Insurance for reality tv shows

I admit it. I'm a fan of reality tv. Not only that, I don't understand the disdain people hold for that genre. I don't see a bright line between "scripted" and "unscripted" shows. Plenty of so-called scripted shows feature ad libs or at least input by actors. Reality shows are plotted, just by people whose job title is producer rather than writer. I liken the process to eliciting testimony at trial. You can prep your witnesses, you can ask the right questions, but sometimes it's the unexpected answer that leads to magic (or the money shot).

Here's a great article by Emily Holbrook at Risk Management Monitor on insurance issues for reality tv. Best quote:

What types of reality shows spur the most insurance claims?

LM: Many times it’s more of the “walk and talk” shows as opposed to
those with stunts that spur the most claims. Audience members are often hurt
while being moved in and out of the auditorium.

I'm waiting for the lawsuit by the estate and family of Russell Armstrong from Real Housewives of Beverly Hills.

On a related note, here's an article on how game shows insure large prizes.

Happy New Years, Everyone.

I wanted to post some funny insurance jokes today, but after wasting a lot of time searching the web I couldn't find any that were actually funny. So I asked my ten year old daughter for the best joke she knows. This is what she said:

An alien comes down from Mars. He changes into the form of a human except he doesn't give himself any ears because he thinks they look weird.

He starts a business and puts a "Now Hiring" sign on the window. The first person comes in to ask for a job. The alien asks, "Do you notice anything odd about me?" The person says, "Yes, you don't have any ears." The alien disintegrates him on the spot.

The second person comes in to ask for a job. The alien asks, "Do you notice anything odd about me?" The person says, "Yes, you don't have any ears." The alien disintegrates her.

The third person comes in to ask for a job. The alien asks, "Do you notice anything odd about me?" The person says, "Yes, you're wearing contacts."

The alien says, "How did you know that?"

The person answers, "You can't wear glasses if you don't have any ears."

Appeals court holds judge not required to give jury instruction on presumption of consent to use vehicle if contrary evidence has been offered

McConnico, an employee of Dollar Rent-A-Car, struck and killed Kohlmeyer, a pedestrian, while he was driving one of Dollar's automobiles.

McConnico's primary responsibility was to deliver automobiles to hotels. On the evening before the accident McConnico took a Dollar vehicle to run a a personal errand. The accident occurred as he was driving the car back to Dollar the next day.

McConnico had signed a written acknowledgement when he was hired that he was prohibited from using company rental vehicles except under the direction of a Dollar manager, and that unauthorized use of a vehicle was grounds for discharge. He was in fact fired on the morning of the accident for violating the policy.

There was evidence that personal use of Dollar automobiles was commonplace and few employees were reprimanded for doing so.

Dollar and its excess carrier filed a declaratory judgment action seeking a declaration that there was no coverage because McConnico did not have express or implied permission to drive the car.
The excess policy provided coverage for liability incurred by Dollar and "anyone . . . using with [Dollar's] permission" an automobile Dollar owned.

After trial the jury returned a verdict that McConnico was an unauthorized driver, thereby finding no coverage.

On appeal, Kohlmeyer's estate argued that under Mass. Gen. Laws ch. 231, § 85C*, McConnico was presumed to be driving with Dollar's express or implied consent. The statute states that in certain circumstances in cases against automobile insurers a driver is presumed to have consent to drive a car.

In United Nat'l Ins. Co. v. Kohlmeyer, 81 Mass. App. Ct. 32 (2011), the Massachusetts Appeals Court held:

The presumption embodied in G. L. c. 231, § 85C is part of a legislative structure
supporting the Commonwealth's compulsory motor vehicle insurance requirements.
Read in the context of the statutes to which § 85C refers, the support structure operates in this fashion. An insurer's liability under an automobile policy “insuring against liability for loss or damage on account of bodily injury or death” becomes absolute when a covered loss occurs and is not conditioned on an insured's payment of the loss to the injured party. See G.L. c. 175 § 112, amended by St.1977, c. 437. If the injured party obtains a judgment against the insured, the injured party is entitled to bring an action against the insurer to reach and apply the insurance proceeds.
See G.L. c. 175 § 113; G.L. c. 214 § 3(9). In an action to reach and apply, the
presumption desired by the estate applies but, as § 85C expressly states, only if the plaintiff is seeking to “reach and apply the proceeds of [a] motor vehicle liability policy, as defined in” G.L. c. 90 § 34A.

The court noted that the statute applied only to compulsory policies, and the policy at issue was excess, not compulsory.

It went on to hold that even if the statute had applied, the presumption would have been enough to meet the estate's burden initially, but it was rebuttable, "and continue[d] only until evidence [was] introduced which would warrant a finding contrary to the presumed fact." Because there was such evidence, the judge was not required to instruct the jury on the presumption.

*This link is to the statutes posted by the Commonwealth of Massachusetts. Massachusetts Lawyers Weekly recently ran an article explaining that this website is not updated frequently, and recent revisions to statutes are not shown.

Gap insurance

Here's an interesting article at The Frugal Toad on a type of insurance I'd never heard of. I was hoping that Gap Insurance might cover the jeans my kid spilled tomato sauce on just after I bought them. But it actually covers the difference between the actual value of a new car and what you paid for it, since new cars lose their value the instant you drive them off the lot.

Another solution to this problem: Don't buy new cars.

U.S. District Court holds that insurer who wrongfully denied duty to defend must indemnify insured where question of duty to indemnify is in equipoise

A couple of days ago I wrote about Manganella v. Evanston Ins. Co., 2011 WL 5118898 (D. Mass.), in which Evanston Insurance Company denied coverage for a sexual harassment claim because the misconduct began before the policy period.

At issue was the MCAD claim of Burgess against her employer, Jasmine Company, alleging that she had been harassed by Luciano Manganella since she began her employment a couple of years before the Evanston policy went into effect. At a deposition she clarified that although Manganella had made inappropriate comments prior to the policy period, she had not felt physically or emotionally threatened by him until after the policy period began.

Evanston made an argument that I don't quite understand that it was entitled to rely on readily knowable facts outside the complaint to deny coverage. (I don't understand it because the black letter law it cites states that facts outside the complaint may be used to trigger the duty to defend, not the opposite; and because the facts outside the complaint appear to trigger coverage rather than show no coverage.)

The court rejected Evanston's argument. It went on to hold that because it had breached its duty to defend Jasmine, Evanston is liable for the costs of settlement reached with Burgess. Although a breach of the duty to defend does not provide an automatic right to indemnity, an insurer that has wrongfully declined to defend a claim has the burden of proving that the claim was not within the coverage of the policy. "Because the evidence on this later issue is in equipoise, Evanston has not met its burden of showing coverage did not attach."

U.S. District Court holds that continuing violation doctrine does not apply to insurance coverage disputes

Luciano Mangenalla owned and, after selling the company in 2005 to Lerner, managed a women's clothing boutique called Jasmine.



In 1998 Jasmine was sued by Sonia Bawa, a former employee, for sexual harassment. In the wake of the lawsuit Manganella caused Jasmine to purchase an Employment Practices Liability Insurance (EPLI) policy from Evanston Insurance Company. The insurance application stated that, except for the Bawa matter, Jasmine was unaware of any outstanding instances, real or alleged, of claims of wrongful employment practices including sexual harassment. Burgess, Jasmine's human resources manager, warranted that the statement was true.

In or after 2005 Manganella was terminated for sexually harassing four Jasmine employees, including Burgess.


In 2007 Burgess filed a complaint against Manganella, Jasmine, and Lerner at the Massachusetts Commission Against Discrimination. She alleged that since she began her employment in 1997, Manganella subjected her to nearly constant physical and verbal sexual harassment, and on five occasions intimidated her into engaging in sexual acts with him.


Evanston denied coverage because the "wrongful Employment Practice" had not occurred entirely during the coverage period.

At a subsequent deposition Burgess testified that she had not felt physically or emotionally threatened by Manganella before the fall of 1999, although he had made inappropriate comments before then.


Evanston argued that the continuing violation doctrine made Manganella's acts before the policy period part of a continuing pattern of harassment, so that even if Burgess did not feel threatened prior to the policy period the harassment began prior to the policy period, precluding coverage.


In Manganella v. Evanston Ins. Co., 2011 WL 5118898 (D. Mass. 2011), the court rejected the argument, noting that the continuing violation doctrine is intended to ameliorate the potentially draconian effects of the relatively short statute of limitations that governs discrimination claims. The court held that the doctrine should not be applied to shrink relief available to an insured.

Cavalcade of Risk #145 is up

Take a look here for an excellent compilation of blog posts about risk.

Massachusetts now bans personal auto insurers from using credit scores in setting rates

Property Casualty 360 discusses the development in this article.

U.S. District Court holds that mortgagee can require flood insurance higher than the amount of the mortgage

In 1994 Susan Lass took out a mortgage on her house, which is an area that is designated under the National Flood Insurance Act as a special flood hazard area. (For older posts on flood insurance legislation, see here and then scroll down.)

As a named plaintiff in a class action lawsuit Lass alleged that Bank of America, the mortgagee, breached her mortgage contract by requiring her to have more flood insurance than was required under the terms of her mortgage and more than BOA's financial interest in the property.

In Lass v. Bank of America, N.A., 2011 WL 3567280 (D. Mass. 2011), the United States District Court for the District of Massachusetts noted that the NFIA prohibits federally-regulated lenders from giving loans secured by real estate in a special flood hazard area in which flood insurance is available unless the property is covered by flood insurance "in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available . . . , whichever is less."

Lass's original lender, RMC, required her to maintain insurance in the amount of her loan balance. In 2007 she chose to increase her coverage to $100,000.

RMC transferred the loan to BOA, which required her to increase her flood insurance to $145,086, the replacement value of the improvements to her property. When she did not purchase the additional insurance, BOA purchased it for her and paid for it out of her escrow account.

The court held that BOA did not breach the mortgage contract, because the contract requires Lass to maintain flood insurance "in the amounts and for the periods that Lender requires."

The real question is: Why would a homeowner with property in a flood zone not insure the property to replacement value? Weather patterns are getting more extreme. Insurance protects your investment. We quibble over exclusions and exceptions, but overall: Insurance is good. Make sure you have enough of it.

Fraud on pet insurance increasing in England

Read all about it here.  But only if you want to be outraged and saddened.

Okay -- an insurer should be bound by a mutual mistake over the terms of the policy . . . sometimes

Last week I wrote a somewhat snide post about a Superior Court decision in Caron v. Horace Mann Ins. Co., a decision that was reported in Massachusetts Lawyers Weekly but that I have not seen. The judge apparently held that an insurance company is bound by a mutual mistake between an insured and an agent over the terms of the policy.

My knee-jerk reaction was that the terms of the policy always trump, and that an insured is presumed to have read and understood the policy. But I can certainly see how a case could be made that if an insured believes that he or she is purchasing certain coverage, and the insurance agent, acting on behalf of the insurer, believes that he or she is selling that coverage, such coverage should be read into the policy.

Such a result could only apply in specific circumstances. Take, for example, Welch Foods, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, __ F.3d __, 2011WL 5027445 (1st Cir.), the other case I discussed in last week's post.

If the insured had said to the agent prior to purchasing the policy, "I want to make sure that there is coverage for claims of deceptive trade practices," and the agent, speaking on behalf of the insurer, had looked at the policy and said, "Yep, there's no exclusion for that," but there actually was such an exclusion hidden under a label "AntiTrust Exclusion," then it would be fair that the insurer be bound by the mutual mistake. And maybe as the insurer is suing the agent for negligence, it could send a memo to its underwriting department to label the policy provisions more accurately.

New Federal Insurance Office to compile financial data on insurers

Here's a detailed article that explains upcoming changes in the public availability of financial data on insurers.

Keep your policies forever

I can't say it too often: Keep copies of your insurance policies, forever, in a place you can find them. If at the beginning of your policy year your insurer or agent sends you only the coverage selection (or "declarations") page -- the page that summarizes your coverages -- ask for a copy of the entire policy. Do it immediately or you may never get it. And when you get it, make sure that the policy forms and endorsements provided match the forms and endorsements listed on the coverage selection page.

In almost every insurance coverage dispute I have ever been involved with, whether on the side of the insurer or the insured, the first challenge is obtaining a copy, preferably certified, of the policy. Whichever side I'm representing, it generally takes months.

Don't just keep your most recent policy. Keep all of them. For decades. Forever. If you have an occurrence-based policy and get hit with a Superfund suit -- say a property you owned for five years in the early 1990's has been discovered to be a site of toxic waste -- there might or might not be coverage under policies issued for each year that you owned the property. If the policies differed from one year to another, even if issued by the same insurer, there may be coverage under one year but not others.

Chances are that if the policies were issued not too long ago the insurer can, eventually, provide or recreate a copy. But at some point old documentation, especially but not exclusively from before the advent of computers, is lost. Insureds have the burden of proving coverage under a policy. The easiest way to do that is to provide the court with a copy of the policy, not to guess, "When my grandfather owned the company he was friends with an adjuster at Acme Insurance, so . . ."

Disagreement between First Circuit and Superior Court on whether terms of insurance policy control coverage

Welch Foods was sued by a competitor and by consumers for placing a label on a three juice blend bottle that pictured mainly pomegranates, even though the juice blend consisted primarily of apple and grape juice. A jury in California found that the label had a tendency to deceive a substantial number of customers. (Really? You really think that a three juice blend will consist primarily of pomegranate juice?)

Welch requested insurance coverage from National Union Fire Insurance Co. of Pittsburgh, PA. National Union denied the claim on the basis of an exclusion labeled "Antitrust Exclusion," which, in addition to excluding antitrust claims, also excluded coverage for unfair competition and deceptive trade practices.

In Welch Foods, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, __ F.3d __, 2011WL 5027445 (1st Cir.), the United States Court of Appeals for the First Circuit found that although the exclusions for unfair competition and deceptive trade practices were listed under the antitrust exclusion, the claims were effectively excluded. The court noted that the policy provided, "the description in the headings of this policy are solely for convenience, and form no part of the terms and conditions of coverage."

The court quoted the familiar language, "an insurance contract is to be interpreted according to the fair and reasonable meaning of the words in which the agreement of the parties is expressed. . . . Every word in an insurance contract must be presumed to have been employed with a purpose and must be given meaning and effect whenever practical."

By contrast, this week's Massachusetts Lawyers Weekly has a cover story on a Superior Court decision drafted by Judge Cornetta, Caron v. Horace Mann Ins. Co., which apparently held that an insurance company is bound by a mutual mistake between an insured and an agent over the terms of the policy, even if -- quoting Eric Parker, who represented the plaintiffs -- "some 50- or 75- page boilerplate policy they've been printing for years says [that different terms apply]. It's going to be changed to reflect the understanding of the parties."

Wedding Insurance?

This article at Canadian Finance Blog says it all.

Appeals Court finds duty to defend where loss may have arisen out of use of excluded boat and use of a different boat that was excepted from exclusion

Jeffrey and Nicole Crispo (the Crispos) were aboard their power boat, the MSJC69, and were towing a lobster boat, the Laina Lou, owned by Steven Crispo. Steven and Dana Gagne were aboard the lobster boat. The MSJC69's propeller shaft became entangled on a mooring line. After cutting loose the Crispos were unable to restart the boat because the battery was dead. The Laina Lou dropped anchor and the two boats remained attached by the tow line. The Crispos were unable to use the running lights because of the dead battery.

Approximately ten minutes later a ferry operated by BHC collided with the two vessels.

Steven, Jeffrey, Nicole, and Gagne sued BHC for personal injuries and property damage. BHC asserted claims for indemnification and contribution against the Crispos, alleging that their negligence caused the accident.

The Crispos sought coverage for the counterclaims from Quincy Mutual, their homeowner's insurer, which filed a declaratory judgment action. The policy excluded coverage for losses arising out of use of boats, but the lobster boat fell into an exception to that exclusion.

In Quincy Mut. Fire ins. Co. v. Crispo, 80 Mass. App. Ct 484 (2011), the Massachusetts Appeals Court held that a duty to defend is triggered when a loss "arises out of" both a a use that is excluded from coverage and a use that is excepted from the exclusion.

The court noted that the underlying complaints did not distinguish between the use of the two vessels with respect to which caused the accident. Therefore, the allegations of the underlying complaints "raise the possibility that the claims against the Crispos arose from their use of the Laina Lou."

The court also noted that no anti-concurrent causation clause applies to the exclusion, although such a clause does apply to other parts of the policy. Under Massachusetts law, where an anti-concurrent cause provision is included with reference to exclusions in one part of the policy and omitted with reference to other parts of the policy, the absence of such a provision means that a loss caused by a risk excluded in the section without the provision will be covered if a covered risk also contributed to the loss.

Quincy Mutual argued that the phrase "arising out of" in the exclusion conveyed the same limitation on coverage as an anti-concurrent causation provision. While noting that "arising out of" denotes an intermediate level of causation, the court held that its use in an exclusion, without more, could not reasonably be understood as denying coverage for damages connected to the insured's simultaneous undertaking of an excluded risk and a risk specifically excepted from the exclusion, where both caused the injury.

Coverage for construction defects

When a construction contractor brings a claim under its general liability policy for coverage of construction defects -- construction that was faulty and needs to be redone, but did not cause injuries to people or damage to other property -- Massachusetts courts generally analyze (and deny) the claim under up to six exclusions, often referred to as the "your work" or, more accurately, "builder's risk," exclusions. In many policies the exclusions have some holes in them, however, depending on when and where the damage occurred and whether the work was done by the insured contractor or by a subcontractor. When I work on such a case I often make a chart which I stare at until I am bleary-eyed.

This article in Insurance Journal notes a wide variation from state to state in how construction defects are analyzed:

On whether faulty workmanship is itself an occurrence, some states say yes, some states say no, some states are undecided, and some states say faulty workmanship is not an occurrence but the resulting damage is. “You also see differences in states in other issues as well."

It should be noted that there are Builder's Risk policies available that will cover contractors for construction defects. I have yet to come across a contractor that actually has such a policy, but that may be because those claims get resolved without the help of counsel.

Appeals Court holds motor vehicle exclusion excludes coverage for social host liability

Patrick Bernier and Julien Caron were insured under a homeowner's policy issued by MPIUA. They negligently served, supplied or permitted David DiFrancesco, a nonresident minor, to consume alcohol at the insured premises. While under the influence of that alochol, DiFrancesco negligently operated a motor vehicle, getting into an accident that injured Malcolm Berry.

Berry sued Bernier and Caron. MPIUA filed a declaratory judgment action, seeking a declaration that it had no duty to indemnify.

In Massachusetts Property Ins. Underwriting Ass'n v. Berry, 80 Mass. App. Ct. 598 (2011), MPIUA argued that the motor vehicle exclusion applied. The court agreed, on the ground that the motor vehicle exclusion categorically excluded coverage for personal injury arising out of the use of any motor vehicle.

The decision was based on changes in language in homeowner's policies. Under previous editions, coverage was excluded for losses arising only out of a vehicle owned by an insured. The change was apparently made in response to social host liability cases such as this one.

I don't like this change. In this situation -- a homeowner provides alcohol to a minor who drives away in his own car -- the homeowner's insurance is likely to have significantly higher coverage than the minor's vehicle. The homeowners were culpable in giving alcohol to a minor and letting him drive away. If their insurance isn't going to cover the loss, it should at least be because of a social host exclusion, not an automobile exclusion. That would be more straightforward and allow people to negotiate for the coverage they want.

Insurance for data security breaches

WGA InsureBlog has an interesting article on insurance for data breaches. Although some of the statistics in the article strike me as overblown, the basic point seems about right:

Insurance protection for privacy-related breaches by employees and vendors can be addressed in various types of insurance policies, but not all will protect an insured from all acts of insiders. The variability of insurance coverage for “insider” breaches reflects the polyglot state of affairs in the cyberliability world. Coverage problems can arise from the nature of the particular insurance policy at issue (for example, an E&O policy versus a privacy policy) and from insurers’ inherent aversion to paying for intentional wrongdoing — an aversion that can miss important distinctions among the guilty and the innocent. Companies and their advisors need to be alert to the nuances in policy terms to make sure that insurance insult is not added to injury after a breach caused by an insider.

Appellate Division discusses burdens of proof on PIP claim that was paid late

Francisco and Gloria Delasnueces were in an accident while in a car insured by Plymouth Rock. They received treatment from Kantorosinski Chiropractic. Plymouth Rock initially paid some of the bills and denied some. It later made a "business decision" to pay all the bills.

In Kantorosinski Chiropractic, Inc. v. Plymouth Rock Assurance Corp., 2011 WL 4529392 (Mass. App. Div.), the Massachusetts Appellate Division held that summary judgment cannot be granted to a PIP insurer on a claim that it delayed payment merely because the insurer asserts that the reason for eventual payment was a business decision. (The remaining issue, once the PIP claim has been paid, is the award of attorney's fees.)

The court then took note of evidence offered by Plymouth Rock that the damage to the insured vehicle was minor and that after an independent medical examination the doctor concluded that there was no objective findings to support the need for further treatment. That evidence was sufficient to shift the burden to Kantorosinski to show that there is a genuine issue for trial.

Kantorosinski met that burden with evidence that at the time the IME doctor opined that there was no further need for treatment, the insureds were still experiencing pain, which improved with additional treatment. The court held that the evidence was sufficient to overcome Plymouth Rock's motion for summary judgment.

How to lower your homeowner's insurance rates

This article has tips.

U.S. District Court interprets earth movement exclusion

Habit OPCO leased a building that was damaged by construction at an adjacent site owned by the Greater Boston Food Bank.

The building rested on concreted piles and on fill. On December 7, 2007 GBFB began construction of a new building on the adjacent property. It drove concrete piles to a depth of almost 190 feet. Within a couple of weeks Habit employees noticed damage to its building such as cracked door frames. By mid-February the building had floor heaves, its ceiling tiles were shifting, and walls were cracking.

Habit's insurer, Philadelphia Indemnity, hired an expert who opined that the damage was caused by vibrations from the pile driving on the GBFB property.

Philadelphia Indemnity denied the claim for structural damage, citing the policy's earth movement exclusion. Habit argued that the earth movement exclusion bars coverage only for damage from naturally occurring earth movements and not from man-made events.

In Mulhern v. Philadelphia Indem. Co., __ F. Supp. 2d __, 2011 WL 3563126 (D. Mass.), the United States District Court for the First Circuit noted that the exclusion includes loss from "improperly compacted soil," which is a man-made condition. The court held that Philadelphia Indemnity was entitled to judgment to the extent that Habit is precluded from arguing that the policy covers damages caused by defects in the fill.

Philadelphia Indemnity argued that the anti-concurrent causation clause in the earth movement exclusion precluded coverage under Habit's theory that shock waves generated by the pile driving caused the structural damage to the building. The court denied summary judgment on that issue because there was a disputed issue of fact as to whether improperly compacted soil was a cause of damage or whether vibrations emanating from the pile driving were the exclusive cause.

Finally, the court held there was no coverage under the collapse clause of the policy because the damage to the building was not "an abrupt falling down or caving in of a building or any part of a building with a result that the building cannot be occupied for its intended purpose, because the claim was the the roof split, leaving a gap of .75 inches, and then cracked.

Vote for me!

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Appeals Court holds insureds should raise public policy issue at arbitration

Congratulations to my friend Marie Cheung-Truslow at Smith & Brink, who just won a nice victory in the Massachusetts Appeals Court. Marie is a fabulous attorney who frequently represents insurers on large loss subrogation matters and in reference proceedings, and who I have often turned to for advice.

Marie's client, Northern Assurance, provided a yacht insurance policy covering a yacht called "Blaze of Glory." The yacht was destroyed in a fire. Fire investigators concluded that the fire was intentionally set and that its point of origin was the Blaze of Glory. (The Appeals Court decision doesn't state whether the yacht's name was a clue in the case.)

The insureds made an insurance claim for the fire loss. They appeared for an examination under oath and provided numerous documents but, according the Northern, not all the documents that were requested. Northern denied coverage on the grounds that the insureds had failed to cooperate. It filed a declaratory judgment complaint. The insureds responded with a demand for arbitration, as they were entitled to do under the policy.

The arbitrator ruled in favor of Northern. The insureds filed a motion to vacate the arbitration award on the ground that the arbitrator had exceeded her authority and contravened public policy by shifting the burden of proof on the cooperation issue from Northern to the insureds. The trial judge agreed with the insureds and vacated the arbitrator's award.

In Northern Assurance Co. of Am. v. Payzant, 80 Mass. App. Ct. 23 (2011), the Massachusetts Appeals Court overturned the decision of the trial court judge. It held that the insureds had waived their burden-shifting argument by not raising it at arbitration and by affirmatively asserting at arbitration that the burden-shifting clause of the insurance policy applied.

The court held that the proper procedure would have been for the insureds to challenge the legality of the burden-shifting clause of the policy before the arbitrator. The arbitrator would have ruled on this issue, and the right to a judicial determination would have been preserved. Alternatively, the insureds could have refrained from demanding arbitration.

US District Court holds medical review by PIP carrier not required when carrier disputes bill

McGovern Physical Therapy Associates provided physical therapy to a patient insured by Metropolitan for injuries he sustained in an auto accident. It submitted a request for PIP payment of $176 to Metropolitan.

Metropolitan paid McGovern $142.58, $34.42 less than the amount requested. It stated that "the amount allowed is based on provider charges within the provider's geographic region."

McGovern sued on behalf of itself and other providers, seeking reimbursement in all instances in which Metropolitan failed "to challenge the request for payment on its merits."

In McGovern Physical Therapy Assocs., LLC v. Metropolitan Property & Casualty Ins. Co., , the United States District Court for the District of Massachusetts denied McGovern's request to certify the case to the Supreme Judicial Court of Massachusetts. It held that the plain language of the PIP statute and the opinions of lower courts in Massachusetts "provide sufficient guidance" that its decision will not be "merely conjectural."

The court rejected McGovern's claim that the PIP statute requires review by a licensed practitioner, or a physical examination of the patient, whenever there is a dispute over the reasonableness of the charges. It held that a more plausible reading of the statute is that the review requirement applies only when the insurer denies a claim based upon an alleged lack of medical necessity for the services provided.

Appeals Court holds insurer is full of hot air

John Hanratty and Mary Blake Newman owned adjacent condominium units. Hanratty's air conditioner projected through the wall and into a yard area over which Newman held an exclusive easement. After her complaints were repeatedly ignored, Newman duct taped the air conditioner to make it unusable. Hanratty filed suit against her, seeking to restrain her from interfering with his air conditioner and to require her to stay ten yards away from him and his family. Newman counterclaimed for nuisance, trespass, and defamation, and sought an order that the air conditioner be removed.

Hanratty forwarded the counterclaim to his homeowner's insurer, Citation, which defended him under a reservation of rights. Hanratty exercised his option to select his own attorney, Michael Fee, but Citation was unwilling to agree his $260 per hour rate. Eventually the parties agreed that Fee would bill at $260 an hour, Citation would pay $130 an hour, and Hanratty would retain the right to seek the difference from Citation.

Citation filed a motion for declaratory judgment, seeking a determination that its policy did not provide coverage for the counterclaims. Hanratty counterclaimed, asserting that Citation breached the policy and its duty of good faith and fair dealing by refusing to pay Fee's full rate.

Hanratty and Newman settled the underlying case when Hanratty installed central air conditioning. (Was that so hard?) Hanratty assigned to Newman his counterclaim against Citation.

A Superior Court judge granted summary judgment to Citation on its declaratory judgment action, and a second judge dismissed the counterclaim against Citation. Newman appealed.

In Citation Insurance Co. v. Newman, 80 Mass. App. Ct. 143 (2011), the Appeals Court reversed the summary judgment decision. It held that the incursion of the air conditioner into Newman's yard constituted loss of use of tangible property. It also held that an easement is "tangible property."

Welcome to the Cavalcade of Risk!

Welcome to the Cavalcade of Risk. This is the 138th time that the Cavalcade of Risk has gathered blog postings from around the web on topics relating to risk.

The submissions to this Cavalcade were across-the-board thoughtful and informative. I've put them in order from the most general risk (for example, world-wide collapse) to most personal risk (for example, your own insurance rates going up).

The global risk of too much investment diversification:

Jason Shafrin goes against conventional wisdom and argues that on the large scale investment diversification increases risk: When does diversification Increase Risk posted at Healthcare Economist.

The risk from too few women in power at insurance companies and elsewhere:

At Risk Management Monitor, Morgan O'Rourke presents an excerpt of an interview with Bermuda Premier Paula A. Cox, Bermuda Premier Paula A. Cox on the Lack of Women Leaders in insurance and government. Although the article does not address insurance issues per se, it contains a link to a more comprehensive piece in which Cox talks about Bermuda's efforts to retain captive and reinsurance business and the effect of the many recent natural catastrophes on Bermuda's insurance industry.

The risk from insurers failing to recognize improvements in healthcare technology:

Jaan Sidorov at Disease Management Care Blog writes about "Software Eating the World of Healtcare." He reflects on the implications of a software-based health care world. It sounds pretty good to me.

The risk to disability and other insurers from failing to recognize changes in demographics:

Russell Hutchinson presents Insuring Older Lives: It's about employment, pricing, and claims management posted at Chatswood Consulting Moneyblog.
Hutchinson considers the termination age of 65 for a number of insurance benefits to be too young in the light of continuous improvements in mortality and an increasing number of people working past age 65. He considers other ways insurers could design the product termination.

The risks that have caused rising worker's comp insurance rates and what business owners can do to keep their own rates down:

Nancy Germond has a comprehensive post on why worker's comp rates are rising, and how business-owners can keep their costs down: Are work comp costs eating your lunch? posted At Risk Management for the 21st Century.

The risk to mental health workers of inadequate workplace protections:

Julie Ferguson presents Inadequate: Protections for mental health workers posted at Workers' Comp Insider.


The risk of your auto insurance premiums increasing as a result of accidents that may or may not be your fault.

On Dough Roller there's a very informative post on How Do Points Affect Your Auto Insurance Rate? The article points out the wide variation from one state to another about how both at-fault and not-at-fault accidents can hike your rates.

The risk of assuming you don't have insurance coverage

Free Money Finance posts Your Insurance May Cover More than You Think It Does. The moral of this post: Don't assume your insurance doesn't cover a specific loss. If the cost is high enough, it's worth asking if the company will pay.

The risk of having a really bad day

And, finally, ending with a smile, my favorite post of this Cavalcade: Henry Stern, LUTCF, CBC presents Why you need disability insurance posted at InsureBlog.

The next Cavalcade of Risk will be hosted by Emily Holbrook at Risk Management Monitor.

For all you civil procedure buffs . . .

Greg Straughn filed a lawsuit alleging that he was injured in a construction site accident while employed by James Czech because the general contractor, Williams Building Company, failed to maintain safe conditions.

Western World Insurance Company had issued a general liability policy to Czech under which Williams was an additional insured. It sought a declaratory judgment that it had no duty to defend or indemnify Williams because Czech had stated on his policy application that he had no employees. Williams filed a counterclaim seeking a declaration that Western World is obligated to defend it.

Czech did not answer the declaratory judgment complaint and was defaulted. Western World moved to dismiss Williams' counterclaim on the ground that the default judgment established that Czech's misrepresentation on his application caused the policy to be rescinded.

Williams opposed the motion on the grounds that the default judgment was improperly entered by the clerk rather than the court, and that the default judgment is interlocutory in nature.

In Western World Ins. Co. v. Czech, __ F.R.D. __, 2011 WL 2460934 (D. Mass.), the court held that a motion for declaratory judgment on the issues of defense and indemnity under an insurance policy are not for a "sum certain," and therefore the clerk was not empowered to enter the default judgment. It also held that in a multi-defendant case a court should withhold granting a default judgment against one defendant until a decision is reached on the merits against the remaining defendants.

History lesson

Here's a really interesting article on the history of insurance.

US District Court holds that due process claims regarding tax lien "arose from" prior litigation regarding the lien

In my last post I wrote about Saugus v. Zurich Am. Ins. Co., __ F.2d __, 2011 WL 2311873 (D. Mass.),in which the town of Saugus sought insurance coverage for claims that it had wrongfully demolished a house after a fire and collected costs associated with the demolition.

In addition to the Zurich policy discussed in the last post, the town had also been issued a claims-based policy by Maryland Casualty. That policy contained an exclusion for claims "arising from all pending or prior litigation as of the policy effective date and all future claims arising from such litigation." Maryland asserted that the exclusion applied because the underlying plaintiffs had sought relief from the Board of Assessors, the Appellate Tax Board and the Massachusetts Appeals Court on matters relating to the costs of demolition.

The town argued that due process claims alleged by the underlying plaintiffs under §1983 were different from and unrelated to the prior litigation involving tax abatement. The underlying plaintiffs alleged that the town demolished the remains of the property without proper notice, imposed an illegal lien on the property, added non-existent debt to the real estate tax bill, forced them to pay an illegal special assessment, and refused to return the special assessment.

The United States District Court held that the § 1983 claims 'arose from" the prior litigation, so that the exclusion applied.

US District Court holds that continuing violation of rights occurred at the time of the original violation

In 2006, a house owned by the underlying plaintiffs was damaged by a fire. They later filed a complaint against the town of Saugus alleging that the town unlawfully demolished the house and in 2007 illegally collected costs associated with the demolition. The town sought coverage for the claim from Zurich Casualty, who denied any duty to defend.

The Zurich policy was an occurrence policy in effect from July 1, 2009 to July 1, 2010. The town argued that there was a claim of an independent due process violation (failure to abate the costs paid by the underlying plaintiffs to the town).

In Saugus v. Zurich Am. Ins. Co., __ F.2d __, 2011 WL 2311873 (D. Mass.), the United States District Court for the District of Massachusetts held that the occurrence was the actions of the town shortly after the fire, and continuing claims arising out of that occurrence did not affect the date of the occurrence. (I would have to give some thought to how that fits into a triggers of coverage analysis.) It also held that the claims were a known loss when the policy period began.

Appeals Court holds that 93A claim can proceed after insurer rectifies failure to pay PIP damages

Marie Chery was injured in a car accident while she was a passenger in a car insured by Metropolitan. She submitted her PIP claim to Met, which failed to pay the medical bills within the time prescribed by Mass. Gen. Laws ch. 90 § 34M. Chery then sued for breach of the statute and Mass. Gen. Laws ch. 93A.

Six months later Met paid the medical bills. It then moved for summary judgment on the ground that an insured cannot prevail on a PIP claim if the disputed amount is paid prior to judgment entering; and that the 93A claim should be dismissed because Chery suffered no damages.

Chery did not dispute the first assertion. (See my post on that issue here.) She argued that Met had not paid a bill she submitted after she filed the complaint. That argument was ineffective because she had never amended the complaint to include reference to that bill.

In Chery v. Metropolitan Prop. & Cas. Ins. Co., 79 Mass. App. Ct. 697 (2011), the Massachusetts Appeals Court held that her 93A claim could survive summary judgment. It held that Metropolitan has caused her injury by failing to settle her claim after its liability was reasonably clear and forcing her to bring suit to receive benefits to which she was entitled.

The court also found support in the record for the claim that Chery had suffered emotional distress from having to prosecute the lawsuit and concern for the effect the unpaid bills would have on her credit.

Risks of car-sharing

Hank Stern at InsureBlog has posted on the risks to car-owners who sign up with car-sharing companies, which coordinate the very short-term rental of private individuals' cars to local people who need to, say, make a grocery run. (These companies should not be confused with Zipcar, which rents out its own cars.)

I strongly agree with Hank's basic point, which is that you should be cautious about insurance issues before signing up with a car-sharing company, because there may be no coverage under your policy if the car is involved in an accident while rented out.

Hank points out that one car-sharing company states that it provides liability coverage to renters, and therefore presumably not to the owners. If he's right then the car-sharing company has demonstrated a shocking lack of judgment, and no one should sign up with it. It is not worth the risk.

Appeals Court holds that advance payments from insurer to insured must be returned if there is no coverage

In my last post I discussed French King Realty Inc. v. Interstate Fire & Cas. Co., 79 Mass. App. Ct. 653 (2011), in which the Massachusetts Appeals Court held that coverage for a fire loss was excluded because the insured knew that its fire suppression system was suspended or impaired and because the system was not maintained in complete working order.

Interstate, the insurer, had made an advance payment to the insured, French King. French King argued that it was not required to return the advance payment because Interstate did not reserve it rights and defenses in connection with the payment.

The court disagreed. It followed other jurisdictions that have reasoned that an insurer is entitled to reimbursement for an erroneous payment when coverage does not exist under the policy and the insured was unjustly enriched and did not change position to its detriment in reliance on the payment.

Appeals Court holds that word maintain in coverage means keep in place, not keep in working order

French King Restaurant, insured by Interstate, had in place had a dry chemical fire suppression system.

The insurance policy contained a "protective safeguards endorsement," or PSE, which required French King "to maintain" the fire suppression system. The policy excluded coverage for loss or damage caused by by or resulting from fire if French King "knew of any suspension or impairment" in the system or failed to maintain the system "in complete working order."

In 2002 Kidde, the manufacturer of the fire suppression system, issued a bulletin advising that it would no longer support dry chemical systems. Kidde had previously recommended that dry chemical systems be upgraded to wet chemical systems. As of 2002, the dry system could no longer be inspected, serviced, recharged, or repaired.

In 2003, the company French King hired to inspect its fire protection system warned it that the system was not in accordance with current requirements.

In 2004 the Executive Office for Public Safety announced that dry systems needed to be upgraded to wet systems.

After the subject insurance policy was issued in 2005, the private fire inspector again informed French King that to be in compliance with current standards a wet fire suppression system was required. That same month, the city's building inspector informed French King that he could not issue a certificate of inspection until the system had been fixed.

In October, 2005 there was a fire at the restaurant. The fire suppression system failed to function. Interstate declined to pay the loss on the grounds that French King had failed to "maintain" the fire suppression system and that exclusions relating to the fire suppression system applied.

In French King Realty Inc. v. Interstate Fire & Cas. Co., 79 Mass. App. Ct. 653 (2011), the Massachusetts Appeals Court held that the word "maintain" was ambiguous and must be interpreted in a manner favorable to French King as meaning merely having a fire suppression system in place.

The court ruled that coverage was excluded by the exclusion for loss or damage if the insured knew of any suspension or impairment in the fire protection system. It held that the record showed clearly that French King knew that the fire suppression system was impaired. It ruled that coverage was also excluded because French King failed to maintain the system "in complete working order."

First the birth certificate thing and now this . . .

Tred Eyerly discusses a new statute in Hawaii on his blog Insurance Law Hawaii.

According to Eyerley, the statute provides that an "occurrence" in a liability policy "shall be construed in accordance with the law as it existed at the time that the insurance policy was issued."

The statute was apparently passed in response to a court decision holding that construction defects are not occurrences.

I don't have any additional information on the new statute, but if it's as broad as Eyerly describes there could be some insurance coverage attorneys in Hawaii who will make a great (if unexciting) living off of it. Let's say there's an environmental coverage case in which a pollutant seeped into the ground from 1935 to 1975. When the insurance coverage aspect comes up, as it inevitably will, the parties will be arguing the definition of occurrence in each policy year. Maybe -- and I have no idea -- there was a decision by the highest state court in Hawaii in 1934 giving a clear definition of occurrence. (It's not very likely, but it could be.) If one of the policies was issued outside of Hawaii, assuming that Hawaii follows the usual choice of law rules, the history of occurrence litigation in that state will come into play.

And let's not forget that the definitions of occurrence given in standard policy forms have evolved over the years.

And finally, as a philosophical matter, what does it mean to "construe" a concept "in accordance with the law as it existed at the time that the insurance policy was issued." For example, if a court of a particular state makes a ruling on triggers of coverage for the first time in 1972, and holds that the manifestation trigger applies, does that mean that the manifestation trigger does not apply to policies issued before 1972? Or would the manifestation trigger apply all the way back because if the word occurrence was construed that way in 1972 then logically it always had to be construed that way?

Everything you ever wanted to know about IDL coverage but were afraid to ask

Here's an article on a type of coverage I had never heard of: independent director liability, or IDL coverage.

This supplements directors and officers (D&O) coverage. My first thought was why such supplemental coverage would be necessary; why not just purchase higher policy limits on D&O coverage. The reason is given at the end of the article: IDL coverage provides peace of mind for outside directors. If a D&O policy is depleted by an Enron-type meltdown, the directors will still have coverage.

If I were an insurance agent or a risk manager I would need to take a hard look at both the D&O coverages and the proposed IDL coverage before I would make a recommendation about whether a corporation should buy the IDL coverage. But, as the article points out, if I were an outside director (who wasn't paying for the policy from my own funds), of course I'd want it because, hey, why not.

California Federal District Court sharply curtails Cumis doctrine

The widely-accepted doctrine that an insured has a right to independent counsel of its choosing if an insurer is defending it under a reservation of rights is frequently called the Cumis counsel doctrine, after a case from California, San Diego Fed. Credit Union v. Cumis Ins. Society, Inc., 162 Cal. App. 3rd 358 (1984).

A federal district court in California has now sharply curtailed the application of that doctrine under California law, essentially holding that because insurance defense counsel has an obligation to the insured, any potential conflict of interest between the insurer and the insured cannot affect the defense.

Centex Home is a general contractor against whom several homeowners filed lawsuits alleging construction defects. Centex sought coverage for some of the claims as an additional insured on policies Travelers Property had issued to Centex's subcontractors. Travelers agreed to defend subject to a full reservation of rights. It agreed that the attorneys already retained by Centex could continue to represent it.

Nine months later Travelers informed Centex that it would hire new counsel of its own choosing, and retained two law firms to defend Centex. Centex refused to accept those firms unless Travelers showed that they could provide a conflict-free defense. It also claimed a right to independent counsel due to Travelers' reservation of rights.

Travelers stopped paying defense costs and filed a suit for declaratory judgment on the grounds that Centex breached its duty to cooperate.

In Travelers Property v. Centex Homes, The United States District Court for the Northern District of California noted that under California statute and case law:

[a] conflict exists "when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel . . . retained by the insurer for the defense of the claim." . . . However, if the coverage issue is "independent of, or extrinsic to, the issues in the underlying case," then independent counsel is not required. . . . Where the interest of the insured and insurer are aligned in defending against the underlying action, a conflict does not exist."

The court held that Travelers' reservation of rights did not give rise to a conflict of interest. One of the rights that Travelers reserved was the right to deny coverage if the damages alleged occurred outside the policy periods. Centex had asserted a statue of limitations defense in the underlying cases. It argued that Travelers would attempt to focus liability outside the policy periods, which would harm the statute of limitations defense.

The court rejected that argument because the conflict is a "merely potential" one.

[Centex] provides no evidence that [Travelers'] appointed counsel could shift the focus of liability outside of [Travelers'] policy periods. More importantly, whether damages occurred before, during, or after the policy period is a factual issue outside of counsel's control. . . . [Centex] and [Travelers] have the same interest in minimizing liability by establishing that any damages occurred at a time early enough for the statute of limitations defense to apply.

Furthermore, any counsel [Travelers] appoints also has legal and ethical obligations and a fiduciary duty to [Centex]. . . . Although [Travelers] might have an interest in continuing an investigation into its potential for coverage, this is irrelevant to the ability of [Travelers'] appointed counsel to control the issue of when any covered liability occurs.

Massachusetts Attorney General alleges nearly $1 billion overcharge on commercial auto insurance

Massachusetts Attorney General Martha Coakley has issued a press release alleging that businesses in the state have been overcharged by nearly $1 billion on commercial auto insurance in the past seven years.

Coakley cited data showing that insurers' underwriting profits were significantly higher in Massachusetts than the national average. She has requested that the Commissioner of Insurance reduce insurance rates so that they comply with a statute forbidding rates that are "excessive" or "unreasonably high."

Summer, and the rantin' is easy

A while back I posted about my annoyance with a day camp that required parents to sign a release acknowledging that the camp did not carry liability insurance.

New summer, new camp, new rant.

This camp requires parents to sign a release of the camp and every affiliated person or entity from all negligence claims. (In oversimplified terms, negligence means you made a mistake that caused someone else to get hurt.)

First, I want to acknowledge that this particular camp is priced and has additional financial aid to allow participation by kids from families of all income levels. It is possible the release lowers the price of its liability insurance, or that the camp administration believes (wrongly) that the release eliminates the need for such insurance. I do not in any way intend to minimize the effect of the cost of insurance, and the effect it might have on the camp's ability to serve all populations.

But . . . I am sending my elementary-school aged child to you. As I have written many times before, accidents happen. If an accident happened because you made a mistake -- and I'm not going to list all of the possible mistakes you can make while caring for a bunch of little kids -- and as a result a kid is permanently disabled, unable to work, unable to care for himself -- you have a moral obligation to defray the expenses for care that will follow the kid for the rest of his life. The good news is, you don't have to pay it yourself, you can get insurance. That's what it's there for.

Having adequate insurance is simply the responsible thing to do.

Take a look at the new Cavalcade of Risk

You can find it here.

For newbies, the Cavalcade of Risk rotates among insurance and other risk blogs, and provides links to blog posts on those topics.

History lesson

Here are Part I and Part II of a really interesting article on the history of insurance regulation.

Hold on to all of your insurance policies forever

One of the very first steps in every insurance coverage case, large or small, is obtaining a copy, preferably certified, of the applicable insurance policy. It's also often one of the hardest and most time-consuming steps, even for a recent loss under which coverage of only a single policy is triggered.

In occurrence-based policies, every policy that was in effect during a loss potentially provides coverage. In long-tail losses such as environmental or asbestos claims where the exposure took place over decades, it is sometimes difficult to identify what insurer issued the policies for each year, much less to obtain a copy of them.

Not surprisingly insureds frequently have no idea what insurer provided coverage to them fifty years ago. And if you go back far enough, even if an insured knows the name of the insurer, it can be difficult to determine the applicable policy forms. Some cases address whether it is acceptable to make an educated guess as to the terms of the policy.

In House of Clean, Inc. v. St. Paul Fire & Marine Ins., Co., __ F.2d __, 2011 WL 1321197 (D. Mass), the United States District Court for the District of Massachusetts held that the insured bears at least some responsibility for knowing what policies were historically issued to it.

House of Clean operated a dry cleaning business from 1967 to 2007. In 2005, chemical pollutants used in the cleaning process were detected in nearby soil and groundwater. Neighbors sued and the Department of Environmental Protection issued a notice of responsibility. House of Clean sought coverage from its insurer, St. Paul. When a coverage dispute arose, it sued St. Paul for declaratory judgment and breach of contract.

House of Clean subsequently sought to amend its complaint. One of the new allegations was that during discovery, St. Paul provided over 10,000 pages of disorganized documents which included two insurance policies from 1981-1982. House of Clean had been previously unaware of those policies. It sought to amend the complaint to add allegations of coverage under those policies.

The court denied House of Clean's motion to amend the complaint. It held that the motion to amend was untimely given that it would require the addition of two new defendants (insurers related to St. Paul). It stated, "The Court acknowledges that HOC was unaware of those policies before October, 2010, but notes that it bore at least some responsibility for maintaining records of insurance policies it had purchased."

The lesson: Keep full copies of your occurrence-based insurance policies forever. Really, forever.

It's not too late for Rapture Insurance

You can buy it on ebay here. Act now, because by 6:05 tonight the Rapture will be a known loss and no longer insurable.

Here's a great blog post on other Rapture-related insurance issues.

Mass. Appellate Division holds that insurer's non-specific denial to allegation of complaint does not preclude summary judgment for insurer

Commerce Insurance Company insured a car which was struck by a motorcycle. Belizaire, a passenger in the car, made a claim for PIP coverage. Commerce eventually denied the claim on the basis of non-cooperation.

Lynn Physical Therapy sued Commerce, claiming it was entitled to payment for treatment it had provided to Belizaire. Summary judgment was granted to Commerce on the ground that Belizaire's failure to cooperate precluded coverage.

On appeal to the Massachusetts Appellate Division, Lynn PT argued that summary judgment should be reversed because Commerce never acknowledged that it insured the vehicle in which Belizaire was a passenger. Lynn PT based that assertion on the answer to the complaint and a response to a request for admission. In both instances Commerce denied a lengthy statement which included, among many other facts, the assertion that the vehicle was insured by Commerce.

In Lynn Physical Therapy Inc. v. Commerce Ins. Co., 2011 WL 1744225 (Mass. App. Div.), the court disagreed, noting that Commerce had admitted during the course of discovery that it insured the vehicle.

For some reason the court did not make the most obvious point: If Commerce did not issue the policy, it would not be liable for PIP payments. If it did issue the policy, it was entitled to deny the claim (according to the trial court's findings) because of Belizaire's noncooperation. In either event, Lynn PT would not be entitled to PIP payments.

SJC rules on statute of limitations, penalties for insurance agency hiring unlicensed broker

Last year I published a number of posts on the Appeals Court decision in Anawan Ins. Agency v. Div. of Ins. (Click on the link and then scroll down to see those posts.) The case concerned an insurance agency that had employed an unlicensed broker.

In Anawan Ins. Agency v. Div . of Ins., 2011 WL 1588424 (Mass.) the Supreme Judicial Court has affirmed in part and reversed in part the decision of the Appeals Court.

The SJC held, first, like the Appeals Court, that the four year statute of limitations of Mass. Gen. Laws ch. 260 §5A applied, rather than the two year statute of limitations of Mass. Gen. Laws ch. 260 §5. §5A applies to "actions arising on account of violations of any law intended for the protection of consumers." The court held that Mass. Gen. Laws ch. 175 §177, which prohibits an insurance company from paying an individual who is not a licensed insurance agent, is a statute intended for the protection of consumers.

The SJC then overturned the decision of the Appeals Court with respect to the discovery rule, holding that the discovery rule does apply to an action by the Division of Insurance to enforce Mass. Gen. Laws ch. 175 §177.

Finally, the SJC overturned the decision of the Appeals Court that the only fine that could be imposed was a fine under Mass. Gen. Laws ch. 175 §177, and that a fine under Mass. Gen. Laws ch. 176D §7 could not be imposed. The SJC held that separate penalties under both statutes could be imposed.

Appeals Court holds that multiple intentional rammings of vehicle is one occurrence

In my last post I wrote about Mass. Homeland Ins. Co. v. Walsh, 2011 WL 1344554 (Mass. App. Ct.) (unpublished), in which the Appeals Court held that compulsory auto coverage provides coverage for intentional acts.

Apparently the insured rammed the claimant's vehicle multiple times. The court held that although there were multiple discrete collisions, there was only one occurrence; the claimant's injuries arose from "a single continuous episode of ramming of his vehicle that occurred in a short spatial and temporal span."

Appeals Court holds that compulsory auto insurance provides coverage for intentional acts, even in PIP claims

The issue in Mass. Homeland Ins. Co. v. Walsh, 2011 WL 1344554 (unpublished) was whether an auto insurer must indemnify its insured against liability for injuries sustained by a claimant as a result of an intentional vehicular assault by the insured.

The court noted that the primary purpose of compulsory insurance is protection of travelers on the highway. It held that coverage is required whether the conduct of the insured is intentional or merely negligent.

The court implied that PIP coverage is also available for injuries arising out of the intentional act of the insured.

U.S. District Court denies summary judgment to Pring-Wilson's insurer

I posted here about the declaratory judgment complaint filed by Fire Insurance Company seeking interpretation of the homeowner's policy by which it insured Alexander Pring-Wilson's mother. Pring-Wilson, a Harvard graduate student, had pleaded guilty to involuntary manslaughter of Michael Colono in Massachusetts. Colono's estate filed a wrongful death action against him, and he sought coverage under the homeowner's policy issued to his mother in Colorado.

In Fire Ins. Exchange v. Pring-Wilson, 2011 WL 1162913 (D. Mass.), the United States District Court for the District of Massachusetts has denied the insurer's motion for summary judgment, on the grounds that there were facts supporting the propositions that Colono's death was an accident, and that his death was not reasonably foreseeable under the Colorado law of insurance coverage.

According to the opinion, Pring-Wilson was walking late at night and Colono was parked in a car with two friends, including Sammy Rodriguez. Words were exchanged and Colono got out of the car and began to fight with Pring-Wilson. Rodriguez then got out of the car and joined the fight. Pring-Wilson pulled out a knife he habitually carried and began flailing it in front of him, cutting Colono in five places. Colono and Rodriguez got back in their car, and apparently neither of them at first realized that Colono had been cut. When Rodriguez realized that Colono was injured he sought help. Colono died in a hospital that night.

The fight had taken little more than a minute. As soon as the other two men drove away, Pring-Wilson called 911. Although he denied that he was involved in the fight he reported that he had seen a man get stabbed.

In the civil wrongful death trial, the state superior court judge had concluded that Wilson had not sought help from a nearby store and therefore and not availed himself of all reasonable alternatives to combat, and that Pring-Wilson had employed more force than was reasonably necessary to repel the attack. He also concluded that Pring-Wilson did not intend to kill or inflict serious injury with his knife, but only to drive the other two men away.

The U.S. District Court examined whether Colono's death was an accident (and therefore an occurrence) within the meaning of the policy and under Colorado law. It held that some facts supported the conclusion that Colono's death was accidental, including that Pring-Wilson had not intended to kill or seriously harm Colono; that the fight was quick and confused; that Colono was not aware that he had been wounded; and that at least four of the five knife wounds were very shallow.

The court then examined whether the intentional acts exclusion excluded coverage. It held that the exclusion did not apply because under Colorado law Colono's death was not reasonably foreseeable given Pring-Wilson's conduct.

Appellate Division holds that insurer's withholding of evidence does not shift burden of proof in PIP case

Excel Physical Therapy sued Commerce Insurance for reimbursement of costs of treatment of Hayes. Hayes claimed she was injured when riding as a passenger in a car insured by Commerce. Commerce denied the claim, asserting that Hayes was not in the car when the accident occurred. (That type of insurance fraud is called a "jump in.")

During discovery Excel had requested Commerce's claims logs. In response, Commerce provided a claim note that was extensively redacted.

At trial Excel argued that Commerce's improper discovery response shifted to Commerce the burden of proving the affirmative defense that Hayes was not in the insured vehicle when the accident occurred. The trial judge agreed and directed a verdict to Excel.

In Excel Physical Therapy, Inc. v. Commerce Ins. Co., 2011 WL 1167214 (Mass. App. Div.) the Appellate Division overturned the trial judge's decision. It noted, "It is elementary that a claimant under a policy of insurance has the initial burden of proving that he or she is covered under the policy. . . . Commerce was not required to prove its alleged defense to Excel's PIP claim before Excel proved the claim." It was Excel's burden to prove that Hayes was entitled to PIP benefits because she occupied a vehicle insured by Commerce.

The court held that the proper remedy for withholding evidence based on privilege during discovery is the exclusion at trial of the withheld evidence, not a shifting of burdens.

Ever wonder about the insurance aspects of celebrity breakdowns?

Property Casualty 360 explains it all here.

Effect of possibility of insurance on jurors

Although the existence of insurance cannot be discussed or even alluded to at civil trials, pretty much every trial attorney assumes that a juror will bring up the fact that damages will be paid by an insurer, whether or not that is true. Here's an article from the wonderfully (or just weirdly) named Jury Research Blawg Konnectionn that discusses research into the issue.

U.S. District Court holds that fee dispute between law firm and former associate is not covered by malpractice insurance

Law firm Freedman, DeRosa & Rondeau (FDR) sued a former associate, Adam Clermont, for a portion of fees he collected from clients he continued to represent after leaving FDR. Clermont sought coverage from his legal malpractice insurer, Continental.

The policy covered claims "the Insured shall become legally obligated to pay as damages and claim expenses because of a claim . . . by reason of an act or omission in the performance of legal services by the insured."

"Claim" was defined in the policy as "a demand . . . arising out of: (1) an act or omission, . . . in the rendering or failure to render legal services."

"Legal services" was defined in the policy as "those services . . . performed by an Insured for others as a lawyer, arbitrator, mediator, as well as a notary public, or as a title agent."

"Damages" was defined in the policy as "judgments, awards and settlements." The definition excluded "legal fees, costs and expenses paid or incurred or charged by the Insured," and "injunctive or declaratory relief."

In Clermont v. Continental Cas. Co., 2011 WL 1235389 (D. Mass. 2011), the court held that a fee dispute did not come within the policy's definition of "legal services." It also held that the dispute fell within the exclusion to the definition of damages.

More on why it's good to comparison shop for insurance

This article also demonstrates how the rich are different from us.

Shopping for coverage can pay off

Although the couple that writes this blog, Sustainable Personal Finance, is Canadian, their point in this post on insurance agents is well-taken here as well: it never hurts to shop around.

As with all things in life, however, the cheapest coverage is not necessarily what you need. What is included in the coverage? What is excluded? What is the reputation of the insurer with respect to paying or fighting fair claims? What is the deductible? Does the property coverage provide replacement cost or present value? Do attorney's fees reduce the coverage limits? Is the insurer in danger of going out of business?

U.S. District Court finds no coverage for agency that provided therapy to girl who was abused in foster care

The tragic case of a girl in foster care who at age 11 was beaten nearly to death by her aunt and stepfather has been periodic front page news for years. The abuse put the child into a coma in 2005. Over the opposition of her stepfather, who purportedly sought to avoid a murder conviction, the Department of Social Services brought suit to allow her doctors to terminate life support, as she was in a vegetative state from which there appeared to be no hope of recovery. The Supreme Judicial Court ruled in favor of DSS. The child, however, began to breathe on her own and eventually recovered to the point that she could talk. The aunt committed suicide and the stepfather is in jail.

And now we move on to the insurance issues.

The child's current guardian sued a clinic that provided therapy to the child when some of the abuse took place. The defendant's insurer, Valley Forge Insurance Company, filed suit seeking a declaratory judgment that its policy does not cover the allegations.

The policy contained an exclusion for the "actual or threatened sexual or physical abuse or molestation by anyone to any person while in the care, custody or control of the insured."

At issue is the meaning of "in the care of." The insureds argued that the phrase means "physically in the care."

In Valley Forge Ins. Co. v. The Carson Center for Human Servs., Inc., 2011 WL 884802 (2011) the United States District Court for the District of Massachusetts disagreed. Finding little case law on point, the court turned to the dictionary definition of "care" to find that physical proximity is not required. Rather, the phrase means "under the supervision or charge of the insured."

The court held that the provision of bi-weekly therapy was sufficient to meet this definition.

The court also noted that in the underlying complaint the child's guardian alleged that she was in the care of the insured. "The word cannot carry one meaning for the purposes of liability and a different one for the purposes of coverage."

Republicans in Congress working on flood insurance

I write periodically about the imminent expiration/actual expiration/retroactive extension of the National Flood Insurance Program, or NFIP. NFIP is 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.

Even though there is now a whopping six months until NFIP expires again, this time round, according to this article in Insurance Journal, one side of the aisle is already working on the issue. The Republican draft of legislation will phase out subsidies (and therefore the entire program; the whole point of NFIP is to provide subsidies).

Coming soon: dog exclusions

According to this article in Claimsjournal.com, the American Association of Insurance Services (AAIS), which develops policy forms, has drafted endorsements for homeowners and umbrella policies which exclude coverage for damages caused by dogs owned by the policyholders.

Given the range of lawsuits that are brought against dog owners (I recall a case in which a dog barked from an enclosed lawn, startling the plaintiff and making her fall) and the high damages that can be awarded in dog bite cases, I recommend that dog owners avoid these endorsements even if it means paying higher premiums.

Appeals Court holds that judicial estoppel doctrine bars assignment of some claims to prevailing plaintiff

Stephen Hanlon sued Becky Sandman for injuring him when she was driving while intoxicated.

At trial Hanlon received a judgment of approximately $17 million.

Hanlon, as the assignee of Sandman's rights, then sued Sandman's insurer, Homeland, for breach of its duty to defend and breach of Mass. Gen. Laws chs. 93A and 176D. He alleged that the insurer and the insurance defense attorney failed to adequately prepare for and defend at trial, exposing Sandman to an excess judgment; and that they failed to explore settlement opportunities and convey them to Sandman.

Hanlon later substituted Sandman as the plaintiff. Homeland moved to dismiss on the basis of judicial estoppel. That motion was allowed, on the ground that Hanlon was the real party in interest regardless of the substitution of Sandman as the named plaintiff.

In Sandman v. McGrath, 78 Mass. App. Ct. 800 (2011), the Massachusetts Appeals Court noted that judicial estoppel "is an equitable doctrine that precludes a party from asserting a position in one legal proceeding that is contary to a position it had previously asserted in another proceeding." The court held that the doctrine must be applied to the real party in interest.

The court held that the doctrine of judicial estoppel bars Hanlon from bringing claims reqardng the adequacy of preparation for and actions at trial, because in the underlying action he had successfully argued that the damages award was not exessive.

The court held that the doctrine does not apply to claims regarding failure to pursue settlement opportunities. Hanlon's claim that he would have settled the underlying lawsuit is not inconsistent with the argument that Sandman was negligent and liable to him for damages.

2010's ten most significant insurance decisions

This article is both funny and informative.

As so often, thanks to Mike Tracy at Rudolph Friedmann for forwarding it to me.

New Cavalcade of Risk

A little late, but here's the the most recent Cavalcade of Risk, in which Jaan Sidorov in his Disease Management Care Blog links to a number of interesting posts on various blogs about various aspects of risk.

Jaan linked to my post on why gun insurance won't work.

I pointed out in that post that liability insurance by its nature cannot provide coverage for intentional acts. Jaan responded:

Yet, thinks the DMCB, health insurance covers intentional injuries and what about the person who knowingly continues with a lifestyle that is harmful.....?

While it's true that health insurance provides coverage for lung cancer for smokers and carpal tunnel syndrome for people who play too many computer games, that's not quite the right analogy. Liability insurance does generally provide coverage for harm incurred from risky behavior. There is no exclusion from motor vehicle coverage if the insured is speeding or from medical malpractice insurance if the doctor has scheduled more operations in a day than can be considered optimally safe.

The true analogy would be health insurance for a suicide attempt, which is intentional harm to oneself, not just the losing side of a risk. But then one gets into a semantic discussion: did the insured intend to become depressed or mentally ill? It's interesting to note that life insurance generally excludes coverage for suicide.

In any event, one must be careful not to analogize too much between medical insurance and liability insurance, mostly because I just don't know all that much about medical insurance.

Mass. Appeals Court holds that insurer must pay market rate to Cumis counsel

When an insurer defends a case under a reservation of rights, the insured has the option of choosing his or her own attorney (often called Cumis counsel after a California case) and having the insurer pay the reasonable charges of that attorney. What has been undetermined, until now, is whether the insurer is obligated to pay that attorney's usual hourly rate, or if it may pay the generally much lower rate it would pay to its usual insurance defense panel counsel.

In Northern Security Ins. Co., Inc. v. R.H. Realty Trust, 78 Mass. App. Ct. 691 (2011), the Appeals Court held that reasonable rates must be based on market rates rather than panel counsel rates.

The court also held that where an attorney agrees to accept a discounted rate from the insured, he or she cannot recover more than that rate from the insurer.

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

Title insurance

Here's an informative article about title insurance.

When my husband and I bought our house, on the advice of our real estate attorney we opted against title insurance. He told us that since the property is registered land, there could be no claim against the title. Not long thereafter I was involved in a case involving title to land and added our lack of title insurance to my list of things to wake up in the middle of the night worrying about. When we refinanced we purchased the insurance. I still don't know whether it's really necessary for registered land, but it sure makes me feel better.

Superior Court notes lack of standard for imminent threat of offsite migration of contaminants

From 1853 to 1952 FG&E owned and operated a plant that manufactured gas. The manufacturing process generated hazardous materials at the site.

FG&E filed a lawsuit seeking a declaration that several primary liability policies issued by OneBeacon and Travelers provide coverage for cleanup costs.

The insurers, relying on an owned property exclusion, argued that coverage is triggered for any policy period only if there was off-site property damage during that policy period.

In Fitchburg Gas & Elec. Light Co. v. OneBeacon Am. Ins. Co., 2010 WL 5490148 (Mass. Super.), Judge Neel of the Massachusetts Superior Court noted that under Massachusetts law coverage is triggered for a cleanup designed to prevent further migration of contaminants to off-site property, even when such migration has not yet occurred. However, there is no standard by which such a threat of migration is to be measured.

This case, however, would not set that standard. Noting that there were competing expert affidavits about whether the contaminants have or would migrate offsite, Judge Neel denied summary judgment to both sides.

Thoughts on umbrella coverage

Kiplinger, a personal finance magazine, has an interesting article on why people with income of over $100,000 or assets over $1 million should purchase umbrella coverage.

Umbrella coverage is coverage above your regular insurance. For example, you might have an auto policy and a homeowner's policy that each have a limit of $300,000. An umbrella policy would kick in if the damages exceed that amount.

The article states that umbrella insurance will cover your legal fees if you get sued. In most cases that is incorrect. Generally, your primary insurance (such as auto or homeowner's) will cover your legal fees, although there are some rare cases when primary insurance does not apply and umbrella insurance does apply. There are also some primary policies in which legal fees deplete the coverage limit.

SJC seeks amicus briefs on MedPay question

The Supreme Judical Court of Massachusetts is seeking amicus briefs in Golchin v. Liberty Mut. Ins. Co., docket no. SJC-10794. According to the SJC's blurb,

This case presents important issues concerning the Commonwealth's coordination of benefits among health insurance, PIP and MedPay: whether the Commissioner of Insurance has properly mandated that insureds claiming MedPay must first make a demand on their health insurers, and may only make demand on MedPay after denial by health insurers, which denial must be provided to the MedPay insurer before any payment.

Why gun insurance won't work

The New York Times published an interesting letter to the editor last week.

To the Editor:

In “How Many Deaths Are Enough?” (column, Jan. 18), Bob Herbert recommends stricter licensing and registration of guns, more vigorous background checks and a ban on assault weapons. I agree.

And I have another suggestion: gun insurance. Mandatory liability insurance for gun owners sounds to me like an idea whose time has come. With this approach, we can respect what many interpret as a constitutional right to bear arms, while at the same time making those who possess and use weapons pay for the risk that they pose to the rest of us.

Caroline Herzenberg
Chicago, Jan. 18, 2011

While it's an interesting idea, I can see a number of problems with mandatory insurance for gun-owners. First, you can't get insurance for intentional acts. That's because insurance insures against risk -- meaning accidents -- while intentional acts are not risks, they are certainties. The standard Massachusetts auto policy, for example, insures only against "accidents," which it defines as as "an unexpected, unintended event." Thus, the insurance will provide coverage if the insured driver skids on ice and injures a pedestrian, but it will not provide coverage if the driver purposefully aims for the pedestrian and runs him down.

Gun insurance might provide coverage for a hunting accident, but it wouldn't provide coverage for intentionally shooting someone.

Even if there could be gun insurance for intentional assaults, the administration of it would be quite difficult. Would the insurance be purchased annually, like car insurance, as long as the person owned the gun? What about the large percentage of gun crimes that are committed with stolen guns? Would the original owner -- or the gun store -- be responsible for insurance ad infinitum after the gun was stolen?

Thanks to my friend Nomi Herbstrom for bringing the letter to my attention.

Appeals Court holds arbitrator exceeded authority in ruling underinsurance claim premature until third-party claim resolved

In 2001 Dorcas Weiner was involved in two separate car accidents. She sought underinsured motorist coverage from Commerce for both accidents. Those claims were consolidated and went to arbitration as required by the standard Massachusetts automobile insurance policy.

The arbitrator held that the compensation Weiner received from the other driver in the first accident was sufficient to cover her losses from that accident. He held that arbitration was premature as to the second accident because the claim against the other driver in that accident had not been resolved.

Weiner and her husband won a motion in Superior Court to vacate the arbitration award, on the ground that the arbitrator had exceeded his authority in deciding that arbitration for the second accident was premature.

The case was arbitrated again with a new arbitrator. The second arbitrator awarded damages for both accidents, and that award was confirmed by the Superior Court. Commerce appealed, arguing that the first arbitration award should not have been vacated and that the matter should have been submitted for reconsideration to the first arbitrator.

In Weiner v. Commerce Ins. Co., 78 Mass. App. Ct. 563 (2011), the Appeals Court affirmed.

The court held that the first arbitrator plainly erred when he concluded that the claim for the second accident was premature, because it is well settled that an insurer must arbitrate an underinsurance claim regardless of the pendency of a third-party claim. The arbitrator made clear an intention to rely on the damages award in the third-party claim, but the policy required damages to be determined by the arbitrator. He thereby exceeded his authority.

The Appeals Court also held that the Superior Court judge was allowed by statute to appoint the second arbitrator to determine the claim.

Superior court holds that insurer's mistaken belief that one policy period applies does not estop it from recovery under the correct policy period

Jacob Hanks suffered brain damage as a result of complications during his birth at UMass Medical Memorial Center, an affiliate of UMMHC. For some reason his parents filed three separate actions against UMMHC personnel in three different years. Those claims settled for $4.9 million. Defense costs totalled $1,034,140.

UMMHC had claims-made insurance policies. Its primary provider was CPAC, a captive insurer of UMMHC. UMHHC's excess policies were with other carriers.

In a claims made policy the policy providing coverage is the one in effect when the insurer was notified of the claim. (This is in contrast to an occurrence policy, in which the policy providing coverage is the one in effect when the underlying incident occurred.)

While the lawsuits were pending, UMMHC believed it had given notice of the claim to the excess insurers during the 2003-2004 policy period, when the CPAC policy had a limit of $5 million. It later came to light that the excess carriers may have been notified in the 2001-2002 policy period, when the policy limit was $2.5 million.

UMMHC then sued the excess carriers to recover the additional $2.5 million, the difference between the underlying limits of the two policy years.

In UMass Memorial Health Care, Inc. v. Lexington Ins. Co., 2010 WL 5071868 (Mass. Super.) the Massachusetts Superior Court ruled on the motion for summary judgment of excess carrier First Specialty.

First Specialty argued that UMMHC had suffered no loss within the meaning of the policies because between CPAC and the excess carriers it actually received more than the loss amount.

UMMHC responded that amounts paid by CPAC are not a recovery by UMMHC, because UMMHC funds CPAC itself and is essentially self-insured.

The court held that under the language of the policy, whether loss below the excess policy was paid by a captive insurer, self-insurance, or a regular insurer was irrelevant.

The court held, however, that indemnity under an underlying policy is not a recovery for the purposes of determining UMMHC's loss, because doing so would count the same amount twice -- first as the underlying policy limit and then as a recovery.

It also held that UMMHC did not "elect" to use the later policy period; it merely made a claim under the policy it believed applied. In fact, the earlier policy applied, and First Specialty's obligations needed to be determined under that policy.