Massachusetts Appeals Court holds that discovery rule does not apply to allegation that insurance agency employed unlicensed broker

In my last post I discussed Anawan Ins. Agency, Inc. v. Division of Ins., 76 Mass. App. Ct. 447 (2010), in which an insurance agency was accused of employing an unlicensed broker.

After determining that a four year statute of limitations applied, the court held that the discovery rule does not apply. The discovery rule tolls the statute of limitations until a plaintiff knew or should have known that he or she may have a cause of action. For example, in a medical malpractice claim, under the discovery rule in certain circumstances the statute of limitations may be tolled until the plaintiff develops symptoms putting him or her on notice of the malpractice.

In Anawan, in 1999 the division of insurance received anonymous letters stating that Anawan had illegally opened a second location. The division investigated and learned that Prum was doing business at the second location under an expired broker's license. On June 23, 2004, Anawan's director confirmed in writing that it had paid commissions to Prum.

The Massachusetts Appeals Court held that the discovery rule did not apply to punitive civil statutes including the one prohibiting an insurance agency from employing an unlicensed broker. In support of its determination the court quoted 3M Corp. v. Browner, 17 F.3d 1453, 1455 (D. C. Cir. 1994), which stated:

In an action for a civil penalty, the government's burden is to prove the violation; injuries or damages resulting from the violation are not part of the cause of action; the suit may be maintained regardless of damages.

Massachusetts Appeals Court holds that four year statute of limitations applies to allegation that insurance agency employed unlicensed agent

In Anawan Ins. Agency, Inc. v. Division of Insurance, 76 Mass. App. Ct. 447 (2010), the Division of Insurance alleged that Anawan Insurance Agency paid compensation to Kuntthy Prum at a time that Prum was not licensed as an insurance agent.

The first issue addressed by the Massachusetts Appeals Court was which statute of limitations applied. Mass. Gen. Laws 260 § 5 states that the statute of limitations on actions for penalties or forfeitures is either one or two years. By its terms, that statute does not apply if § 5A applies.

Mass. Gen. Laws 260 § 5A states that the statute of limitations for actions arising on account of violations of "any law intended for the protection of consumers" is four years.

The court held that Mass. Gen. Laws ch. 175 § 177, which prohibits payments to unlicensed brokers, is a statute intended to protect consumers, and that therefore the four year statute of limitations applies.

Good article on the meaning of "collapse" in property damage policies (national scope)

I posted here and here on the Massachusetts interpretation of "collapse," which is generally an undefined term in property damage policies. Massachusetts takes the narrow view that coverage is limited to the actual falling down of a covered structure.

Here's an interesting article, Insurance Coverage for Collapse - How Has It Changed and Why? in Adjusting Today, a publication of Adjusters International, Inc., a public adjusting company. The article covers the history and interpretation of "collapse" nationally.

Catastrophe Insurance Bill criticized as subsidizing development in environmentally unstable areas

Here's an interesting article by Arthur D. Postal in National Underwriter about the Homeowner's Defense Act, H.R. 255, which would create a new federal reinsurance program for state catastrophe funds.

According to the article, critics claim the bill would only help "stupid, rich people who want to build mansions on sand dunes" at the expense of all other taxpayers.

The effect of global warming on insurance coverage issues

Mike Tracy of Rudolph Friedmann LLP forwarded a copy of this interesting article by Robert Redfearn, Jr. of Simon, Peragine, Smith & Redfearn about the likely effects that global warming will have on the insurance industry.

The article talks about claims alleging that corporations are liable for damages because their practices have contributed to global warming.

More broadly, global warming has already begun to impact insurance coverage litigation. As just one example, litigation arising out of Hurricane Katrina led to extensive interpretation of "anti-concurrent causation" or ACC, clauses in insurance policies. Those clauses exclude coverage whenever an excluded peril and a covered peril combine to damage a dwelling or personal property. Insurers denied coverage under homeowner's policies on the basis of those clauses where damage was caused by a combination of wind (a covered peril) and water (an excluded peril).

U.S. Court of Appeals affirms that implied coinsurance doctrine applies to resident of retirement home

I posted last year about a decision of the United States District Court for the District of Massachusetts in Fed. Ins. Co. v. Commerce Ins. Co., 2008 WL 4873959 (D. Mass.), in which the court held that the doctrine of implied coinsurance barred an insurer of the owner of a retirement community from bringing a subrogation action against a resident who negligently started a fire.

The implied coinsurance doctrine states that a residential tenant is an insured on a landlord's insurance even if the policy does not state that the tenant is an insured. Under that doctrine, a landlord's insurer is barred by the anti-subrogation rule from seeking reimbursement from a tenant for damages caused by the tenant. (The anti-subrogation rule bars an insurer from seeking from its own insured reimbursement of funds the insurer paid on a loss.)

The United States Court of Appeals for the First Circuit has affirmed the District Court's decision in Fed. Ins. Co. v. Commerce Ins. Co., __ F.3d ___, 2010 WL 716412 (1st Cir.)

The court first held that the lease was a residential lease so that, absent an exception, the implied coinsurance doctrine would apply.

The court then held that an exception to the implied coinsured doctrine where a lease has an express provision establishing a tenant's liability for loss from a negligently started fire did not apply. The court held that if the landlord intended to include such a provision in the lease, "it needed to be crystal clear in requiring that the tenants maintain fire insurance."

Although the lease at issue mentioned a tenant's liability for damages caused by the resident, it had no express language establishing liability for fire damages. The lease mentioned insurance, but could interpreted as making tenants liable only for losses to their personal property. Neither of the clauses explicitly mentioned fire liability.

Contrary to article by conservative lobbying group, Massachusetts does not have "anti-steering" legislation

Stephen Richer, director of outreach of conservative lobbying group The Washington Legal Foundation, has sent me a link to an article protesting so-called anti-steering legislation that prohibits auto insurers from recommending particular body shops to insureds.

According to the article, six states, including Massachusetts, prohibit this practice. I was puzzled to read this as insurers have recommended auto body shops to me on the several occasions that my car has suffered property damage.

The Massachusetts statute cited by the article, Mass. Gen. Laws ch. 90, § 34O, does not "prohibit insurers from 'steering' policyholders to body shops with unsolicited recommendations," as claimed by the article.

To the contrary, the statute states that the insurance commissioner may require that insurers give to insureds "a list of at least five registered repair shops, geographically convenient for the insured, from which the insured may at his or her option selected a shop . . . "

Invitation to Insurance Attorneys Women's Networking Group

The first meeting of the Insurance Attorneys Women’s Networking Group (suggestions for a name with a better acronym welcome) will be on Tuesday March 16 from 5:30 to 6:30 PM at Legal Seafoods in Chestnut Hill:

http://www.legalseafoods.com/index.cfm/page/Chestnut-Hill-Shopping-Center-Chestnut-Hill/pk/content/cd/location/pid/0/cdid/11839

The purpose of this group is to get to know other women who practice insurance law--insurance defense, coverage, subrogation, and business.

Please RSVP to me at ninakallenlaw@hotmail.com by noon on Monday, March 15 if you plan to attend.

SJC rejects insurance agents' challenge to MAIP rules

I have been discussing Arbella Mut. Ins. Co. v. Comm'r of Ins., in which the Supreme Judicial Court addressed several issues relating to the Massachusetts Automobile Insurance Plan (MAIP), under which high-risk drivers obtain automobile insurance issued by private insurers.

The Massachusetts Association of Insurance Agents (MAIA) challenged MAIP Rule 30.C. That rule establishes a process by which an insurer may opt to move a high-risk driver assigned to it under MAIP to its voluntary portfolio. Under the rule, insurers doing so must currently continue to pay a commission to the agent who submitted the application to MAIP; but after April 1, 2011 they will no longer need to do so.

MAIA argued that 1) Mass. Gen. Laws ch. 175 § 113I requires that a commission continue to be paid; 2) the rule violates Mass. Gen. Laws. ch. 175 § 162F which codifies the "American Agency System," by giving agents the exclusive right to data necessary to solicit insurance policy renewals.

The court held that policies assigned under MAIP do not come within the American Agency System because the insurance agents have a statutory rather than contractual relationship with the insurers. The agents submit the MAIP application on behalf of a high-risk driver. The application is randomly assigned to an insurer. The agent has no contract with the randomly-assigned insurer.

The court also rejected MAIA's argument that Mass. Gen. Laws ch. 175 § 113I requires the insurer to continue to pay "fair and reasonable" commissions because insurers who take advantage of the rule to offer voluntary renewals are acting "pursuant to the plan approved under § 113H." It held that the term "pursuant to" only requires insurers to pay commissions for policies involuntary assigned to them. Policies that have been transferred to the voluntary market no longer come within the statute.

SJC rejects auto insurer's argument that different MAIP rules for large insurers than small insurers should be thrown out

I have been discussing Arbella Mut. Ins. Co. v. Comm'r of Ins., 456 Mass. 66 (2010), in which the Supreme Judicial Court addressed several issues relating to the Massachusetts Automobile Insurance Plan (MAIP), under which automobile insurers are required to issue policies to high-risk drivers.

Arbella challenged MAIP Rule 36, which regulates agreements called "limited assignment distribution agreements" or LADAs. A LADA is an agreement under which one insurer, called an "assigned risk company," or ARC, services, for a fee, all of the high-risk policies another insurer was assigned under MAIP.

Rule 36 sets out several requirements for LADAs. It states that insurers with less than five percent of the market share may assign their risks without approval from the insurance commissioner, and that insurers with more than five percent of the market share must obtain the commissioner's approval. It also states that only insurers with more than one percent of the market share may serve as ARCs.

Arbella argued that Rule 36 harms consumers because high-risk drivers whose policies are assigned under a LADA will face higher rates from the assignee insurer than they would from the assignor insurer, and that large insurers are unfairly treated differently than small insurers under the rule.

The court noted that policies issued to high-risk drivers often require a disproportionate degree of administrative attention from the companies that service them. Companies with less market share, and therefore fewer assigned high-risk drivers, may be less well-equipped to give policyholders that extra attention. The court stated that is the reason that Rule 36 allows companies with a market share of five percent or less to enter LADAs without first seeking the commissioner's permission.

The court stated that the requirement that only companies with at least one percent of market share may serve as ARCs ensures that ARCs will have the necessary resources to manage the high-risk policies. It also stated that the minimum market share requirement means that ARCs will have a competitive rate on their voluntary policies. Since insurers are required to charge the same rate for their assigned high-risk policies as for their voluntary policies, the rule ensures that the rates charged for high-risk policies are competitive.

The court held that Arbella lacks standing to object to the rule because the statute at issue was not intended to protect insurance companies, but consumers.