Appeals Court holds that exception to pollution exclusion allows coverage for common law liability, even when such liability overlaps 21E liability

In Clean Harbors Envtl. Servs., Inc. v. Boston Basement Techs., Inc., 75 Mass. App. Ct. 709 (2009), Basement Technologies, while installing a waterproofing system in the home of Silva, broke a heating oil line and caused 150 gallons of oil to leak into Silva's basement. The oil collected in a sump pump, which then pumped the oil into Silva's yard.

Basement Technologies hired Clean Harbors to clean up the oil spill. Clean Harbors billed Basement Technologies $12,638.40 for its services.

The Massachusetts Department of Environmental Protection issued a notice of responsibility to Basement Technologies pursuant to G.L. c. 21E, which identified Basement Technologies as a potentially responsible party, and therefore strictly liable, for the costs of remedial actions at the property.

Basement Technologies sought payment of Clean Harbors' invoice under its commercial general liability policy with Admiral. Admiral denied the claim on the basis of a pollution exclusion.

The pollution exclusion excluded coverage for "(a) Request, demand, order or statutory or regulatory requirement that any insured or others . . . in any way respond to, or assess the effects of, 'pollutants'; or (b) Claim or 'suit' by or on behalf of a governmental authority for damages . . . in any way responding to the effects of 'pollutants.'"

The pollution exclusion had an exception for "damages because of 'property damage' that the insured would have in the absence of such request, demand, order or statutory or regulatory requirement, or such claim or 'suit' by or on behalf of a governmental authority."

The Massachusetts Appeals Court noted that absent the action by the DEP, Basement Technologies would still be liable in negligence to the property owner for damages caused by the oil spill.

Admiral argued that the Clean Harbors expenses were not covered, because those costs were part of the response actions required by the DEP. Basement Technologies argued that damages recoverable against it at common law, including clean up costs, were covered.

The court noted that liability under 21E often exceeds common law liability. It concluded that the exception to the pollution exclusion extends coverage to common law liability which would exist if there was no liability under 21E, even if liability under common law and 21E overlap.

BMC Appellate Division holds that attorney not authorized to bring PIP subrogation claim on behalf of insurer is not entitled to attorney's fees

In Ulysse v. Safety Ins. Co., 2009 WL 5154970, Ulysse, insured by Safety, was in a car accident with Derek Roy, insured by NE insurance. Ulysse was represented by an attorney in connection with the accident.

Safety paid Ulysse PIP benefits for medical treatment amounting to $3,070.74. Ulysse, with the assistance of his attorney, settled his third-party claim against Roy and his insurer for $13,000. Ulysse executed a release which included a provision that the settlement "includes consideration for any monies which have been paid for or which may be due in the future from any applicable PIP auto insurer." Ulysse's attorney agreed to be responsible to repay Safety any moneys owed in connection with PIP payments made by Safety to Ulysse. (See this post for an explanation of what that agreement refers to.)

Ulysse, through his attorney, sent a letter to Safety proposing to pay Safety $1,954.63, which was the amount Safety paid Ulysse in PIP benefits reduced by attorney's fees and costs. Safety had not authorized Ulysse or Ulysse's attorney to settle the PIP reimbursement claim on its behalf. It disregarded the proposal and received the full PIP reimbursement of $3,070.74 from NE Insurance.

At issue in the case was whether Ulyesse's attorney was entitled to attorney's fees and costs for the collection of the PIP subrogation amount.

The Appellate Division of the Boston Municipal Court held that he was not entitled to attorney's fees, because he was not authorized by Safety to settle its PIP reimbursement claim.

There are a number of things about this case that seem odd to me, including: 1) If NE Insurance thought it was settling the PIP reimbursement claim when it settled the third-party claim, why did it later pay the PIP reimbursement amount directly to Safety? 2) Assuming that, as is usual in such cases, Ulysse's attorney was representing Ulysse pursuant to a contingency fee agreement, he would have received one third of the total settlement amount. Once Safety rejected his proposal to send it PIP reimbursement less attorney's fees, the part of the settlement that represented the PIP reimbursement claim should have gone to Ulysse less the usual one third contingency fee. Having been paid, why did he also seek this amount from Safety?

It is also worth noting that Ulysse appears to have been given a double recovery. He received PIP payments from Safety, and also received PIP reimbursement from NE Insurance. Settlements are, of course, an art not a science, and absent any clear documentation that part of the settlement was for a PIP reimbursement claim a double recovery theory would not go very far.

U.S. District Court holds that right to cure breach of duty to cooperate is limited in scope

I wrote here about Miles v. Great Northern Ins. Co., 2009 WL 2998529 (D. Mass.), in which on summary judgment the court punted on the question of whether an insured can cure a breach of the duty to cooperate.

After trial the United States District Court held "[o]rdinarily, an insured's failure to cooperate is grounds for denial of coverage only if the insurer makes an affirmative showing of actual prejudice . . However, there is a limited exception to the prejudice requirement in cases of an insured's wilful and unexcused failure to submit to an examination under oath."

The court stated, "an insured's right to cure a breach of the duty of cooperation is limited in scope, particularly in cases of willful failure to submit to an examination under oath." Miles v. Great Northern Ins. Co., __ F.2d __, 2009 WL 4363211 (D. Mass.)

The court held that under the facts of the case before it the insureds' "willful refusal to comply with the terms of their insurance contract resulted in a material dilution of [the insurer's] rights. . . . Accordingly, there is no legal or equitable basis on which to give [the insureds] a second (or third) chance to comply with their contractual obligation."

Insurance issues in Haiti

Here's an interesting article about insurance in Haiti: Haiti Quake Loss Has Little Insurance Cover, Modeler Says.

U.S District Court holds that letter informing insurer of potential claim does not trigger policy endorsement

In Panagora Asset Mgt., Inc. v. St. Paul Mercury Ins., __ F.2d __, 2009 WL 4827478 (D. Mass.), Panagora, an asset management firm, sought insurance coverage for an error it made in an asset portfolio which caused its client to suffer a $2 million loss. Panagora notified its insurer, Travelers, of the error and loss within days of discovering it, before its client had taken any action. It requested coverage under a claims-made policy issued to it by Travelers.

Travelers argued that the notification brought the claim within an "Extension Endorsement" under which Travelers agreed to reimburse Panagora for costs Panagora incurred to mitigate or correct direct monetary damages to a customer. Travelers made this argument because claims within the endorsement were subject to a significantly higher self-insured retention than claims that did not come within the endorsement.

The court held that the letter from Panagora to Travelers did not bring the claim within the endorsement. At the time that Panagora sent the letter it had not received a claim from its own customer and was not seeking reimbursement from Travelers for costs it had incurred in repaying the loss.

C'mon people, liability insurance is good

I found out this morning that my mechanic doesn't have liability insurance. That means I will be finding a new mechanic.

Why? Because anyone can have an off day. Sometimes an off day can lead to a tragic accident. If a member of my family is in a tragic accident because my mechanic is having an off day, life will be a whole lot worse for everyone if there's no insurance.

Years ago I was involved in a case where a garage emptied the oil from an engine and forgot to put more in. Insanely stupid--yes. The sort of thing that one can easily imagine happening? Absolutely. The engine seized up after the car was driven for a mile or two. Nobody was hurt and the claim was only for property damage.

But imagine that the garage had been near a highway entrance and the engine seized up on 128. The car sputters and slows, gets rear-ended by the car behind it, and someone ends up paralyzed. It's a horrible enough scenario with sufficient insurance. Without insurance, unless the injured person is independently very, very wealthy, they are likely looking at a life of poverty. They are unable to work and unable to afford to pay caretakers. A million dollars in an insurance settlement (which conservatively invested may provide $50,000 a year to live on) can be the difference between tragedy and hell.

If I were the owner of the garage I would grit my teeth every time I wrote my insurance premium check. But I would do it, not only to protect my business but to protect my customers

Questions of law versus questions of fact in determining coverage

One of the most confusing issues in cases involving coverage under insurance policies is what is a question of law and what is a question of fact.

Insurance coverage attorneys can easily cite dozens of cases that state that the interpretation of an insurance contract is a question of law and that whether there is coverage based on the application of facts to policy language is a question of law. We can cite as many cases that discuss burdens of proving coverage or lack of coverage under different parts of a policy. While a burden of proof makes sense where facts are disputed--the burden thus being to prove a fact which would show or negate coverage--many decisions cite burdens of proof where facts are undisputed--and therefore coverage should be a question of law.

The confusion tends to result from sloppy drafting--or thinking--by judges, but it is repeated so often that clear analysis has become virtually impossible.

The issue was brought to my mind by a recent Superior Court decision by Judge Fremont Smith. Cambridge Mut. Fire Ins. Co. v. Kiely, 2009 WL 4894491 (Mass. Super.) went to trial over whether the son-in-law of owners of a homeowners policy was a resident of their household, and therefore covered by the policy.

Judge Fremont-Smith declined to decide the issue as a matter of law, because the Supreme Judicial Court has held that whether a person is a "member of a household" of an insured is "a complex decision requiring a case-by-case analysis and a balancing of all relevant factors."

Judge Fremont-Smith concluded, based on the credible evidence at trial, that the son-in-law was a member of the insureds' household. It may be that, although the decision does not make it clear, the evidence was disputed. For example, Judge Fremont-Smith cited the financial arrangements between the son-in-law and the insureds, including that the son-in-law paid rent to the insureds. If the insurer offered contrary evidence that no rent was paid, then the question of payment of rent was a question of fact. But if the evidence with respect to payment of rent was undisputed, and all the insurer offered was different undisputed facts that it believed would tend to dictate against the son-in-law being a member of the household, then Judge Fremont-Smith should have decided the case as a question of law.

Finishing up on Whittaker:

Finishing off my discussion of Whittaker Corp. v. Am. Nuclear Insurers, in which historic owners of property sought insurance coverage for costs associated with the property being declared a superfund site:

Having found that Endorsement 112 could not be considered, the court returned to the question of whether ANI had a duty to defend under the Facility Form. The court addressed three issues, all of which are so well-established under Massachusetts jurisprudence that there is no need to tarry over them.

First, the court held that the demand from the EPA that the plaintiffs investigate the contamination, and its accompanying warning of potential liability for response costs, gave rise to a duty to defend.

Second, the court then turned to Exclusion (f),the owned property exclusion, which barred coverage for "property damage to any property at the location." It held that the exclusion does not exclude coverage for costs incurred to remediate or prevent migration of contaminants off-site.

Third, the court held that the EPA notice, which demanded investigation and remediation of contamination "that exists at or near the Site," but did not directly allege any off-site migration, gave rise to a duty to defend because it raised the possibility that the owned property exclusion did not apply.

U.S. District Court holds endorsement eliminating coverage ineffective for failure to comply with statutory notice requirements

I have been discussing Whitaker Corp. v. Am. Nuclear Insurers, 2009 WL 4342512 (D. Mass.), a case involving insurance coverage for property owners of a superfund site.

In my last post I discussed Endorsement 112. The court held that its language excluded coverage for environmental cleanup costs.

The court went on to note that Endorsement 112 was therefore an elimination of coverage, since the policy otherwise covered environmental cleanup costs.

The court cited Mass. Gen. Laws ch. 175, § 111A, which requires that when a liability insurer eliminates coverage it attach to each policy a printed notice setting forth what coverages have been eliminated, and states that if the insurer does not do so then the coverage shall remain in full force and effect.

It was undisputed that no printed notice accompanied the Endorsement 112.

ANI argued that no notice was required because Endorsement 112 was a "new" policy rather than an amendment of an existing policy. The court disagreed, noting that the endorsement was entitled "Amendatory Endorsement" and is numbered "Endorsement 112" to "Policy No. NF-44."

The court held, "the Endorsement by any name is an amendment to the existing policy and it is incredulous for ANI to insist otherwise."

More on Whitaker

In my last posts, here, and here, I have been discussing Whitaker Corp. v. Am. Nuclear Insurers, 2009 WL 4342512 (D. Mass.), a case involving insurance coverage for property owners of a superfund site.

In my last post I discussed the facility form, under which the court held that coverage was initially triggered.

The facility form contained "Endorsement 112," which provided that the insurer, ANI, would pay "all sums which the insured shall become legally obligated to pay because of bodily injury or property damage, or as covered environmental cleanup costs because of environmental damages."

Covered damages were defined as "damages because of bodily injury or property damage to which this policy applies; but covered damages do not included environmental cleanup costs or on-site cleanup costs."

The court discussed defined terms in the last phrase and held that it excluded coverage for the environmental clean up costs.

This is not the end of it, however. Stay tuned . . .