One of the most annoying issues in insurance coverage is how PIP statutes in various states interact with one another. If a Massachusetts driver is injured by a Virginia driver in Florida, does PIP apply? Does the PIP tort limit apply? Does the PIP offset apply? Does the intercompany reimbursement scheme apply? What if a driver from Toronto injures a pedestrian in Massachusetts? (I mention the latter example because I represented a Toronto driver in just such a circumstance. We won on liability. The plaintiff's attorney later told me that if he had understood that the PIP offset would apply he would not have taken the case to trial because it would have lowered the potential damages by too much.)
I frequently receive calls from adjusters wondering if I can answer off the top of my head a question about the application of PIP to an interstate situation. I never can, because all the details matter and a change in details -- the home state of the other driver, for example -- can change the answer. It often requires extrajurisdictional research, and even then there is often no clear answer. If there is an answer, it will take a long time to figure out what it is, because PIP statutes are crazy hard to decipher and typically do not have a lot of case law interpreting their application to interstate accidents. And with very limited exceptions the most money that could ever be at stake, under the Massachusetts PIP statute, is $8000.00.
The Massachusetts Appeals Court recently applied notable common sense to an interstate PIP dispute.
David Allen was driving a car insured by Commerce under a Massachusetts policy when he was involved in a collision in Holyoke. Julio and Maria Alvarado were in the other car, which was insured under a New York policy by Peerless.
The Alvarados were injured and received no-fault benefits under the New York PIP scheme, which has a limit of up to $50,000 covering medical bills and lost wages.
Commerce sought a declaratory judgment that the PIP offset would cover the entire amount of PIP coverage the Alvarados received. The Alvarados argued that the Massachusetts PIP statute creates an exemption only for PIP benefits received from a Massachusetts insurance policy, not a New York insurance policy.
In Commerce Ins. Co. v. Alvarado, 83 Mass. App. Ct. 604 (2013), the court held that the objective of the Massachusetts PIP scheme is to avoid duplicative recovery. Very sensibly, the court held that Commerce is entitled to an offset for the benefits the Alvarados received from the New York policy. Even more sensibly, the court ruled apparently sua sponte that Commerce must reimburse Peerless for the PIP benefits the Alvarados received from Peerless.
Saturday, May 25, 2013
Tuesday, May 14, 2013
The Terrorism Risk Insurance Act should be amended
Since the Boston Marathon bombings, the hot topic in insurance coverage circles has been terrorism insurance. I was interviewed by Massachusetts Lawyers Weekly here on the subject.
After the events of September 11, 2001, insurers started excluding terrorism risks from their policies. In response, the federal government passed the Terrorism Risk Insurance Act ("TRIA"), under which the federal government acts as a "reinsurer" (basically an insurer's insurer that steps in if losses become too high). As I noted to Lawyer's Weekly, for the coverage to kick in, the Secretary of the Treasury must certify that an incident was an act of terrorism. If that happens, then businesses who purchased terrorism coverage will be covered, and those who did not purchase it will not be covered. If the event is not declared terrorism then -- presumably but not definitely -- neither the terrorism endorsement nor the terrorism exclusion would apply, and coverage would be determined under other policy terms.
So far, the Secretary of the Treasury has not made a determination one way or another, and there is no deadline by which he must do so. The Boston Globe has an article on the issue here.
To be clear, terrorism insurance is unlikely to affect third-party claimants -- the people who were injured or relatives of those who were killed in the bombings. Third-party insurance only applies if the insured was negligent. While some lawyers would no doubt be willing to explore a theory that the Boston Athletic Association -- the organization in charge of the marathon -- provided insufficient security, most of the injured will probably seek compensation from OneFundBoston, a nonprofit organization that has been set up to compensate the injured in a similar manner to the September 11 Victim Compensation Fund. (You can donate to OneFundBoston here.)
Terrorism insurance will cover first-party claims by businesses who purchased the endorsement whose property was damaged in the bombings and who lost income because of closures after the bombings.
The events in Boston are the first time that terrorism insurance has become an issue since TRIA was passed, and they have brought to light flaws in the legislation. Businesses who did not purchase the insurance -- most of those affected by the marathon bombings -- are advocating that the government not declare the bombings to be an act or terrorism, because such a declaration will mean that they don't have coverage for their losses.
TRIA is set to expire in 2014, and the debate over whether it should be renewed is underway. According to this article in Property Casualty 360, the Insurance Information Institute favors renewal of the act because insurers will simply exclude terrorism coverage if the act is not renewed. The Consumer Federation of America opposes renewal because it allows insurers to charge premiums without taking on risk (since losses are paid by the federal government).
The events in Boston have shown us that TRIA needs to be amended. Its unintended consequence is that the federal government has been put in the untenable policy position where if it declares an act to be terrorism, many businesses will lose out on insurance coverage.
The way to avoid that is to amend the Act. The terrorism endorsement should be made an expected, even mandatory, part of general liability policies and no additional premium should be charged for it. If claims are made, the government would pay insurers a fee to administer them.
The solution makes sense because it would acknowledge that terrorism is an attack on our country as a whole. It is not right that only certain, random businesses -- those that happen to be on a particular block of a particular street -- should bear the financial loss of such attacks. The businesses would have their losses paid by the government, which is funded by the entire country.
Moreover, the solution would address the concerns of both the Insurance Information Institute and the Consumer Federation of America. Insurers would continue to provide terrorism insurance as part of their policies. They would be paid for their actual work of administering claims. The government would be freed to make a determination of whether an act was terrorism based on whether or not it actually was terrorism, not on whether such a determination will cause businesses to close.
After the events of September 11, 2001, insurers started excluding terrorism risks from their policies. In response, the federal government passed the Terrorism Risk Insurance Act ("TRIA"), under which the federal government acts as a "reinsurer" (basically an insurer's insurer that steps in if losses become too high). As I noted to Lawyer's Weekly, for the coverage to kick in, the Secretary of the Treasury must certify that an incident was an act of terrorism. If that happens, then businesses who purchased terrorism coverage will be covered, and those who did not purchase it will not be covered. If the event is not declared terrorism then -- presumably but not definitely -- neither the terrorism endorsement nor the terrorism exclusion would apply, and coverage would be determined under other policy terms.
So far, the Secretary of the Treasury has not made a determination one way or another, and there is no deadline by which he must do so. The Boston Globe has an article on the issue here.
To be clear, terrorism insurance is unlikely to affect third-party claimants -- the people who were injured or relatives of those who were killed in the bombings. Third-party insurance only applies if the insured was negligent. While some lawyers would no doubt be willing to explore a theory that the Boston Athletic Association -- the organization in charge of the marathon -- provided insufficient security, most of the injured will probably seek compensation from OneFundBoston, a nonprofit organization that has been set up to compensate the injured in a similar manner to the September 11 Victim Compensation Fund. (You can donate to OneFundBoston here.)
Terrorism insurance will cover first-party claims by businesses who purchased the endorsement whose property was damaged in the bombings and who lost income because of closures after the bombings.
The events in Boston are the first time that terrorism insurance has become an issue since TRIA was passed, and they have brought to light flaws in the legislation. Businesses who did not purchase the insurance -- most of those affected by the marathon bombings -- are advocating that the government not declare the bombings to be an act or terrorism, because such a declaration will mean that they don't have coverage for their losses.
TRIA is set to expire in 2014, and the debate over whether it should be renewed is underway. According to this article in Property Casualty 360, the Insurance Information Institute favors renewal of the act because insurers will simply exclude terrorism coverage if the act is not renewed. The Consumer Federation of America opposes renewal because it allows insurers to charge premiums without taking on risk (since losses are paid by the federal government).
The events in Boston have shown us that TRIA needs to be amended. Its unintended consequence is that the federal government has been put in the untenable policy position where if it declares an act to be terrorism, many businesses will lose out on insurance coverage.
The way to avoid that is to amend the Act. The terrorism endorsement should be made an expected, even mandatory, part of general liability policies and no additional premium should be charged for it. If claims are made, the government would pay insurers a fee to administer them.
The solution makes sense because it would acknowledge that terrorism is an attack on our country as a whole. It is not right that only certain, random businesses -- those that happen to be on a particular block of a particular street -- should bear the financial loss of such attacks. The businesses would have their losses paid by the government, which is funded by the entire country.
Moreover, the solution would address the concerns of both the Insurance Information Institute and the Consumer Federation of America. Insurers would continue to provide terrorism insurance as part of their policies. They would be paid for their actual work of administering claims. The government would be freed to make a determination of whether an act was terrorism based on whether or not it actually was terrorism, not on whether such a determination will cause businesses to close.
Saturday, May 4, 2013
SJC issues problematic decision on title insurers' duty to defend
The Supreme Judicial Court of Massachusetts has held that a title insurer does not have a duty to defend an insured against all counts of a complaint, and that a title insurer engaging in litigation to cure a title defect covered by the policy does not have a duty to defend the insured against reasonably foreseeable counterclaims.
Elizabeth Moore lived with her husband Thomas Moore. The title to the house was in Thomas's name. In 2001, as part of refinancing, Thomas executed a note and mortgage to a predecessor of GMAC, which obtained a First American title insurance policy. At that time he conveyed the property to himself and Elizabeth.
Due to an error in how the paperwork was filed, when Thomas died in 2007 the property vested in Elizabeth, to the exclusion of GMAC.
First American could have resolved this title defect through negotiation or by initiating litigation. It chose to initiate litigation on behalf of GMAC against Elizabeth. Elizabeth brought counterclaims against GMAC, alleging intentional infliction of emotional distress, violation of Mass. Gen. Laws ch. 93A, and money had and received for mortgage payments alleged to have been made to GMAC in error.
GMAC sought from First American costs incurred in defending the counterclaims.
In GMAC Mortgage, LLC v. First Am. Title Ins. Co., 464 Mass. 733 (2013), the Supreme Judicial Court of Massachusetts assumed that the counterclaims were not causes of action that were covered by the insurance policy. It addressed whether First American was nevertheless obligated to defend. It noted that the situation was analogous to a complaint that alleges some causes of action that are covered by an insurance policy and other causes of action that are not covered. In those situations, liability insurers have a duty to defend the whole action. (The court called this the "in for one, in for all" rule; I generally refer to it simply as the duty to defend.)
The court held that the in for one, in for all rule of general liability insurance defense does not apply to title insurance, because title insurance is fundamentally different from general liability insurance. Title insurance does not insure against future risks; it insures against risks (clouds on a title) that were in existence (but unknown) when the policy was issued.
The court's analysis is incorrect. Liability insurance often covers risks that are in existence but unknown when the policy was issued. Long-tail losses come to mind. Those are claims for environmental contamination or asbestosis, for example, where the loss occurred but was undiscovered over a long period of time.
The court continued, "in light of the limited purpose and scope of title as compared to general liability insurance, title insurers should not be obliged to defend against non-covered claims just because they may be asserted in litigation that also implicates title-related issues to a limited extent. Moreover, because title issues are discrete, they can be bifurcated fairly easily from related claims, . . . thus, the central policy behind that 'in for one, in for all' -- that parsing multiple claims is not feasible -- is not implicated to the same extent in the title insurance context as in the general liability insurance context."
The court also held that a title insurer has no duty to defend counterclaims that were a reasonably foreseeable response to a choice by the title insurer to institute litigation.
Somewhat offensively, in my view, the court noted that "because the issues covered by a title policy are relatively discrete, an attorney for a title insurance company (who typically specializes in real property issues) feasibly can defend only the title-related issues." While I am sure there are some attorneys for title insurance companies whose practices are limited to real estate litigation, title insurance companies are perfectly capable of hiring attorneys who have knowledge of both real estate litigation and tort litigation deriving from real estate disputes. But because the court thought that would be asking too much of title insurance companies, it declined to impose a complete defense obligation on them.
It also declined to impose that obligation because a "reasonably foreseeable" rule of title litigation "would quickly become a work-around to our conclusion that 'in for one, in for all' does not apply to title insurance." (Perhaps; but so what?)
In what reads to me as doublespeak, the court wrote, "we disagree with GMAC that it is the litigation initiated by a title insurance company that exposes the risk of third party claims. Instead the exposure to risk comes from the title defect itself, not its method of cure."
The court softens its position somewhat when it notes that in this case the counterclaims were a result of the fact that GMAC continued to pursue foreclosure when it knew of the title defect. "Moore may very well have sued GMAC for such intentional conduct even if First American had attempted to cure the title defect through negotiation s opposed to litigation. For this reason, we are unwilling to go so far as to say that First American invited the liability of Moore's action." That's a fine statement -- but it contradicts the court's holding that a title insurer has no duty to defend counterclaims that are a reasonably foreseeable response to litigation the insurer chose to litigate. The court is now saying that in this case the counterclaims were not a reasonably foreseeable result of the insurer's litigation -- they were a result of the insured's, not the insurer's, actions.
The court further softened its position by stating that a title insurer may have a duty to defend an insured against compulsory counterclaims.
Thanks to Mike Tracy at Rudolph Friedmann for bringing this case to my attention when it was first issued.
Elizabeth Moore lived with her husband Thomas Moore. The title to the house was in Thomas's name. In 2001, as part of refinancing, Thomas executed a note and mortgage to a predecessor of GMAC, which obtained a First American title insurance policy. At that time he conveyed the property to himself and Elizabeth.
Due to an error in how the paperwork was filed, when Thomas died in 2007 the property vested in Elizabeth, to the exclusion of GMAC.
First American could have resolved this title defect through negotiation or by initiating litigation. It chose to initiate litigation on behalf of GMAC against Elizabeth. Elizabeth brought counterclaims against GMAC, alleging intentional infliction of emotional distress, violation of Mass. Gen. Laws ch. 93A, and money had and received for mortgage payments alleged to have been made to GMAC in error.
GMAC sought from First American costs incurred in defending the counterclaims.
In GMAC Mortgage, LLC v. First Am. Title Ins. Co., 464 Mass. 733 (2013), the Supreme Judicial Court of Massachusetts assumed that the counterclaims were not causes of action that were covered by the insurance policy. It addressed whether First American was nevertheless obligated to defend. It noted that the situation was analogous to a complaint that alleges some causes of action that are covered by an insurance policy and other causes of action that are not covered. In those situations, liability insurers have a duty to defend the whole action. (The court called this the "in for one, in for all" rule; I generally refer to it simply as the duty to defend.)
The court held that the in for one, in for all rule of general liability insurance defense does not apply to title insurance, because title insurance is fundamentally different from general liability insurance. Title insurance does not insure against future risks; it insures against risks (clouds on a title) that were in existence (but unknown) when the policy was issued.
The court's analysis is incorrect. Liability insurance often covers risks that are in existence but unknown when the policy was issued. Long-tail losses come to mind. Those are claims for environmental contamination or asbestosis, for example, where the loss occurred but was undiscovered over a long period of time.
The court continued, "in light of the limited purpose and scope of title as compared to general liability insurance, title insurers should not be obliged to defend against non-covered claims just because they may be asserted in litigation that also implicates title-related issues to a limited extent. Moreover, because title issues are discrete, they can be bifurcated fairly easily from related claims, . . . thus, the central policy behind that 'in for one, in for all' -- that parsing multiple claims is not feasible -- is not implicated to the same extent in the title insurance context as in the general liability insurance context."
The court also held that a title insurer has no duty to defend counterclaims that were a reasonably foreseeable response to a choice by the title insurer to institute litigation.
Somewhat offensively, in my view, the court noted that "because the issues covered by a title policy are relatively discrete, an attorney for a title insurance company (who typically specializes in real property issues) feasibly can defend only the title-related issues." While I am sure there are some attorneys for title insurance companies whose practices are limited to real estate litigation, title insurance companies are perfectly capable of hiring attorneys who have knowledge of both real estate litigation and tort litigation deriving from real estate disputes. But because the court thought that would be asking too much of title insurance companies, it declined to impose a complete defense obligation on them.
It also declined to impose that obligation because a "reasonably foreseeable" rule of title litigation "would quickly become a work-around to our conclusion that 'in for one, in for all' does not apply to title insurance." (Perhaps; but so what?)
In what reads to me as doublespeak, the court wrote, "we disagree with GMAC that it is the litigation initiated by a title insurance company that exposes the risk of third party claims. Instead the exposure to risk comes from the title defect itself, not its method of cure."
The court softens its position somewhat when it notes that in this case the counterclaims were a result of the fact that GMAC continued to pursue foreclosure when it knew of the title defect. "Moore may very well have sued GMAC for such intentional conduct even if First American had attempted to cure the title defect through negotiation s opposed to litigation. For this reason, we are unwilling to go so far as to say that First American invited the liability of Moore's action." That's a fine statement -- but it contradicts the court's holding that a title insurer has no duty to defend counterclaims that are a reasonably foreseeable response to litigation the insurer chose to litigate. The court is now saying that in this case the counterclaims were not a reasonably foreseeable result of the insurer's litigation -- they were a result of the insured's, not the insurer's, actions.
The court further softened its position by stating that a title insurer may have a duty to defend an insured against compulsory counterclaims.
Thanks to Mike Tracy at Rudolph Friedmann for bringing this case to my attention when it was first issued.
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