held open the possibility that an insured could reject a tender of late payment from an insurer. "In this light, a check for the balance of bills could be viewed as an offer of settlement, which could be rejected, and not a tender of full payment."

The court granted summary judgment to Amica. Amica had submitted an affidavit in which its claim supervisor averred that the disputed bills were not reasonable and necessary and that Amica paid them as a result of a business decision. "That was sufficient, albeit without a lot to spare" to shift the burden to Metro West to show that there would be a genuine issue at trial concerning the necessity of the services and the reasonableness of the bill." Metro West failed to do so.

Sunday, September 26, 2010

Insured really has to send a 93A letter

It is standard practice for insurers and insurance defense counsel to deny that a demand letter met the requirements for a 93A demand letter. 93A suits are dismissed from time to time because the demand letter failed to provide enough information for the insurer to assess liability or damages.

In Robotham v. LaFortaine, 2010 WL 3327826 (Mass. Super.), the Superior Court dismissed a suit against an insurer because a pre-suit letter did not mention at least one of the following six factors:

1) express reference to 93A;

2) express reference to the consumer protection act;

3) assertion that the rights of the claimants as consumers have been violated;

4) assertion that the insurer acted in an unfair or deceptive manner;

5) assertion that the insured anticipated a settlement offer within 30 days; or

6) assertion that the claimant will pursue multiple damages should the claim be denied.

Tuesday, September 21, 2010

Underinsurance coverage

I've been reviewing my auto coverage policy to make sure that I have the proper coverages for my family's circumstances. I've been looking specifically at underinsured coverage. Underinsurance coverage is when your own insurer pays your loss if you are injured due to the negligence of another driver who has insufficient insurance to cover your damages.

Underinsurance pays only if your underinsurance limit is higher than the limit of the other driver's liability coverage. So if you have $50,000 underinsurance coverage, the other driver has $100,000 liability coverage, and your damages are $120,000, your underinsurance will not kick in.

Even if your underisinsurance limit is higher than the other driver's liability limit, underinsurance will only pay the difference between the two limits. If you have $50,000 in underinsurance coverage, the other driver has a $20,000 liability limit, and your damages are $90,000, you will receive $20,000 from the other driver's policy and $30,000 from your own policy.

Friday, September 17, 2010

Appeals Court holds that policy endorsement does not have to be grammatically correct to be effective; underwriters dance in streets

Michael Daigle was hired to put a new roof on a building in Maine, and to seal two windows. Lavigne visited the job site and, looking for Daigle, climbed up on scaffolding that Daigle's crew used to access the roof. When a portion of the scaffolding snapped, Lavigne fell and broke his neck.

Daigle had a general liability policy with Penn-America. Penn-America denied coverage for Lavigne's claim, and a declaratory judgment lawsuit followed. At issue whether an endorsement effectively precluded coverage for claims arising from roofing.

The endorsement contained preprinted language at the top of the form offering three introductory phrases, each with a box for a checkmark. The phrase that was checked read, "In consideration of the premium charged, it is understood and agreed that . . ."

The form then listed nineteen items, such as "premium" and "coverage," none of which were checked in their corresponding boxes. Below that were four alternative actions, such as "is corrected to read as listed below" and "is amended and changed to read as listed below." None of those boxes were checked.

Finally, typed in bold was the phrase "EXCLUDING ANY AND ALL CLAIMS ARISING FROM ROOFING."

Below that phrase were spaces for a date and initial, both of which were blank.

In Penn-Am. Ins. Co. v. Lavigne, __ F.3d __, 2010 WL 3307367 (1st Cir.), the United States Court of Appeals for the First Circuit held that under the law of Maine the endorsement effectively excluded coverage for claims arising from roofing.

The checked and added phrases read in their entirety, "In consideration for the premium charged, it is understood and agreed that EXCLUDING ANY AND ALL CLAIMS ARISING FROM ROOFING[.]" The court noted that that language is not a complete sentence nor a comprehensible fragment of one.

The court held, however, that the test for interpretation of an insurance policy is not whether the policy is grammatically correct, but whether it is reasonably susceptible of different interpretations. The court held that disregarding the endorsement, as urged by Lavigne, would not "construe the endorsement strictly against the insurer, but rather [] render it meaningless." It held that an ordinary person in the shoes of the insured would understand that the endorsement excluded coverage for claims arising from roofing.

Wednesday, September 15, 2010

Superior Court applies Boston Gas rule to asbestos case

A little more than a year ago the Supreme Judicial Court adopted in Boston Gas Co. v. Century Indem. Co., 454 Mass. 336 (2009) pro rata time-on-the-risk allocation for long tail losses.

In New England Insulation Co., Inc. v. Liberty Mut. Ins. Co., 2010 WL 3219436 (Mass Super.), Judge Fabricant of the Superior Court applied that rule to an asbestos case. Although her decision does not discuss the facts, one can infer from reading it that a company that (for reasons not addressed by the court) does not have significant insurance available and was a "relatively minor contributor to the injury" is being hit with a large portion of the damages due to the insolvency of other companies.

Monday, September 13, 2010

U.S. District Court adopts broader definition of "part" in collapse coverage

A wall in a building in Holyoke owned by Puerta de la Esperanza settled between six and ten inches, with resulting damage to floors, walls, and plumbing fixtures. The settling was caused by the collapse of a load-bearing brick pier.

Puerta de la Esperanza requested coverage from its insurer, Middlesex, who sought a declaratory judgment that the pier's failure was not a "collapse." The policy defined collapse as "an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose[.]"

The pier was a component of the building but not an area of the building. Middlesex argued that the word "part" refers only to a physical area but not a structural component of the building. Puerta de la Esperanza argued that the term "part" can mean either an area or a component of the building.

In Middlesex Mut. Ass. Co. v. Puerta de la Esperanza, LLC, ___ F. Supp. 2d ___, 2010 WL 2639859 (D. Mass), the United States District Court adopted the broader definition of "part," and held that there was coverage because the pier, a component of the building, collapsed.

Thursday, September 9, 2010

Jury awards $12 million against car owners who removed driver from their auto insurance policy

Andrew Caplan of Gilbert & Renton, LLC brought to my attention yet another cautionary tale about why adequate insurance is important. In this article Massachusetts Lawyers Weekly describes a case, Silverio v. Gentile, in which a $12 million jury verdict was awarded in a motor vehicle accident suit in which the defendants did not have auto insurance. (The link to the article will only work if you have a password for the Lawyer's Weekly website).

According to the article, Vittorio Gentile, Jr., 26 years old at the time, was driving his grandparents' SUV when he caused a head-on collision for which he has been found criminally responsible.

The jury found that Gentile's grandparents were liable, because they allowed him to drive the car after they were aware of his extensive driving record. Gentile had been hit with so many surcharges that the grandparents had removed him from their insurance policy even though other grandchildren were still covered and permitted to use their vehicles. The jury found that the grandparents were negligent in their failure to secure the car from Gentile because they routinely left the keys out in the open. The plaintiffs convinced the jury that Gentile had their tacit consent to use the vehicle.

Like the case I posted about here, the injuries in this case were tragic. The plaintiffs were two brothers, Joseph and Douglas Homsi, in their 60's. Before the accident Douglas acted as a caretaker for Joseph, who has mental disabilities. In the accident Joseph suffered broken bones and internal injuries. Douglas incurred more serious injuries, and was left unable to breathe, eat, or speak on his own.

Because Gentile is not covered by insurance and the grandparents were found negligent, if the $12 million verdict stands they will have to pay it out of their personal assets. Early in the case plaintiffs' counsel placed an attachment on their real estate, including their home. Plaintiffs' counsel also obtained an injunction to keep the grandparents from transferring their assets.

The moral:

1. Make sure that anyone who will drive your car is covered by your insurance. Under the standard Massachusetts auto policy, you can lend your car to a friend for an afternoon, but if your friend regularly drives your car they must be added to your policy. Doing so will not affect your premiums if your friend has a clean driving record.

2. Don't drive drunk.

3. Don't let anyone use your car who will drive drunk.

Saturday, September 4, 2010

Appeals Court affirms $1,007,342.58 award against Arbella for unfair settlement on $20,000 policy

A cautionary tale for adjusters:

On August 30, 1998 Angelina Dattilo was seriously injured when her car was struck by a car driven by Anthony Caban. Caban had an auto insurance policy with Arbella with a per person limit of $20,000.

Both Dattilo's attorney and Arbella investigated the accident and concluded that Dattilo was not negligent. It was clear that the damages significantly exceeded the policy limits.

Dattilo's attorney sent a letter to Arbella demanding that Arbella tender within 30 days the $20,000 policy limit to Dattilo. The attorney offered to release Caban and Arbella from all additional liability in exchange for the $20,000.

Other than a voicemail message left on the attorney's answering machine, Arbella did not respond to the demand letter for five months. Nor did it notify Caban of Dattilo's demand and offer to release additional liability.

Seven months after the demand letter Arbella offered to settle Dattilo’s claims for $20,000 in exchange for a release. Dattilo refused.

Several months later Dattilo and Caban agreed that a judgment was to be entered against Caban for $450,000. Caban assigned to Dattilo his rights against Arbella for unfair settlement practices. Dattilo agreed not to execute the judgment against Caban. Arbella was aware of the negotiations and waived in writing any claim against Caban for noncooperation under the policy.

Dattilo then sent a 93A demand letter to Arbella demanding $1.4 million to settle the unfair settlement practices claim. Arbella responded with an offer of $23,966. After a jury waived trial, a Superior Court judge awarded Dattilo $1,007,342.58, which included compensatory damages, multiple damages, interest, and costs. Arbella appealed.

In Gore v. Arbella Mut. Ins. Co., 77 Mass. App. Ct. 518 (2010), issued last week, the Massachusetts Appeals Court affirmed the verdict. The decision contains a good review of 93A liability and damages. Of note, the court held that the judgment agreed to by Caban and Dattilo constituted a judgment, not a settlement, for the purpose of calculating 93A damages. (As I discussed here, where a 93A case goes to verdict the actual damages is the verdict amount. Where a 93A case settles, actual damages is lost interest on the settlement.)

It is also worth noting that the court was not unsympathetic to Arbella's claim that it needed more time than the initial 30 days given to it to determine how to proceed. The court noted that the issue was that Arbella never communicated that need to Dattilo's attorney.

Thursday, September 2, 2010

Court rules that insurer is not liable for low settlement offer in low impact case, or for not conceding liability

One constant area of contention between personal injury attorneys and insurers is damages from low impact collisions. A low implact collision is one in which there is contact between the vehicles but it is so slight that it often results in little or no damage to the cars. Plaintiffs' attorneys contend that despite the seemingly minor nature of the accidents, severe back injuries can nevertheless result. Insurers are dubious of such claims.

In Lanton v. Lin, 2010 WL 3038719 (Mass. Super.), Superior Court Judge Fremont-Smith held that an insurer did not violate Mass. Gen. Laws ch. 93A by offering $1,500 to settle a low impact case, especially where the jury had found that the plaintiff had not suffered any damages.

The plaintiff contended that the insurer had violated 93A on a second ground, because it did not concede liability even though the plaintiff had been rear-ended. That failure caused the plaintiff to incur additional attorney's fees to prove that the insured defendant was at fault. Judge Fremont Smith ruled in favor of the insurer on this issue as well. He held, first, that there were no damages because liability was not contested at trial and, second, that the plaintiff had not demanded in his 93A demand letter that the insurer concede damages and so it had no obligation to do so.

Tuesday, August 31, 2010

Nicholas Ellis, disbarred for insurance fraud, has been reinstated to Massachusetts bar

In In re Nicholas J. Ellis, 45 7 Mass. 413 (2010), the Supreme Judicial Court ruled last month that Nicholas Ellis, who had been disbarred in 1997 for insurance fraud, could be reinstated to the practice of law.

Ellis had been disbarred for knowingly submitting fraudulent medical records to insurance companies. His actions were part of a larger scheme by his personal injury law firm, Ellis & Ellis, to defraud insurance companies.

The SJC has found that Nicholas has been rehabilitated.

The court found that when Nicholas joined Ellis & Ellis he was new to the practice of law. The firm was established by his father and "tightly controlled" by his brother. Nicholas' wrongdoing was minor compared to the wrongdoing of the firm and his brother.

The court weighed Nicholas' wrongdoing against his post-disbarment activities, which included being the at-home parent to his children while his wife worked, attempting to become a teacher (he was unable to obtain employment because of his convictions), coaching youth teams, and charitable work through his church. He also expressed remorse about his wrongdoing.

I have mixed feelings about the ruling. It irks me that Nicholas gets brownie points for staying home with his kids. If he were a woman, would the SJC give him rehabilitation points for doing that, or for coaching a kid's team, or for doing volunteer work with a church? And I'm not too impressed with his studying to be a teacher when no school in its right mind would hire him.

It also bothers me that the SJC states that his new practice areas are sufficiently distinct from his old personal injury practice. One of his new practice areas is social security disability law. Forged medical records work just as well with the government as with insurance companies.

On the other hand, I like the idea of rehabilitation. I applaud the notion that each of us can grow beyond whatever stupid, wrong or unethical ideas we were indoctrinated with by our families, even if that growth comes in middle age.

So I give Nicholas the benefit of the doubt. Welcome back to the practice of law. I hope you prove worthy.

Thursday, August 26, 2010

New York trial court orders reinsurers to pay USF&G $246 million plus interest

Insurance attorneys talk about reinsurance cases in the same manner that divorce attorneys talk about probate court: it's a world unto itself, with its own language, rules and folkways, and not a place where one necessarily wants to wander without a guide.

Reinsurance is insurer's insurance. An insurer purchases reinsurance to protect itself from unusually high losses. For example, an insurer providing property coverage to many insureds in an area devastated by a hurricane might turn to its reinsurer to cover aggregate losses over a certain amount.

This week a major reinsurance decision was issued by a New York trial court. Although Massachusetts law is not discussed, I am writing about it here because the case illustrates issues that often come up in long-tail loss cases, including lost policies, business successions, allocation and trigger disputes, and cost-benefit analyses by insurers about when to stop fighting and start settling. And because anyone interested in the insurance world should be aware of a case in which a court orders this much money to change hands from one insurer to another.

Between 1948 and 1960 insurer USF&G issued a number of liability policies to Western Asbestos, which sold products containing asbestos.

In the mid-1960's, Western MacArthur purchased most of the assets of Western Asbestos and took over its business.

In the late-1970's, individuals injured by asbestos began suing Western MacArthur in its own right and as successor to Western Asbestos.

In 1993 Western MacArthur inititated in California a coverage action against USF&G and two other insurers, seeking coverage for the asbestos cases.

USF&G argued that Western MacArthur did not have standing to assert coverage under policies issued to Western Asbestos. To defeat that argument, Western MacArthur found a former officer of Western Asbestos and persuaded him to sign an assignment of insurance rights to Western MacArthur. Western MacArthur also convinced a California court to "revive" the long-defunct Western Asbestos to ratify the agreement. Western Asbestos intervened in the coverage litigation as plaintiff. The court ruled that USF&G lacked standing to challenge the purported assignment of insurance rights to Western MacArthur.

Neither Western MacArthur nor USF&G could locate the policies at issue. The plaintiffs presented "secondary evidence" that USF&G's lost policies provided products coverage without aggregate limits.

As a side note, Michael Aylward of Morrison Mahoney LLP circulated this fascinating, quirky article on how the plaintiffs proved coverage under lost policies.

At that point USF&G decided to engage in global settlement discussions.

In June, 2002 the parties reached a settlement agreement under which USF&G agreed to pay $975 million plus interest.

USF&G then sought coverage from its reinsurers, American Re and ECRA. That brings us to state court in New York, in the case of United States Fid. & Guar. Co. v. Am. Re-Ins. Co..

This week the court denied summary judgment to the reinsurers and granted summary judgment to USF&G, and ordered the reinsurers to pay USF&G $246 million plus 60 percent interest.

Although I'm not going to discuss the court's reasoning, I would be happy to forward a copy of the decision to anyone who wants it (thanks again to Mike Aylward who forwarded it to me and the rest of the people on the Massachusetts Reinsurance Bar Association email list).

Tuesday, August 24, 2010

First Circuit holds that under Maine law, a claim for reimbursement of educational expenses is a claim for money damages

Andrew Caplan of Gilbert & Renton, LLC sent me this case, decided by the First Circuit Court of Appeals last week:

In School Union No. 37 v. United Nat'l Ins. Co., __ F.3d __, 2010 WL 3260113 (1st Cir.), the court decided the scope of an Educator's Liability Policy.

The plaintiff, School Union 37, sought from its insurer costs incurred in defending a claim for reimbursement of non-tuition expenses, such as room, board and transportation, under the federal Individuals with Disabilities Education Act (IDEA).

The insurance policy required the insurer to "pay on behalf of the Insureds loss and defense expenses . . . for any claim due to a Wrongful Act to which the policy applies." The policy defined "claim" as "any written demand for money damages to which the policy applies."

At issue was whether the third-party claim for reimbursement was a claim for "money damages," which was undefined in the policy.

The court first held that the common law definition of money damages under IDEA is irrelevant to the definition of money damages in an insurance policy. Rather, the definition would be determined by the Maine law of contract interpretation.

The court held that, interpreting ambiguous language against the insurer, the term "money damages" encompassed the reimbursement at issue. The insured was therefore entitled to the attorney's fees it incurred.

Saturday, August 21, 2010

Massachusetts Appeals Court holds that foreclosing mortgagee is not entitled under mortgagor's policy to lost rent

Pereira owned a multi-unit rental property. Greenpoint was the mortgagee. (For those of you who have trouble keeping straight which is the mortgagor and which is the mortgagee, as my property law professor used to say, "The mortgagEE [the bank] has the monEY.")

A fire rendered all of the rental units uninhabitable. GreenPoint subsequently transferred and assigned the mortgage and associated agreements to Casco Bay. The decision does not address whether Casco Bay was aware that it was acquiring the mortgage of a destroyed property.

Pereira defaulted on his mortgage loan. Casco Bay foreclosed and purchased the property. Unsurprisingly, a large deficiency remained.

Casco Bay sought to recover lost rent on the property from Pereira's business owner's insurance policy. In Casco Bay Fin. Co., LLC v. Quincy Mut. Fire Ins. Co., 77 Mass. App. Ct. 913 (2010, the Massachusetts Appeals Court held that the standard mortgage clause, mandated by Mass. Gen. Laws ch. 175 § 88, Twelfth, does not provide coverage to a mortgagee for lost rent where the mortgagor has executed an assignment of rent to the mortgagee. The mortgage clause provides, "We will pay for covered loss of or damage to real estate to each mortgageholder . . . " The court held that rent is not included in the meaning of "real estate."

The court also held that Casco Bay could not recover under the policy's coverage for loss of business income. It held that that coverage is limited to loss of business income sustained by Pereira and was for his benefit only. Pereira's assignment of rents to the mortgagee did not give the mortgagee the right to recover, because the policy provides that the insured's rights and duties may not be transfered without the insurer's written consent.

Thanks to Mike Tracy of Rudolph Friedmann LLP for bringing this case to my attention.

Thursday, August 19, 2010

Just for fun, mostly

This comes via Linda Weaver's Armadillo Club newsletter. She attributes it to Mike Halverson of Halverson Consulting in Maryland. As Linda wrote, "since there aren't many coverage jokes floating around . . . "

Two coverage attorneys are hanging out in a bar. One gets a call from his wife and starts talking to her, but his phone goes dead. The other says, "Hey, I learned a trick for this. The wire that connects the battery to the circuitry gets corroded, see? But you rub a little salt where the wire is, and it neutralizes the corrosion and the phone starts working again. Seriously, try it." So he opens up the compartment, grabs the salt shaker off the table and starts doing it. A bouncer sees this from across the room and runs over in a fury and says: "Get the h___ out of here! Now!" And the lawyer's like: "What for? What did I do?" And the bouncer says: "Bar rules. We got a salt-in-battery exclusion!"

If you're a coverage attorney and you don't know about the Armadillo Club, I recommend that you check it out here. Based in Chicago, it has a growing membership nationally. One of the requirements for membership is that "you have to be fun, not worry about things that don't matter and not take yourself too seriously (or at least be working toward those goals)."

I belong to a lot of liability insurance groups through LinkedIn, but unless I'm having a really slow work day I generally delete all the emails without looking at them. I always open my Armadillo Club emails, though. In addition to being fun, they have good job leads and genuinely useful information.

Tuesday, August 17, 2010

Superior Court holds that Massachusetts has personal jurisdiction over New York insurer

James Nolan brought a tort action against Rochester. When Rochester's insurer, Dryden, refused to defend or indemnify it Rochester brought a coverage action against Dryden. Dryden moved to dismiss on the grounds that Massachusetts courts may not exercise personal jurisdiction over it. In Nolan v. Barr & Barr, Inc., 2010 WL 2762682, Superior Court judge Kenton-Walker disagreed.

Dryden has a principal place of business in New York and is licensed to issue insurance policies in New York. P & J is a carpet-installation business located in New York. Dryden issued a general liability policy to P & J. The policy did not limit coverage to New York.

P & J teamed with Rochester, another New York carpet-installation company, to install carpeting at the Williams College Theater in Massachusetts. P & J added Rochester to the Dryden policy as an additional insured.

Judge Kenton-Walker held that Massachusetts courts may exercise personal jurisdiction over Dryden. Although on its insurance application P & J had represented that none of its business took place outside of New York, the policy did not exclude coverage for claims outside of New York. Judge Kenton-Walker held that it was reasonably foreseeable that the insureds would be sued in Massachusetts, and Dryden should have known that it would be required to defend them in Massachusetts.

Friday, August 13, 2010

Posting a comment on this blog

Readers, please feel free to post comments on this blog. To do so, click on the title of the blog post. At the bottom of the post click on Post a Comment. Type your comment and fill out the rest of the information requested.

Your comment will not appear immediately. Because this blog was getting so many spam comments I have to moderate posts. I will post any comment, positive, negative, agreeing or disagreeing with what I have written, as long as I am sure it is not spam.

Wednesday, August 11, 2010

Superior Court describes formula to apportion insufficient insurance limit among multiple claimants

I frequently write about the importance of having adequate insurance coverage, to protect the personal assets of the insured and to protect victims of mistakes -- or worse -- that the insured might make.

There are times, however, when even what seems to be adequate coverage is not enough to compensate injured people. The Superior Court described such a situation in Providence Mut. Fire Ins. Co. v. Morancy, 2010 WL 2763255.

Morancy involved a a teenager who got drunk at a party at Morancy's house and then crashed his car into a tree, injuring his four passengers. He had auto insurance with limits of $100,000 per person and $300,000 per accident. Those insurance funds were distributed among the passengers. The insurance did not come close to compensating the passengers for their injuries, one of whose medical bills alone exceeded $900,000.

The passengers then turned to Morancy's homeowner's insurance for additional compensation. The homeowner's policy had a limit of $500,000. That limit, in addition to the auto policy limit, was insufficient to fully compensate the passengers for their injuries. The insurer requested that the court allocate the limit among them.

There was little evidence presented to the court of the passengers' future medical cost or future lost earnings. The court chose to disregard pain and suffering damages. It used only the medical costs incurred by each passenger to determine the proper allocation.

The court subtracted from the medical costs the amount each claimant had received in settlement from the auto policy. It totalled those uncompensated damages and computed each passenger's percentage share in that total by dividing the individual uncompensated damages by the total uncompensated damages. It then distributed the $500,000 limit according to those percentages.

The public service portion of this post:

The passenger who was most severely injured was a tenth grade honor roll student. She worked part-time after school and was a cheerleader. Now she has serious mental impairments that affect her cognitive skills; she has lost vision in one eye; she cannot drive and has difficulty reading and using a computer; she is currently repeating twelfth grade in an attempt to pass the MCAS; it is unlikely that she will ever be able to work; and she cannot be left home alone.

The takeaway:

1. Don't drive drunk.
2. Don't get into a car with someone who is driving drunk.
3. Don't serve alcohol or let your kid serve alcohol to someone who will drive.
4. Tell your teenagers that if they can't get home safely you will come and get them, no questions asked.

Monday, August 9, 2010

A really bad week leads to decision on res judicata effect of arbitrator's award on related action

Anthony Liquori suffered personal injuries in an automobile accident with Zachary Wyman on September 24, 2004, and was injured again in an accident with Robert Pelley on September 27, 2004.

Liquori settled his claim against Wyman for Wyman's $20,000 policy limits. He then sought underinsured motorist coverage from his own insurer, Travelers. In an arbitration of the underinsured motorist claim he submitted medical bills totalling $10,716.10.

The arbitrator ruled that based on the materials submitted, it was impossible to determine which medical bills were solely attributable to the Wyman accident and not to the Pelley accident. She held that the Wyman accident was not responsible for more than one third of his nine percent impairment rating, and awarded $4,752.93.

Liquori's claim against Pelley continued. He submitted to the court the medical bills he had submitted in the Wyman arbitration, plus some addiditonal bills.

Pelley moved to exclude from evidence the medical records and bills that had been submitted to the Wyman arbitrator, on the ground that the arbitrator's award was res judicata as to Liquori's total damages.

In Liquori v. Pelley, 2010 WL 2010875 (Mass. App. Div.) the Massachusetts Appellate Division held that there was no issue preclusion, because there was no identity of issues between the Wyman arbitration and the Pelley trial. In the Pelley trial the issue was the amount of Liquori's damages for injuries caused by the Pelley accident. In the Wyman arbitration the issue was the amount of Liquori's damages caused by the Wyman accident. The Wyman arbitration did not determine Liquori's total damages from both accidents. Even if the arbitrator implicitly determined damages from the Pelley accident, such finding was not essential to the arbitrator's determination.

Thursday, August 5, 2010

Another plug for liability insurance

I participate in a large listserve for local parents. One of the recent threads concerned problems with cakes from a local bakery. There was a long discussion about whether it was okay to post the name of the bakery or if doing so would create the risk of a libel lawsuit. One of the posters responded that for an additional $8.00 a year she added a rider to her homeowner's policy providing coverage for slander and libel. (In insurance terms slander and libel generally come within what is called "personal injury" coverage, an entirely different coverage from "bodily injury" even though the two are synonymous in other contexts.)

Years ago I defended a couple who was sued when they publicly opposed a telephone sex company renting space in the mixed use commercial and residential condominium building where they lived. After several years of litigation they not only prevailed but were awarded their attorney's fees. Had they not had personal injury insurance, however, the process could easily have bankrupted them or forced them into an unfair settlement.

Liability insurance provides not only indemnity (payment of damages to the claimant after the insured loses at trial or settles the case) but also defense, which is sometimes called lawsuit insurance. Because there is always a risk of being sued even when you have done nothing wrong, having such insurance can save you from the tens of thousands of dollars it can cost simply to have a groundless lawsuit dismissed.

Tuesday, August 3, 2010

A crisis that will affect insurers, insureds, and everyone else

The Massachusetts court system is facing a massive budget crisis, and it's going to impact all of us in all kinds of ways. Because this is a blog about insurance law I won't go into how it will affect accused criminals and victims of crime, people trying to get divorced or to buy or sell a house, businesses, customers, employees, and . . . well, everyone in every aspect of their life.

Getting a firm date for a civil trial in Massachusetts has always ranged from frustrating to really, really frustrating. But now it's worse than ever. The last trial I had in Superior Court received about eight continuances, all but the first one at the initiation of the court, and several of them because there was no judge assigned to the courtroom.

It used to be that when I decided what county to file a case in, I would think about which courthouses had the best rotation of judges for the particular issue. Now I think about which county my case is most likely to ever see the light of day in a courtroom.

And, folks, that was the condition before the most recent round of budget cuts. Massachusetts Lawyers Weekly reports that the current round of budget cuts will require that 250 to 300 court jobs be eliminated and that 14 courthouses be closed.

How will these cuts affect insurance? Here's a minor example: Last week the Supreme Judicial Court, in Papadopoulos v. Target Corp., 457 Mass. 368 (2010), overturned well over a century of established law about when a landowner can be liable for someone slipping and falling on ice or snow.

The SJC replaced a fairly cut and dry standard -- natural versus unnatural accumulation -- with the standard of reasonableness. That means that there is whole new body of law that needs to be developed before plaintiffs can determine whether they have a viable claim and before general liability and homeowners insurers can know whether they should settle a case or defend it.

And that body of law can't be developed without judges with the resources to hear cases. Almost all the slip and fall on snow and ice cases that ten years ago would have gone before a judge, either on summary judgment or at trial, will now go to mediation or arbitration. That means no body of law will develop, and that means everybody--claimants, insureds, insurers, and the general public, will be acting on guesswork. One of the most important bases of our legal system --stare decisis--the system under which judges are bound by precedent, cannot occur without that precedent being made by the courts. If you walk outside in the wintertime; or if you are an insurance adjuster trying to determine the settlement value of a claim, a landowner or a businessowner or a homeowner trying to decide whether you need to put salt or sand on your sidewalk if there is a dusting of snow; of you are a plaintiff's attorney or a defense attorney trying to do the best job you can for your clients, you are the loser here.

For information about help court officials are requesting, click click here. You can check for periodic updates from the courts here.

Friday, July 30, 2010

Appellate Division holds that failure of insured to submit PIP package does not void PIP coverage due to noncooperation

In Advanced Spine Centers, Inc. v. Pilgrim Ins. Co., 2010 WL 2225530 (Mass. App. Div.), the PIP insurer mailed to the insured a PIP package following her injury in an automobile accident. The packet had been created by the insurer and included a PIP application form, an authorization to obtain medical and wage information, and a health insurance affidavit form.

The insured never filled out and returned the paperwork. The insured's attorney sent the insurer a copy of the operator's report for the accident, and a notice of her PIP claim. Her chiropractor submitted treatment notes and reports, an affidavit of no health insurance, and an authorization signed by the insured permitting the chiropractor to release the medical information necessary to process her PIP claim.

The court held that the insurer was required to pay the PIP benefits despite the failure of the insured to fill out and return the forms provided by the insurer, because the insurer had received all the material information it sought. It had therefore not been prejudiced.

Wednesday, July 28, 2010

Superior Court limits amount recoverable under worker's compensation lien

In Curry v. Great Am. Ins. Co., 2010 WL 1795375, the Superior Court held that the recovery under a lien of a worker's compensation carrier in a wrongful death case was limited to the portion of damages allocated to loss of net expected income of the next of kin of the deceased. The worker's compensation carrier was not entitled to the portions of the damages allocated to conscious pain and suffering or loss of consortium. Its recovery was so limited because damages for loss of net expected income represented benefits "that are duplicated by the worker's compensation benefits."

The court also held that the insurer and the plaintiffs must each pay their proportionate share of the legal fees and costs in the wrongful death action.

Monday, July 26, 2010

No 93A damages for mistaken interpretation of policy

I have been discussing Fundquest Inc. v. Travelers Cas. & Sur. Co., 2010 WL 2223301 (D. Mass.). The United States District Court for the District of Massachusetts held that there was coverage under an employee dishonesty clause of a policy where the human resources department of the company accidentally deposited the bi-monthly salary of the CEO into the bank account of a low-level employee, and such deposits continued after the employee left the company.

The court held that the insurer's denial of part of the claim on the ground that there was no coverage for deposits after the employee left the company was not a breach of Mass. Gen. Laws ch. 93A. Although the court ultimately agreed with the company, the company had been unable to marshal any case law supporting its position on the novel issue, and the one seemingly relevant case arguably pointed in the other direction. "Despite Travelers' ultimately erroneous interpretation of the Bond, the court does not believe that . . . a reasonable insurer could not have deemed the issue one open to reasonable debate, particularly given the court's own struggle to see through the insurance-ese in which the Bond is written."

Thursday, July 22, 2010

The incompetence continues

I have been discussing FundQuest Inc. v. Travelers Cas. & Sur. Co., 2010 WL 2223301 (D. Mass.), in which a company sought insurance after its human resources department accidentally deposited for fourteen months the CEO's salary into a low-level employee's bank account, even after the employee left the company.

FundQuest sought insurance coverage on under an additional policy provision providing coverage for "[l]oss of property resulting directly from (a) . . . misplacement."

FundQuest lost that argument. Why? Because when it filled out its Proof of Loss form for submission to the insurer, it failed to check a box for a claim for "Mysterious Disappearance/Misplacement." It thereby waived the claim.

Tuesday, July 20, 2010

Company gets insurance coverage for paying former employee the CEO's salary

Answering the question from my last post:

Yes. Which makes me wonder whether underwriters should start thinking about an exclusion for -- I don't know, reckless indifference to not receiving your salary for over a year? Or more generally, radical stupidity? Or gross negligence where the claim is a first-party claim? I realize that such exclusions would lead to endless litigation over definitions, but still . . . In any event, the actual policy clauses at issue were much more mundane.

In my last post I described the facts of FundQuest Inc. v. Travelers Cas. & Sur. Co., 2010 WL 2223301 (D. Mass), in which Curran, a low-level employee, managed to embezzle the CEO's salary for sixteen months when the human resources department accidentally began direct depositing the salary into Curran's bank account.

FundQuest attempted to recover its loss through a Financial Institution Bond issued by Travelers. Travelers agreed to reimburse FundQuest for the amount placed in Curran's account while Curran remained employed by FundQuest. It denied coverage for the amount FundQuest placed in Curran's account after Curran left FundQuest.

The United States District Court for the District of Massachusetts held that FundQuest was entitled to be reimbursed for the entire amount.

The insuring agreement provided coverage for "[l]oss resulting from dishonest or fraudulent acts committed by an Employee . . ." Another section of the policy provided coverage for "[l]oss of property resulting directly from . . . (b) theft, false pretenses, common-law or statutory larceny, committed by a person present in an office or on the premises of the Insured . . ."

"Employee" was defined as "a natural person in the service of the Insured at any of the Insured's offices or premises covered hereunder whom the Insured compensates directly by salary or commissions and whom the Insured has the right to direct and control while performing services for the Insured."

The court held that the "acts that gave life to the machinery that caused the loss" occurred while Curran was employed by FundQuest. Curran's "dishonest passivity - maintaining his silence after learning that he was receiving a grossly inflated paycheck - began at FundQuest and simply continued uninterrupted after he left."

Friday, July 16, 2010

The most fun insurance case to come our way in a while

As I have frequently written, including in my last post, we all make mistakes, and sometimes those mistakes hurt other people. That is why liability insurance is a great thing. But in general my various rants address third-party claims; that is, person A made a mistake and person B was injured as a result. Person A's liability insurance will provide money to pay for the loss person B suffered.

First-party insurance is insurance that pays the policyholder. For example, homeowner's insurance includes property damage coverage. If your house burns down, the insurance you pay for will reimburse you for the financial damage you suffered.

There is generally no coverage under homeowner's insurance if your house burned down because you committed arson. There is more likely going to be coverage if you accidentally caused a fire that burned your house down. But what if you accidentally burned your house down because of an act of incredible stupidity? I'm not talking smoking in bed. I'm talking not noticing that your kids are building a campfire in the middle of your living room.

In FundQuest Inc. v. Travelers Cas. & Sur. Co., 2010 WL 2223301 (D. Mass.), the court addressed an analogous situation in an employee dishonesty policy.

FundQuest, a financial advisory firm (you'll see how ironic this is in a moment) had an employee named John Curran who had a low level IT support position. Curran submitted a request to transfer direct deposit of his paycheck to a new bank.

A human resources employee accidentally inserted the payroll information of FundQuest's founder, president, and CEO, Robert Del Col. As a result, the company began depositing Del Col's paychecks in Curran's account. The court described the paycheck as "appreciably larger" than Curran's. The human resources department had made a stupid mistake, somewhat akin to falling asleep while smoking in bed.

Curran did not notify FundQuest of the mistake. Instead--and you have to give him credit for chutzpah--he complained of not receiving his own paycheck.

FundQuest did not respond by looking into the paperwork and noticing that Curran was receiving his CEO's paycheck. Instead, it merely began adding Curran's own paycheck to his direct deposit account. Another stupid mistake, somewhat akin to noticing that a pan on the stove is on fire and assuming that the fire will burn itself out.

Curran received both paychecks for two months, when he quit working for FundQuest. I would love to know why he quit and if he guessed what would happen next: although his own paycheck stopped when he left the employment of FundQuest, he continued to receive Del Col's paycheck.

More than a year later, Del Col noticed that he had not been paid for sixteen months. Why did he notice at that point? I can only guess that it was because it was January, 2009, which was right around the time we all realized that the tanking of the economy was not going to be a mere blip. Suddenly, every $258,964.27--the amount of salary he was not paid-- must have begun to matter to Del Col. In other words, he must have suddenly started to care that his kids were burning down his living room, because he might actually have to live in it.

Not surprisingly, since Del Col was president and CEO and all, FundQuest promptly reimbursed Del Col the amount he was owed in back salary.

I know you're all wondering: Did Fundquest get reimbursed by its insurer? Find out here on Tuesday, July 20, at 1:30 PM, when my next post will be published.

Wednesday, July 14, 2010

Another rant about why you should have liability insurance

A few months ago I posted about my irritation with the decision of my mechanic to not purchase liability insurance. Same issue with my eight-year old daughter's day camp, only this time it's more like fury.

I learned that the camp does not have insurance months after I signed her up (and, as any of you who are parents will know, long after the time to make decent alternate plans had passed), as I was filling out additional paperwork. Among that paperwork was a release requiring me to forgo any claims my daughter might have if she is injured at the camp, and to acknowledge that the camp does not have insurance.

So, let me get this right: I am paying (a lot) for you to have my daughter in your care for eight hours a day. If you make a mistake that results in my daughter getting hurt--and because I'm superstitious I'm not going to list all the possible mistakes that you could make in the course of taking care of fifty elementary-school aged kids, or all the possible injuries I can imagine--you are going to say, "Oops, so sorry," and walk away.

Let me say this again: Liability insurance is a cost of doing business. No one enjoys paying it. Everyone who has a business in which there is a decent likelihood that someone could be injured as a result of a mistake the business makes needs to have it.

Saturday, July 10, 2010

Vote for me!

This blog was nominated as one of the Top 50 Insurance Blogs for 2009. If you would like to post a comment supporting my candidacy, please follow this link.

Friday, June 18, 2010

More on Miller's public availability

In my last post I commented that the Insurance Library is the only local library I know of that subscribes to Miller's Standard Insurance Policies Annotated.

It turns out, however, that the Norfolk, Worcester, Hampden, and Hampshire County law libraries have Miller's in hard copy. Some county law libraries may also have it as part of their Westlaw subscription.

Wednesday, June 16, 2010

Westlaw acquires Miller's

On June 1 Miller's Standard Insurance Policies Annotated moved from Lexis to Westlaw.

Miller's is a quirky but great resource that lists cases by the policy endorsement they interpret. It also lists similar coverage provisions (sort of like a thesaurus for insurance endorsements).

Miller's is available at the Insurance Library (another one of my favorite resources) but I'm not aware of any other local library that carries it.

Tuesday, June 8, 2010

Massachusetts Appeals Court holds that insured waived attorney-client privilege when it brought suit against insurer

In Global Investors Agent Corp. v. Nat'l Fire Ins. Co. of Hartford, 76 Mass. App. Ct. 812 (2010), the Massachusetts Appeals Court held that an insurer who is a defendant in an an action alleging that it breached its duty to defend may depose the attorney who represented the insured in the underlying action.

The insureds notified the insurer of the claims against them on May 2, 2002. On July 30, 2002, before the insurer had made a determination about whether it had a duty to defend, the insureds settled the underlying claims. The insureds then sued the insurer alleging breach of the duty to defend. The insureds sought legal fees and costs and consequential damages on the grounds that they were forced to settle the underlying suit on unfavorable grounds and that they lost claims and rights in the underlying suit.

A Superior Court judge granted summary judgment to the insureds on the issue of the duty to defend, and the parties proceeded to trial on the issue of damages. The insureds, dissatisfied with the damages awarded, appealed after trial. They argued in part that the judge impermissibly allowed evidence protected by the attorney-client privilege.

The Superior Court had allowed the insurer to depose the insureds' attorney in the underlying claim concerning his perceptions, recollections, and analysis of the insureds' defenses and strategies before during and after the underlying mediation.

The Massachusetts Appeals Court agreed that the insureds had waived the attorney-client privilege. It held that their claim for consequential damages relied on the relative merits and value of the underlying case, and the only source of that information was their attorney.

Monday, June 7, 2010

This is insurance

Time Magazine published an article about "health-sharing ministries," in which Christian families pool their resources to pay one another's medical costs. Although the article discusses the difference between this system and "traditional" insurance, this system is insurance at its most basic.

Insurance is nothing other than a bunch of people getting together to pool their risk. Everyone puts in a set amount of money, perhaps based on the actual risk to the individual participants or perhaps a flat fee. When the thing insured against happens -- a fire, a health event, a car accident -- then the participant to whom it happened receives money from the pool to cover their loss.

Things are complicated by the fact that insurance companies are often multinational corporations that make or lose a lot of their money from investments funded by the premiums. But that does not make their basic function -- pooling risk -- any different.

Wednesday, June 2, 2010

Serving a complaint on an out-of-state insurance company

The Massachusetts Division of Insurance moved recently. The new address for serving a complaint on out-of-state insurers is:

Massachusetts Division of Insurance
1000 Washington Street, Suite 810
Boston, MA 02118

The agent for service of process is the Division generally, but Stacy Siegan is the person at the Division in charge of accepting service.

Monday, May 31, 2010

Hulk Hogan proves my point

I posted here three reasons why almost every Massachusetts auto owner should purchase more than compulsory auto insurance.

Need more convincing? As reported here, Hulk Hogan is suing his insurance agent for not seeing to it that he had an umbrella policy over his $250,000 motor vehicle coverage. His $250,000 limit was insufficient to cover damages when his son seriously injured a friend in an auto accident, requiring him to pay out of his personal assets.

Monday, May 24, 2010

Massachusetts Appellate Division holds that insurer did not violate 93A when it relied on IME opinion to deny PIP benefits

I reported here on the Salem District Court case of Genest v. Commerce Ins. Co., 2010 WL 1740605 (Mass. App. Div.), in which an insurer was held not to have violated Mass. Gen. Laws ch. 93A when it failed to pay PIP benefits.

The Massachusetts Appellate Division has affirmed that ruling. 2010 WL 1740605 (Mass. App. Div.).

Genest, the insured, was injured in an automobile accident. She sought PIP benefits from Commerce. Commerce paid medical expenses but cut off additional payments on the advice of an independent medical examiner, who opined that injuries caused by the accident had resolved.

The Appellate Division held that Commerce's reliance on the IME was reasonable, and that its subsequent decision to pay the medical bills was merely a business decision. Because Commerce's liability to pay the medical expenses was not reasonably clear, it was not liable for breach of 93A.

Thursday, May 20, 2010

Superior Court holds that post-arbitration interest of twelve percent applies in context of uninsured and underinsured coverage

In my last post I started discussing the Superior Court case of Meaney v. OneBeacon Ins. Co., 2010 WL 1253600 (Mass. Super.), which concerns post-arbitration interest in the context of uninsured and underinsured motorist coverage.

Judge Neel held that post-award interest in an arbitration case is twelve percent. His reasoning was that two SJC decisions affirmed awards at that rate without addressing whether the rate was appropriate.

Tuesday, May 18, 2010

Superior Court holds that three year statute of limitations applies to post-arbitration interest on uninsured and underinsured motorist coverage

In Meaney v. OneBeacon Ins. Co., 2010 WL 1253600 (Mass. Super.), brought to my attention by Mike Tracy of Rudolph Friedmann LLP, the plaintiffs sought post-arbitration interest from the defendant insurance companies in the context of uninsured and underinsured motorist coverage. In an earlier decision the Superior Court had ruled that they were entitled to such interest under common law.

In the current decision Judge Neel ruled that, like all 93A claims, the claim for violation of Mass. Gen. Laws ch. 93A was governed by a four year statute of limitations.

The court held that the gist of the common law counts were tort claims, not contract claims, so that the three year statute of limitations for torts applied to them.

Saturday, May 15, 2010

Downsides to not purchasing optional coverage on a motor vehicle policy

Under Massachusetts law people who own cars are required to have automobile insurance. The required or "compulsory" coverage includes $20,000 of coverage for "bodily injury to others."

I recommend that almost everyone purchase optional bodily injury coverage in addition to the compulsory coverage. There are several reasons for this:

1. As I discussed here with respect to general liability insurance, anyone can have an off day. If you space out or are distracted by your kids or simply miss a stop sign, you could seriously injury someone. Higher insurance limits will provide more money to the injured person, which could make all the difference to them. While everyone needs to evaluate their own financial circumstances in determining how much insurance they can afford, I firmly believe that ethics require those of us who drive to have higher than compulsory limits if we can afford them.

2. If you have appropriate insurance for your financial station in life the attorney for the injured person is likely not going to be interested in going after your personal assets. They will settle with the insurance company. But if you have inadequate insurance for your financial situation, the attorney is much more likely to encourage their client to insist that a settlement include contribution from your personal assets.

3. Compulsory insurance does not cover you if you are driving outside of Massachusetts. Optional bodily injury insurance, in any amount, will cover you in every state and Canada.

Wednesday, May 12, 2010

Massachusetts Appeals Court holds that your work exclusion does not apply to trespass damages unrelated to a contractual relationship

In a recent post I discussed Porter v. Clarendon Nat'l Ins. Co., 76 Mass. App. Ct. 655 (2010), in which insurers argued that there was no coverage for a claim that its insured had built a retaining wall and two parking lots on an abutter's property, resulting in continuing trespass.

The insurers argued that the claim was excluded by the "your work" exclusion, because it was the insured who erected the retaining wall and paved the parking spaces. The Massachusetts Appeals Court disagreed.

The exclusion excludes work for "[w]ork or operations performed by you or on your behalf." The court noted that the exclusion "operates to exclude repair or replacement costs for faulty workmanship by the insured that it has been contracted or otherwise hired to perform." The reason for the exclusion is that the general liability policies in which it is found provide coverage "for tort liability for physical damages to others and not for contractual liability of the insured for economic loss because the product or completed work is not that for which the damaged person bargained."

The court held:

The complaint here was not brought by someone involved in a contract or project with the insured, seeking repair or replacement costs for faulty work on the damaged property. Rather, an abutter to the insured, with no contractual or other business relationship with the insured, sought trespass damages. Consequently, the exclusion does not apply.

Saturday, May 8, 2010

Massachusetts Appeals Court holds that exclusion for property you own rent or occupy does not apply to third-party claim

In Porter v. Clarendon Nat'l Ins. Co., 76 Mass. App. Ct. 655 (2010), the underlying plaintiff, Porter, and defendant, Clarendon (the insured), owned abutting property. Porter alleged that Ryan had built a retaining wall and two parking spaces on Porter's property, resulting in continuing trespass. Ryan defended on the ground of adverse possession.

Ryan's insurers asserted that coverage was excluded by an exclusion for property damage to "property you [the insured] own, rent, or occupy." The insurers argued that because Ryan "occupied" the disputed property, there was no coverage.

The Massachusetts Appeals Court disagreed, stating:

That exclusion prevents the insured from using the general liability policy as property insurance. . . . "What the exclusion means is that the [general liability] policy was intended to cover only liability of the insured to third parties and not [damage to] the property of the insured." Here, the damage caused by the trespass was to at third party's property, not property of the insured.

Congress working on bill to extend National Flood Insurance Program by five years

I have written several times (click the link and then scroll down to see earlier posts) about the National Flood Insurance Program, or NFIP, a program of the Federal Emergency Management Agency ("FEMA") that issues standard flood insurance policies, mostly through private insurers. NFIP is created by statute, and was originally set to expire in October, 2008. Congress has issued several short-term extensions to it. Recently Congress has had to reauthorize the program retroactively, and the program now expired again, leaving some homeowners unable to buy flood insurance.

Insurance & Financial Advisor reports here that Congress is working on a bill that reauthorizes NFIP until September 15, 2015. The article reports that the current version of the bill adds wind coverage, but such efforts have failed in the past.

According to the article, the current version of the bill increases coverage limits but phases out out premium subsidies for second homes and vacation homes.

Monday, May 3, 2010

SJC holds that Massachusetts Insurers Insolvency Fund is subject to 93A liability

In Wheatley v. Mass. Insurers Insolvency Fund, 456 Mass. 594 (2010), the Supreme Judicial Court of Massachusetts held that the Massachusetts Insurers Insolvency Fund is subject to suits for breach of Mass. Gen. Laws ch. 93A when it breaches Mass. Gen. Laws ch. 176D, § 3(9). (See here for an explanation of the statutory scheme.)

The Insolvency Fund is an entity created by statute to provide insurance coverage when the insurer on the risk is no longer in business.

The court held that it was subject to 93A liability to the same extent as insurance companies because of statutory language of 93A and 176D.

Monday, April 26, 2010

Creditors' rights endorsements removed from title insurance

Here's an article in REBA News by Joel Stein about changes to title insurance. (REBA News is the trade journal for the Real Estate Bar Association for Massachusetts.)

According to the article the American Land Title Association, or ALTA, has withdrawn Endorsements 21 and 21/06 as official forms, effective March 8, 2010. Those endorsements provided "creditors' rights coverage," providing coverage to mortgage lenders who lose their interest in a property due to the bankruptcy of someone in the chain of title.

Friday, April 23, 2010

Massachusetts Appellate Division holds that insured may not recover against tortfeasor after receiving uninsured motorist coverage award

In Johnson v. Lapan, 2010 WL 1170254 (Mass. App. Div.), claimant Sylanda Johnson was injured when she was a passenger in a car that collided with a vehicle operated by Marc Lapan.

Johnson pursued two routes of recovery: she submitted a claim for uninsured motorist coverage to ELCO, the insurer of the vehicle in which she was a passenger, and she filed suit against the Lapans.

The uninsured motorist claim went to arbitration and Johnson was awarded $16,791.24 for pain and suffering and medical expenses.

The Massachusetts Appellate Division held that the doctrine of issue preclusion required that Johnson's claim against the Lapans be dismissed. The arbitrator had awarded to Johnson damages for her injuries, and that award fixed the damages in the suit against the Lapans arising from the same injuries. Johnson could recover such damages pursuant to an uninsured motorist policy (which she did) or from the tortfeasor, but not from both. Otherwise she would receive a double recovery.

Wednesday, April 21, 2010

Seeking attorneys who represent insureds in coverage litigation

I receive a number of calls from insureds seeking representation in coverage disputes. I am frequently conflicted out by my direct or indirect representation of the insurer on other matters. (By indirect I mean that I work on a subcontract basis for attorneys who represent the insurer.)

I would like to have a database of attorneys I can refer these people to. If you specialize in representing insureds in coverage disputes and would be interested in receiving referrals, send me an email with your contact information, experience generally and with respect to insurance coverage disputes, and what, if any, types of policies or disputes you specialize in.

I am not seeking and would not accept a referral fee for these cases. I also don't screen them. Once I find out I have a conflict I want to give them a name and move on.

Monday, April 19, 2010

Massachusetts Appeals Court holds that claimant can recover for breach of 93A and 176D even when there is no coverage under the policy

In my last post I discussed Vt. Mut. Ins. Co. v. Eldridge, 76 Mass. App. Ct. 1122, 2010 WL 1253170 (unpublished opinion), in which the Massachusetts Appeals Court held that coverage under a homeowners policy was voided by the insureds' failure to disclose the ownership of two bull mastiffs on their insurance application even though the application asked if they kept any animals on the premises.

Even though the court found that coverage was voided under the policy, it affirmed the denial of summary judgment to the insurer on a claim that the insurer breached Mass. Gen. Laws chs. 93A and 176D.

The claimant, Gagnon, alleged that the insurer violated those statutes by "failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies," in violation of Mass. Gen. Laws ch. 176D § 3(9)(b). The court held:

[A] court will not find unfair or deceptive acts or practices where there was no inordinate or unreasonable delay, or if there was no resulting prejudice or harm caused by the delay. . . .

On this record, we also cannot say that Gagnon has no reasonable expectation of proving an essential element of her claim at trial.

Thus, we conclude that the trial judge correctly denied summary judgment, leaving the determination of unreasonable delay and resulting prejudice to the fact finder.

When I first read this opinion, I assumed that Gagnon had brought the motion for summary judgment on the 93A/176D count, in which case it would have made common sense to affirm the denial of the motion, since the court had found that the policy did not provide coverage for her claim. Upon rereading the decision, however, it appears that it was the insurer who brought the motion for summary judgment on the 93A/176D claim. If that is so, then the court is saying that an insurer can be liable for breach of 93A and 176D even when there is no coverage under the policy. That is contrary to many opinions which simply dismiss 93A/176D claims after finding no coverage.

Wednesday, April 14, 2010

Appeals court holds that nondisclosure of ownership of dogs on homeowners application voided coverage

In Vt. Mut. Ins. Co. v. Eldridge, 76 Mass. App. Ct. 1122, 2010 WL 1253170 (unpublished opinion), the Massachusetts Appeals Court held that nondisclosure of ownership of dogs on an application for homeowners insurance was a material misrepresentation that voided coverage under the policy.

In their application for homeowners insurance the Eldridges, defendants in the declaratory judgment action, had answered "no" to the question "are there any animals or exotic pets kept on the premises?" In fact, they were keeping two bull mastiffs on the premises.

The court held that the question on the application was not ambiguous. It overturned the holding of the trial court that the Eldridges could have reasonably concluded that it only asked for the disclosure of pets if they were exotic pets. The Appeals Court held that the failure of the Eldridges to disclose their ownership of the dogs constituted a misrepresentation.

The court then held that the misrepresentation was material and defeated coverage.

Misstatements shall be deemed material and "defeat or avoid the policy" only where such statements were "made with actual intent to deceive, or . . . increased the risk of loss" to the insurer. G.L. c. 175, § 186. "A material fact, measured by an objective standard, is one which would naturally influence the judgment of an underwriter in making the contract at all, or in estimating the degree and character of the risk."

The insurer received notice that the Eldridges owned the dogs before it received notice of the claim that the dogs had caused an injury. Upon receipt of the notice of ownership of the dogs the insurer informed the Eldridges that coverage would not have been forthcoming had the application disclosed the dogs. The insurer proceeded to terminate coverage. The court held that was proof that the nondisclosure was material.

Monday, April 12, 2010

United States District Court holds that an all risk marine policy covers loss with unknown cause

In Markel Am. Ins. Co. v. Pajam Fishing Corp., __ F.2d __, 2010 WL 742485 (D. Mass.), Markel provided an all risk marine insurance policy to Pajam. The policy included coverage for "accidental, direct, physical loss" to a fishing vessel called the Miss Sonya.

The Miss Sonya sank on March 24, 2008 and could not be examined. The men on the ship observed water splashing about in a compartment on the stern of the ship and followed the instructions of the coast guard to abandon the ship. The ship had been in good condition. They men felt no impact on the ship but there could have been an impact that was disguised by choppy conditions.

The policy did not define the term "accidental physical loss." The court held that the word "accident" is synonymous with "fortuitous," and that a loss is fortuitous unless it results from an inherent defect, ordinary wear and tear, or intentional misconduct of the insured. It held that the loss of the Miss Sonya was an accidental physical loss for which there was coverage.

The court rejected the insurer's argument that the insured must prove the cause of the sinking. The court held, "To establish a fortuitous loss it is generally sufficient for the insured to show only that the loss occurred." This was probably an overstatement by the court, since it went on to hold that the insured had established "that the vessel was well maintained, and that there was no intentional misconduct which caused the vessel to sink. This is sufficient 'to prove a fortuitous loss of the covered property' and the insured 'need not prove the cause of the loss.'"