Tuesday, November 27, 2012

Mass. Appellate Division holds that failure to attend two IME's after notification by mail sufficient to deny PIP claim

Arbella Mutual Insurance Company denied PIP payments to Chiropractic Care Centers, Inc. when its patient, Arbella's insured, failed to attend two scheduled independent medical examination.

In Chiropractic Care Centers, Inc. v. Arbella Mut. Ins. Co., 2012 WL 5830706 (Mass. App. Div.), the Massachusetts Appellate Division held that the insured's failure to appear for the IMEs after being notified of them by letter was a wilful failure to attend, justifying denial of PIP payments to Chiropractic Care.

The court noted that under Massachusetts law, the mailing of a properly addressed letter constitutes prima facie evidence of the intended recipient's receipt of the mailing. 

Friday, November 16, 2012

First Circuit interprets exclusion for claims arising out of restraint of trade

Two real estate developers, Rubloff Development Corp. and McVickers Development, had deals to develop shopping centers that would include Wal-Mart stores. 

In an underlying complaint against Saint Consulting Group the developers alleged that Saint, a company that provides advice and advocacy in land use disputes, had a niche practice in which, acting on behalf of  rival grocery store chains, it aims to block or delay Wal-Mart stores from opening in a rival's territories. 

In 2007, Supervalu allegedly hired Saint to lead a campaign to delay or block the two developments.  Saint organized local landowners to oppose the developments.  Saint's representative, Mayo, told a false story of his parents being evicted from their home to make room for a Wal-Mart store and retained an attorney to represent the local landowners, without revealing that both Mayo and the attorney were being paid by Saint and Supervalu.

Editorial aside:  Although the court doesn't discuss it, Saint's practice is known as astro-turfing.  It's an invidious and, in my view, despicable practice.  Has your community had a grassroots fight over whether or not a new supermarket should be approved?  The supermarket trying to come in and other area supermarkets hoping to stop the new competition may have both used astro-turfers. If so, there's a significant chance that grassroots community leaders on either side of the fight were not even aware that they are being fed resources such as information and funding by the supermarket chains.   

Editorial over.

Saint's efforts led the developments to be delayed, one possibly permanently. 

After Mayo left Saint's employ, upstanding guy that he was, he contacted Rubloff and, in exchange for payment, turned over thousands of Saint documents detailing its scheme to block the developments.

In their suit against Saint, Rubloff and McVickers alleged that Saint violated RICO by engaging in a pattern of mail or wire fraud involving deceptions; conspiracy in restraint of trade; and tortious interference with prospective economic advantage. 

The court dismissed all the underlying claims.

Saint sought defense costs under an an errors and omissions policy issued by Endurance. Endurance asserted that coverage was excluded by Exclusion N, which excludes coverage for any claim "based upon or arising out of any actual or alleged price fixing, restraint of trade, monopolization or unfair trade practices."

In Saint Consulting Group, Inc. v. Endurance Am. Specialty Ins. Co., __ F.3d __, 2012 WL 5381333 (1st Cir.), the court emphasized that Exclusion N extends to any claim arising out of restraint of trade.  The term "arising out of" is construed broadly as looking at "the character of the behavior alleged." 

The court noted that every count of the underlying complaint is either an antitrust claim or depends centrally on the existence of a scheme to forestall competition through misuse of legal proceedings and through deception.

The court rejected Saint's argument that Exclusion N did not apply because an Illinois court ruled in the underlying case that Saint's alleged conduct was protected against antitrust scrutiny by a legal doctrine, and since "it was not wrongful conduct, it could not be excluded from coverage by Exclusion N."  

The court properly held that that argument "is a non-sequitur."  Exclusion N (and more broadly, the duty to defend), does not depend on whether conduct occurred and whether it was unlawful, but on what the complaint alleged.   The second amended complaint alleged an anti-competitive scheme which is excluded by Exclusion N.

Saint then made an argument that is a clear indication that it was grasping at straws:  that if the exclusion applied coverage was illusory because the activities described in the complaint comprise "such a large part of its business."  It was bound to lose right there -- "such a large part of its business" admits that there were other parts of its business that did not come within the exclusion.

I have occasionally made the illusory argument but only under very specific circumstances.  Once I represented an insured who the coverage selection page indicated had paid an additional premium for a specific coverage, but then that coverage was excluded in the body of the policy.  That's illusory.  An exclusion that excludes a broad range but not all coverage is not illusory -- it's a sign that the insured needs a better agent. 

One bone to pick with this decision:  The court states that in a coverage case, the insured has to show coverage and then the "burden shifts" to the insurer to show that an exclusion applies.  Many decisions make this same statement, but it makes no sense the in the context of a duty to defend.  The duty to defend is determined by the eight corners test -- whether the facts alleged in the complaint fall within the coverage of the insurance policy as interpreted as a matter of law by the court.  Ambiguous terms are interpreted against the insurer because it drafted the contract.  Burdens of proof have no place in  this analysis.