Friday, December 11, 2015

Settlement reached on class action claim against Progressive over PIP deductible

I wrote here about Estrada v. Progressive Direct Ins. Co., 53 F. Supp.3d 484 (D. Mass. 2014), in which 93A claims in a class action suit against Progressive Direct Insurance survived summary judgment.  The plaintiffs asserted that Progressive's website unfairly led consumers to purchase policies with an $8,000 PIP deductible.

Plaintiffs' attorney Ryan Alekman of Alekman DiTusa informs me that a settlement agreement has been reached.  According to the notice of class action settlement, Progressive has agreed to pay $1,875 on valid PIP claims under policies purchased online from it between May 1, 2008 and April 27, 2010 containing an $8,000 PIP deductible.  If you think you may have a claim you can click on this link to submit it. 

Attorney Alekman says this about the settlement:
We are happy to have achieved this result on behalf of all Massachusetts consumers.  Class actions enable a single consumer to make a difference that benefits other people in the same situation.  It is my belief that class actions also play an important part in leveling the playing field between individuals and large corporations, and act as a deterrent against similar behavior in the future. 

I reached out to counsel for Progressive but did not hear back before this article posted. 

Wednesday, December 9, 2015

Massachusetts Attorney General complains of homeowner's policy rate hikes by two insurers

According to The Boston Globe, Massachusetts Attorney General Maura Healey is complaining of excessive rate hikes to homeowner's policies by Mapfre (formerly known as Commerce Insurance) and Safety Insurance.  Both insurers raised rates by about $100 on the average state premium of $1,150.  According to Healey's analysis of trends that are traditionally used to calculate rates, Mapfre should have lowered rates, while Safety's increase should not have exceeded 3 percent. 

Tuesday, December 1, 2015

First Circuit holds that parent corporation with risk management department responsible for subsidiaries is not an insurer

Mass. Gen. Laws ch. 176D requires insurers to act in good faith in adjusting claims.  When the insured is a consumer (rather than a business) a violation of ch. 176D is automatically a violation of ch. 93A §9.

In Bingham v. Supervalu, Inc., __ F.3d __ , 2015 WL 7076938 (1st Cir.), the United States Court of Appeals for the First Circuit held that a parent corporation that provides risk management services and pays claims against its subsidiaries is not an insurer.

Marion Bingham was injured when she was struck by a motorized cart while shopping at a Shaw's Supermarket.  She sued Shaw's.  After her death, her nephew, Warren Bingham, the administrator of the estate, was substituted as the plaintiff.

Shaw's was a subsidiary of Supervalu.  Pursuant to the manner in which Supervalu structured its relationship with its subsidiaries, it had authority to negotiate and settle claims on behalf of Shaw's. 

Supervalu owned 228 subsidiaries.  It maintained a centralized risk management system whereby it negotiated and resolved claims made against its subsidiaries that were not otherwise covered by insurance.  It employed claims adjusters to perform those functions and would pay claims from a central account. 

Apparently the claims adjusters weren't very good, because judgment entered in the Massachusetts Superior Court against Shaw's in Bingham's case under Massachusetts Rule of Civil Procedure 33(a).  That is a default judgment that enters after a party fails to answer interrogatories, and then ignores an application that requires it to answer the interrogatories.  A year later the court assessed damages against Shaw's.

Supervalu appealed, and the Massachusetts Appeals Court affirmed the damages award.  Supervalu threatened to seek further appellate reviews.  Bingham's estate accepted a settlement offer.

The Estate later sent a 93A demand letter to Shaw's and Supervalu, asserting that Supervalu had acted as Shaw's insurer and had violated chs. 176D and 93A by failing to promptly and fairly resolve the claim as required of insurers by ch. 176D.  It contended that Supervalu's decisions to appeal and then to threaten a further appeal were undertaken contrary to the advice of counsel that the appeals were unlikely to succeed.  It argued that Supervalu's sole motive was to protract litigation in order to receive a reduced settlement.  The 93A/176D case ended up in federal court. 

The Appeals Court held that Supervalu is a self-insurer not subject to ch. 176D,  not an insurer.  It also held that Supervalu is not a captive insurer because it does not come within the definition of "an insurance company owned by another organization whose exclusive purpose is to insure risks of the parent organization and affiliated companies." 

The court also held that Supervalu was not a risk manager subject to ch. 176D.  It was not "interposed between the insurer and the Estate;" it was self-insured.  Nor did it purport to act on behalf of an insurer that had a contractual obligation to pay claims.  It was under no duty to settle claims made against Shaw's or its other subsidiaries. 

Finally, the court held that ownership of a subsidiary that was an insurance agency did not make Supervalu itself subject to all laws that apply to insurers.

Wednesday, November 25, 2015

Federal District Court transfers hazardous waste coverage case to state of the contaminated site

XTRA Intermodal leased and eventually purchased property in Fairmont City, Illinois.  The site was later discovered to be contaminated with hazardous waste.  XTRA requested coverage for the contamination claims from Federal Insurance Company under policies Federal had issued it in the 1980's and 1990's.

Federal filed a declaratory judgment action in the United States District Court for the District of Massachusetts, seeking rulings on the applicability of pollution exclusions and on how damages and costs of defense should be allocated among all of XTRA's insurers. 

In Federal Ins. Co. v. XTRA Intermodal, Inc., 2015 WL 4275181 (D. Mass.) (unpublished), the United States District Court for the District of Massachusetts allowed XTRA's motion to transfer the case to the federal court in Illinois.

Federal asserted that venue was proper in Massachusetts because when it issued the policies to XTRA XTRA's corporate headquarters were located in Boston.  Additionally, some of the policies were brokered by insurance agencies in Massachusetts. 

The court noted that the insurance policies were issued more than twenty years ago and that there do not appear to be any modern-day connections linking the parties to Massachusetts.  XTRA moved its principal executive office out of Boston in 1999.   None of the insurers are headquartered in Massachusetts.

The court held that venue was more proper in Illinois because that state has a stronger, more immediate and more relevant connection to Illinois than to Massachusetts.  The underlying litigation is  there; additional insurance claims relevant to the site are likely to arise there; the site is located close to the federal courthouse there; and the interpretation and application of the policies will depend at least in part on the factual circumstances surrounding the contamination. 

The court  held that it was premature to conduct a choice of law analysis.  Even if Massachusetts law applied, that fact is given significantly less weight in a venue analysis when the law involves basic or well-established issues of law.

The court rejected Federal's argument that Illinois did not have a paramount interest in the resolution of the matter because the case would determine only who paid for the loss.  The court held that host states have a "paramount interest in the remediation of toxic waste sites, which extends to assuring that casualty companies fairly recognize the legal liabilities of their insureds." 

Tuesday, November 17, 2015

Appellate Division holds that lienholder gets free insurance

Source One was a lienholder on a vehicle owned by Eric Santos.  On January 28, 2013, Progressive Insurance issued a "verification of insurance," or binder, that was provided to Source One. 

Santos's first premium payment bounced.  On February 8, 2013.  Source One received a notice of rescission from Progressive.  The notice was dated February 1, 2013 and was purportedly effective on January 28, 2013.

On March 3, 2013, the vehicle was towed as a result of a loss and Source One received possession of the vehicle.  Progressive refused to pay the claim filed by Source One on the ground that the policy had been rescinded. 

In Source One Financial Corp. v. Progressive Direct Ins. Co., 2015 WL 6739184 (Mass. App. Div.), the Massachusetts Appellate Division held that Progressive did not follow the cancellation procedure required by Mass. Gen. Laws ch. 175 § 113(A)(2).  Under the statute, "no cancellation of the policy . . . shall be valid unless written notice thereof is given by the party proposing cancellation . . . at least twenty days in each case prior to the effective date thereof."  The statute does not provide for rescission.

The court held that failure to comply with the requirements for cancellation means that the parties are in the same position as if no notice were ever sent.

The court rejected Progressive's argument that the insurance policy was a nullity due to failure of consideration.  "The promise to purchase the policy made by Santos at the time the binder was issued" satisfied the consideration requirement.  "The failure of consideration is not available to Progressive to avoid this policy.  The failure of performance, that is, Santos's failure to pay the promised premium, is different even under contract law than utter lack of consideration." 

The court held that the policy could not be rescinded because there was no fraud, accident, mistake, or gross inequity. 

I understand this case in principle.  By retroactively cancelling (or "rescinding") the insurance, Progressive failed to comply with the statutory requirement of giving twenty days notice.  Therefore, the insurance was never cancelled.

But what if Progressive had complied with the statutory requirements, and the accident had happened within the twenty day notice period?  A policy that was never paid for would nevertheless provide coverage. 

Tuesday, October 27, 2015

Another view

Randy Maniloff's  article on Bridge of Spies in Coverage Opinions is way better than mine.  Of course, Maniloff is addressing the actual facts -- James Donovan, the person on whom the Tom Hanks character was based in the movie, argued in court that a multi-vehicle accident is one occurrence.  Tom Hanks argued in a bar that plaintiffs' counsel should accept a low settlement offer because of that then-undetermined question of law. 

(Maniloff doesn't mention it, but Donovan also argued in court that the Russian spy he defended should not be executed because the spy might be useful in a trade if the USSR ever captured an American spy.  In the movie Tom Hanks argued it as an ex parte communication in the judge's living room.)

Thursday, October 22, 2015

Incompetent insurance defense lawyers make good spies, apparently

I just saw Bridge of Spies, the much-praised Steven Spielberg movie in which Tom Hanks plays an insurance defense lawyer who ends up negotiating a spy-swap with the Soviet Union. 

In Hanks' first scene in the movie, he demonstrates an incompetence that should get a real lawyer fired.

Hanks is negotiating settlement of a claim.  Apparently the sticking point is how many occurrences there are in a multi-vehicle crash for the purposes of a per occurrence limit.  Typically the starting point for this type of discussion would be the policy definition, followed by legal research on both sides.  If the issue is still open for debate, there might be some analogizing.  Hanks' character, perhaps anticipating his future role as a bit player in the cold war, decided to do the equivalent of Khrushchev banging a shoe on the table at the United Nations. 

Sure, that'll work.  (Not.)

In the same scene, Hanks says repeatedly that he does not represent the tortfeasor, but the insurance company.  Huh?  Any second year insurance defense associate should have a thorough understanding of the tripartite relationship--a cornerstone of an insurer's duty to defend that  says that an insurance defense lawyer fully represents the insured in all cases assigned to that attorney.  It's true that the attorney also fully represents the insurer -- that's the third "partite" in tripartite -- but generally that only comes into play as a reason that insurance defense counsel can't advise on coverage issues, or when there is a possibility of an excess judgment.

The response of any competent personal injury attorney to Hanks' negotiation strategy:  See you at trial.

Which brings us to the courtroom scenes in the movie.  During them I kept forgetting I was watching Tom Hanks in a Serious Movie About Serious Matters and thought I was watching James Spader in Boston Legal.  Same apparently senile crazy old coot judge who made rulings he admitted from the bench were wrong but he made them because he felt like it.  Same utterly inappropriate over-the-top goading of opposing counsel.  Same ex parte communications with the judge that could get both attorney and judge disbarred.  

Spoiler alert:  Hanks succeeds in negotiating the hostage exchange.  He uses the same tactics he uses in his insurance defense negotiations:  No research whatsoever and a lot of bluster.  The fact that he does succeed is a testament not so much to his skill as to the fact that when both parties really want a settlement , and what they are each willing to give is within the other side's settlement parameters,  a settlement will generally be reached.  That doesn't take heroics; it takes a telephone call. 

Tuesday, October 20, 2015

Appellate Division holds that release of uninsured motorist benefits did not release PIP claim

Chiropractic Care Centers, Inc. provided medical treatment to Rafael Jimenez after he was injured in a motor vehicle accident. 

Chiropractic sought payment of medical bills from Allstate Insurance, the patient's PIP insurer.  Allstate asserted that Chiropractic's claims were extinguished when the patient signed a release of his uninsured motorist coverage arising from the same accident. 

In Chiropractic Care Centers, Inc. v. Allstate Ins. Co., 2015 WL 5783605 (Mass. App. Div.), the Massachusetts Appellate Division held that Jimenez did not have authority to release the PIP claim because he had previously assigned the claim to Chiropractic and Allstate had notice of the assignment. 

Allstate asserted that Jimenez falsely claimed in the release that there were no outstanding medical bills and that any such bills would be paid from the proceeds of the uninsured motorist benefit settlement.  The court held that any recourse Allstate has for such statements is against Jimenez and does not affect the rights of Chiropractic. 

The court also held that the release did not encompass PIP benefits because the release was  specific to uninsured motorist benefits. 

Tuesday, October 13, 2015

At least Jezebel commenters understand insurance

Jezebel, like several other online magazines and newspapers, is running an article today shaming a woman for suing her young nephew who accidently broke her wrist by hugging her too hard.

I was pleased to see that many commenters chimed in to point out that, contrary to the article's assertion, this does not appear to be a situation where a crazy, hateful, greedy aunt is suing a kid and breaking a family apart; it is more likely a case of someone trying to achieve a fair settlement with a homeowner's insurer where she was injured due to the negligence of an insured under the policy.  Negligence does not mean bad intentions, and a broken wrist is not less injurious because it was caused by a hug. 

Or, who knows?  Maybe she is a crazy, hateful, greedy aunt who is breaking a family apart -- that's why we have jury trials. 

Monday, October 5, 2015

First Circuit holds that pro rata allocation does not apply to attorney's fees in long tail loss

In a case with odd facts, the United States Court of Appeals for the First Circuit has held that under Massachusetts law, in long tail losses attorney's fees are not subject to pro rata allocation. 

I'm not going to go into great detail of the facts of the case.  Suffice it to say that the First Circuit's recitation of those facts and the procedural history fairly drip with disdain for the insurer's actions and litigation strategy.  Rather than stating a straightforward prediction that the SJC would not apply pro rata allocation to defense costs (a subject of debate among insurance coverage attorneys), it chided the insurer for removing the case to federal court where new state law cannot be made. 

The reasoning of the First Circuit that the duty to defend is a broad duty that should not be subject to pro rata allocation is sound.  But in the context of the case the court has left room for insurers to argue that bad facts make bad law and that Massachusetts state courts should ignore the decision for that reason.

A substantial oil spill occurred on property owned by the Peabody-Essex Museum, and eventually migrated off-property to land owned by Heritage Plaza.  Heritage Plaza discovered the oil in 2003 and made a claim against the Museum.  The Massachusetts of Department of Environmental Protection issued a Notice of Responsibility to the museum.

The museum sought coverage from U.S. Fire Insurance Company, its insurer from December, 1983 to December, 1985.  U.S. Fire denied a duty to defend the private demand from Heritage Plaza, but accepted defense of the DEP claim with a reservation of rights.

The museum retained legal counsel and an environmental consultant and tendered the bills to U.S. Fire.  It received no payment for the defense of the public claim even though U.S. Fire had agreed to defend that claim.  It finally sent a payment totaling $611.41, which it calculated by unilaterally reducing the hourly rate of counsel to $200 per hour and unilaterally reducing the bills to what it considered to be the percent spent on the public claim.  It made no payment for the environmental consultant,

The museum sued U.S. Fire and, in 2013, was awarded judgment of over $1.5 million in the United States District Court for the District of Massachusetts. 

In Peabody Essex Museum,Inc. v. U.S. Fire Ins. Co., __ F.3d__, 2015 WL 5172841 (1st Cir. 2015), the United States Court of Appeals for the First Circuit held that US Fire's persistent failure to make any payment towards defense costs "despite having nominally accepted that duty may be treated as a wrongful refusal to defend upon receipt of notice of a claim." 

The court then turned to the issue of how the costs and fees should be divided between the insurer and insured. 

The court first held that the US District Court did not abuse its discretion in finding that the beginning of the 1983-1985 policy period was the start date for the allocation period even though that date "has a make believe quality." 

The District Court had applied a fact-based allocation rather than the default time on the risk method set forth in Boston Gas Co. v. Century Indem. Co., 454 Mass. 337 (2009).  In a fact based allocation, costs are attributed to a policy period based on the percentage of damage that occurred during that period.  Courts generally agree that a fact-based allocation is best, but it is often impossible to produce facts indicating how much damage occurred in one 12-month period versus another of a 30 year long undiscovered contamination.  Some courts have applied it in sexual abuse cases, where an institution allowed sexual abuse of many minors over a period of time, because in that instance it is possible to determine how many allegations of abuse occurred in one year over another.

The time on the risk method, as set forth in Boston Gas, allocates damages based on the percentage of time a particular insurer provided coverage out of the entire period of the loss.

The District Court apparently allocated loss based on a finding that 9,000 square feet of oil damage occurred during the two year policy period.  (The total square feet damaged is not clear from the opinion.)

The First Circuit affirmed the holding of the District Court that time on the risk proration of Boston Gas Co. v. Century Indem. Co., 454 Mass. 337 (2009) does not apply to defense costs.  It held that the arguments of U.S. Fire "appear diminutive next to the long-standing state precedent on the broad and formidable contractual duty to defend that heavily favors insureds and hat stands apart from indemnity obligations."    It tempered its holding by adding, "we have warned, time and again, that litigants who reject a state forum in favor of federal court under diversity jurisdiction cannot expect that new state-law trails will be blazed" by the federal court.

Thanks to Mike Tracy for bringing this case to my attention. 

Wednesday, September 16, 2015

U.S. District Court holds arbitration clause allowing arbitrator to rule on claim based on equitable theory allows her to rule on equitable grounds

Ace American Insurance Company insured a boat owned by John Puccio.  The boat sank in severe weather.  Ace American denied coverage. 

The dispute was submitted to arbitration as required by the terms of the policy.  The arbitrator awarded Puccio damages under the policy, plus attorney's fees and costs as 93A damages.

Ace American filed a complaint in court seeking to vacate or modify the arbitration award.  It argued that the arbitrator exceeded her authority by failing to apply a wear and tear provision of the insurance policy.  The provision excluded "any loss or resulting damage from . . . wear and tear, gradual deterioration, weathering, neglect, lack of reasonable care or due diligence in the maintenance of the insured Vessel." 

The arbitrator concluded that even if wear and tear contributed to the boat's sinking, the insurer "could not possibly have assumed that a 1998 boat was in new condition when it insured the [boat] . . . for 2012."  She reasoned that if the provision were enforceable in this case, the insurer could "comfortably insure boats beyond a certain age without any expectation of ever having to pay."  She concluded that this would "border on fraud," and that therefore the provision could not exclude coverage for Puccio's claim.  She found that Ace American's reliance on the provision was an unfair and deceptive practice under ch. 93A. 

Ace American argued in the United States District Court for the District of Massachusetts that the arbitrator exceeded her authority by resolving the dispute on equitable grounds never submitted to her.

In Ace Am. Ins. Co. v. Puccio, 2015 WL 3540838 (D. Mass.), the court disagreed.  The arbitration clause of the policy gave the arbitrator the authority to resolve "any controversy or claim . . . based in [any] . . . legal or equitable theory . . . arising out of or related to this policy, the interpretation, enforcement, or breach thereof, or the handling of any claim involving this policy."  It did not limit the arbitrator's power to consider equitable grounds in interpreting the policy. 

The court also noted that the arbitrator's decision not to apply the wear-and-tear provision was, at least arguably, an act of interpreting the contract. 

I take no position on whether the arbitrator's decision was good law.  But I do note that this decision highlights why I dislike arbitration generally.  Decisions of arbitrators can be overturned by a court only in very limited circumstances.  If an arbitrator has a bad day and issues a bad decision, you generally can't appeal it.  If a judge has a bad day and issues a bad decision, you can appeal it. 

Monday, September 14, 2015

Massachusetts Appellate Division holds that third party property damage coverage in auto policy does not cover cost to tow insured's vehicle

David Raposa was operating an SUV that was involved in a single-car collision.  Big Wheel Truck Sales, Inc. towed the SUV. 

Raposa was insured by Safety but did not have coverage for towing.  He did have coverage for "damage to someone else's property."  That coverage provided:
Under this Part, we will pay damages to someone else whose auto or other property is damaged in an accident.  The damages we will pay are the amounts that person is legally entitled to collect for property damage through a court judgment or settlement.  . . .  Damages include any applicable sales tax and the costs resulting from loss of use of the property.
Big Wheel made a demand to Safety for payment of its invoice under Raposa's property damage coverage. 

Safety refused payment, asserting that Big Wheel itself did not sustain any damage as a result of the accident. 

The trial court granted summary judgment to Big Wheel on breach of contract and 93A claims.

In Big Wheel Truck Sales, Inc. v. David Raposa, 2015 WL 5098500 (Mass. App. Div.), the Massachusetts Appellate Division reversed, holding that the property damage coverage was unambiguously inapplicable to Big Wheel.  Its claim was for the cost of its services, not for damage to its own property. 

Congratulations to Pete Bosse and Tanya Austin of my old firm, Boyle, Shaughnessy & Campo, who represented Safety. 

Thursday, September 10, 2015

First Circuit holds that under Maine law perfection of security interest in insurance proceeds requires fair notice to all other creditors

Wheeling extended to MMA, a railroad company, a $6,000,000 line of credit.  To secure the loan MMA granted Wheeling a security interest in, among other assets, all insurance proceeds. 

Wheeling sought to perfect its security interest by filing a UCC-1 financing statement with the Delaware Department of State.  The financing statement described the collateral as "all of MMA's inventory, accounts, and payment intangibles (as those terms are defined in the Uniform Commercial Code)." 

Travelers issued a commercial property insurance policy to MMA.  The policy had $7,500,000 of total coverage.

An MMA freight train derailed on Quebec, sparking massive explosions, destroying part of a town, and killing 47 people. 

MMA filed a claim with Travelers for lost business income.  Travelers denied the claim, asserting that the policy did not cover business interruption. 

MMA filed a petition for Chapter 11 bankruptcy and a trustee was appointed.

Wheeling was by then owed the entire $6,000,000 under the line of credit.  It instituted an adversary proceeding against MMA, Travelers, and the trustee in which it sought  a declaration regarding the nature, extent, validity, and priority of its asserted security interest in any payments due under the Travelers policy. 

MMA and the trustee entered into negotiations with Travelers that culminated in a settlement agreement requiring Travelers to pay $3,800,000 to MMA in satisfaction of all claims  under the policy.

Wheeling objected to the settlement, arguing that it held a perfected security interest in all payment rights belonging to MMA.

The United States Bankruptcy Court held that MMA was entitled to the settlement proceeds free and clear of Wheeling's asserted interest because under Maine common law Wheeling had failed to perfect its interest.

In In re Montreal, Maine & Atlantic Railway, LTD, __ F.3d __, 2015 WL 4934212 (1st Cir.), the United States Court of Appeals for the First Circuit interpreted the controversy under Maine law. 

Article 9 of the Uniform Commercial Code, as enacted in Maine, applies to the creation of security interests in rights to payment, but the court noted that it excludes certain transactions from its scope; the validity of such transactions is determined by reference to other statutes or to common law.

One subset of excluded transactions is the transfer of an interest in or assignment of a claim under a policy of insurance.  The court held that the exclusion included payment rights under insurance policies. 

The court held that Maine law has not yet determined how an interest in insurance proceeds may be perfected.  The court predicted that the Maine Supreme Judicial Court would adopt a perfection rule requiring more than what Wheeling did; it would require a step that would furnish fair notice to all other creditors. 

Because Wheeling did not perfect its security interest in the insurance proceeds, MMA was entitled to the settlement payment free and clear of Wheeling's security interest. 

Monday, September 7, 2015

Massachusetts Appeal Court holds that excess insurer is not required to pay until primary insurer becomes legally obligated to pay primary limit

In 2005 Ridgewood purchased a $15 million primary insurance policy from The Hartford and a $10 million excess insurance policy from Liberty Mutual.

The plaintiffs filed suit against Ridgewood, alleging breach of contractual and fiduciary duties.  The plaintiffs and Ridgewood settled the case for a stipulated judgment of $20.5 million.  The settlement agreement provided that The Hartford and Ridgewood would pay jointly to the plaintiffs $11 million in exchange for the plaintiffs' promise not to sue Ridgewood for the remaining amount.  The Hartford paid $7 million to the settlement and $2.5 million in attorney's fees; Ridgewood paid $4 million to the settlement.

Ridgewood assigned all of its rights, claims and interest in the Liberty Mutual policy to the plaintiffs. 

Liberty Mutual refused to pay any part of the claim, asserting that its policy provides coverage only when the primary insurer has paid the full amount of the underlying limit of liability as loss, and that that condition had not been met. 

Under the Liberty Mutual policy there was coverage "when the underlying limit of liability is exhausted by reason of the insurers of the underlying policies paying or being held liable to pay in legal currency the full amount of the underlying limit of liability as loss."  "Loss" was defined as "sums which the insured parties are legally obligated to pay solely as a result of any claim insured by this policy, including claims expenses, compensatory damages, settlement amounts, and legal fees and costs awarded  pursuant to judgments." 

In Anile v. Liberty Mutual Insurance Company, 2015 WL 4937671 (Mass. App. Ct.) (unpublished), the Massachusetts Appeals Court held that under New Jersey law the language of the Liberty Mutual policy unambiguously provided that excess coverage will be allowed only in the event that The Hartford had actually paid, or was legally obligated to pay, the entirely of the $15 million primary coverage limit. 

Thursday, September 3, 2015

Massachusetts Appeals Court holds that attorney who conducted negligent title search may be liable to title insurer for breach of contract but not malpractice

Fidelity National Title Insurance Company of New York appointed George Crowley as its agent to issue title insurance.  The agreement provided that if Crowley were grossly negligent by issuing policies for properties with existing liens and encumbrances he would indemnify Fidelity for its loss, including attorney's fees. 

Fidelity alleged that in five instances Crowley issued title insurance in its name despite the existence of title defects, causing Fidelity to incur a loss. 

In Fidelity Nat'l Title Ins. Co. of N.Y. v. Crowley, 2015 WL 4887598 (Mass. App. Ct.) (unpublished), the Massachusetts Appeals Court  held that the contract statute of limitations of six years applied, rather than the legal malpractice/tort statute of limitations of three years.  Although the mortgage lenders would have malpractice claims against Crowley, there was no attorney-client relationship between Fidelity and Crowley.  The agency agreement did not required the issuing party to be an attorney.  (I need to think this one through.  I'm not a real estate attorney so I'm probably missing some subtleties in the difference between Crowley doing a title search for Fidelity and Crowley doing a title search for a mortgage lender.) 

In this case the word "grossly" was typed above the word "negligent," so that unlike other title insurance agency contracts I have seen Crowley can only be liable if he was grossly negligent.  The effect of the contracts without the word "grossly" inserted is that the cost of indemnifying losses from clouds on a titles is effectively transferred from the title insurer to the real estate attorney's malpractice insurer.  (Although here, where the court has held that the suit is not one for malpractice, perhaps there is no coverage under the malpractice policy.  I  have no idea.) 

Tuesday, September 1, 2015

SJC seeks amicus briefs on whether innocent coinsured doctrine should be revisited and on definition of insured allowed by Mass. Gen. Laws ch. 175 s. 99

In May, the Massachusetts Superior Court granted summary judgment to Jonathan and Tammy Hall in a declaratory judgment action against Preferred Mutual Insurance Company.  Hall v. Preferred Mut. Ins. Co., 2015 WL 4511760 (Mass. Super.). 

The Halls owned residential property insured by Preferred Mutual.  Their son Bryan intentionally started a fire that caused significant damage to the real and personal property of the residents in the home.  The Halls did not know initially that Bryan had started the fire.

When it learned that Bryan had started the fire Preferred Mutual denied the claim of Jonathan and Tammy. 

The policy defined the term "insured" to include "your relatives if residents of your household."  It was undisputed that Bryan fell within this definition of insured. 

The policy excluded coverage for fire damage where the "loss results from any act committed by or at the direction of any insured."  The plain language of the policy therefore excluded the loss.

However, insurers may not limit coverage for fire damage beyond what is permitted by statute to make up a standard fire insurance policy.  Mass. Gen. Laws ch. 175 §99.    Mass Gen. Laws ch. 175 §99 (Twelfth) allows policies to exclude coverage if the insured neglects to use all reasonable means to save and preserve the property at and after a loss, or if the hazard is increased by any means within the control or knowledge of the insured.  Under the statute a policy shall be void if before or after a loss the insured has willfully concealed or misrepresented any material fact or circumstance concerning the insurance or the subject thereof or the interest of the insured therein, or in a case of any fraud or false swearing by the insured resulting thereto. 

The statutory language thus precluded coverage if Bryan fell within the definition of insured.  The statute does not provide a definition of insured. 

Preferred Mutual argued that under the statute "the insured" refers to all people entitled to coverage.  Its argument relied on its assertion that insurers may deny coverage to an innocent co-insured in cases where the intentional misconduct of an insured causes damage to property covered by an insurance policy. 

The Superior Court held that the innocent coinsured doctrine may not apply unless the guilty coinsured holds a joint, non-severable and co-extensive interest in the insured property.  It also held that the legislature did not intend in Mass. Gen. Laws ch. 175 §99 that Bryan come within the definition of the insured in the relevant policy provisions. 

The SJC has accepted the case for direct appellate review.  It now requests amicus briefs on the issues of whether the policy defined insured beyond what is permitted by the statute, and whether the innocent coinsured doctrine should be revisited.

Saturday, August 29, 2015

Massachusetts Appeals Court holds that ch. 93A s. 11 claim can include personal injuries and that insurer did not violate s. 11 when it did not settle verdict that was appealed

Associated Building Wreckers contracted to demolish an abandoned building adjacent to property owned by Gary Silva.  Silva operated an auto body and repair business on his property. 

During the demolition the abandoned building collapsed onto Silva's property

Silva sued Steadfast for damages to his business and property and for personal injuries.  After trial the judge awarded Silva $366,607.36 as damages on a breach of contract claim and $10,000 for personal property damage. 

The trial judge ruled in favor of Associated on Silva's other claims.

Silva appealed the rulings on some of the claims and on the amount of damages awarded.  The appeal was unsuccessful and the judgment was affirmed.

Associated then filed a motion for relief from judgment in the underlying action on the ground that the judgment failed to apply the setoff as provided by the judge in his original findings.  The motion was allowed, with the judge finding that Silva had already received insurance payments in the amount of $186,464 which would offset the award.  Judgment entered in the amount of $342,201.53, which included interest and some costs.  Steadfast paid the judgment three weeks later.

Silva sued Associated's insurer, Steadfast Insurance Company, asserting that it had violated Mass. Gen. Laws chs. 93A and 176D by failing to effectuate a prompt, fair, and equitable settlement after the original judgment in Silva's favor.

A trial court judge granted summary judgment to Steadfast, holding that  Steadfast had not violated ch. 176D because Silva rendered uncertain the amount of total liability by appealing the underlying judgment.

On appeal, in Silva v. Steadfast Ins. Co., __ N.E.3d __, 2015 WL 4661296, the Massachusetts Appeals Court first addressed whether the claim came under §9 or §11 of ch. 93A.  Section 9 claims are filed by consumers against businesses.  In most circumstances a demand letter must be sent 30 days before a §9 claim can be filed.  A violation of ch. 176D is automatically a violation of §9.

Section 11 claims are filed by businesses against businesses.  No demand letter is required.  A violation of ch. 176D is not an automatic violation of §11.

Steadfast argued that the claim came under §9 because it included a claim for both personal and business injuries.  The Massachusetts Appeals Court rejected that argument, holding that current case law does not prevent Silva, as a matter of law, from bringing suit under §11 simply because he pursued damages relating to both personal and business injuries.  Moreover, Silva, Associated, and Steadfast were all engaged in trade or commerce during the claims, incidents and transactions at issue.  Silva's business was damaged by Associated's conduct of business.  Assocaited's business was insured by Steadfast's business insurance.

The court also held that third-party claimants can bring suit under both §9 and §11. 

The court next examined whether Steadfast had failed to effectuate prompt, fair and equitable settlement of claims in which liability had become reasonably clear.  Silva's argument was based solely on Steadfast's failure to settle the claim after the original underlying verdict. 

The court held that when Silva appealed the verdict, he "open[ed] up both the scope of liability and the amount of damages."  However, because Associated did not cross-appeal, some amount of liability and damages had, at that point, been established. 

The court held that Steadfast did not as a matter of law violate ch. 93A §11.  It drew that conclusion because the amount of damages was not reasonably clear once Silva chose to appeal.  In addition, after Silva lost the appeal the amount of damages required multiple adjustments in the trial court. 

Thursday, August 27, 2015

First Circuit holds that exclusion for injury to contractors applies only to injury to insured's contractors

Benchmark contracted to renovate a house.  The homeowners had hired an architect named Thomas Huth.  Huth hired Sara Egan to apply decorative painting to one of the walls.  Egan's employee Meghan Bailey worked on that task.  She fell from a ladder positioned on top of scaffolding.

Bailey sued Benchmark, alleging that it negligently erected and maintained the ladder and scaffolding.  Benchmark sought a defense from its insurer, USLIC.

USLIC denied that it had a duty to defend, relying on an exclusion excluding coverage for bodily injury to any employee of any contractor arising out rendering services of any kind for which any insured may become liable in any capacity.

     Sidenote:  The full exclusion is actually much more complicated.  A few months ago I wrote a post about why insurance policies are impossible to understand.  This exclusion is a perfect example of a clause that starts off making sense and then rambles and wanders until you have no idea how the end of it goes with the beginning.  The court (or the attorneys) did an admirable job of distilling it down to relevant clauses. 

"Contractor" was not defined in the policy.

In U.S. Liab. Ins. Co. v. Benchmark Constr., __ F.3d __, 2015 WL 4747164, the United States Court of  Appeals for the First Circuit held that there were two ambiguities in the exclusion.

First, the court held that the phrase "bodily injury to any employee of any contractor arising out of rendering services of any kind for which any insured may become liable" was ambiguous because it is not clear whether the phrase "for which any insured may become liable" modifies "services" or "bodily injury." 

(Anyone who has diagrammed sentences would know that the phrase modifies "services."  As that art has fallen off most schools' curriculums I don't fault the court for holding that the clause is ambiguous.)

Benchmark argued that the phrase modified "services," so that the policy excludes the claims of a contractor's employee only if the contractor's employee is injured while performing services for which the insured has some responsibility.  Under that interpretation, the exclusion is limited to bodily injury to employees of contractors Benchmark hires or has some contractual responsibility to.  Benchmark therefore contended that the exclusion applies only if Benchmark retained the right to exert any control over Bailey's decorative painting services and could be accountable for liabilities arising from or related to her work. 

USLIC argued that the phrase modifies "bodily injury," so that it applies to bodily injury to any contractor, subcontractor or employee of a contractor or subcontractor injured on the job if Benchmark may become liable for that injury.  Although Benchmark had no contractual relationship with Bailey, according to USLIC the exclusion applies because she was employed by a contractor. 

The court held that because reasonably intelligent people could differ as to what the phrase modifies the exclusion is ambiguous.  Because ambiguities are interpreted in favor of the insured, it must be interpreted as Benchmark asserted.  Because Benchmark could not become liable for Bailey's decorative painting, the exclusion does not apply.

The court also held that the meaning of the word "contractor" in the exclusion is ambiguous. 

Benchmark argued that contractor means Benchmark contractors.  USLIC argued that contractor means "anyone with a contract."  Since Egan had a contract to apply decorative paint, she was a contractor under this definition.

The court held that reasonably intelligent people could differ about the meaning of the word "contractor" and therefore the word must be interpreted in favor on Benchmark.  For that additional reason, the exclusion did not apply.

Congratulations to my law school classmate and colleague Mike Sams, incidentally one of the best attorneys I have ever had on the other side of a case, who represented Benchmark. 

Monday, August 17, 2015

Appellate Division holds claimant's failure to attend IME is complete defense to PIP claim

Barron Chiropractic provided treatment to Corey Hinds after Hinds was in a car accident while operating a car owned and insured by ERAC.

Barron sought PIP payments for the treatments.  ERAC argued that it was not obligated to pay the PIP claim because Hinds failed to attend independent medical examinations scheduled by ERAC's third-party administrator.

In Barron Chiropractic & Rehabilitation, P.C. v. Enterprise Rent-A-Car Co. of Boston, Inc., 2015 WL 4619841 (Mass. App. Div.), the Massachusetts Appellate Division affirmed summary judgment for ERAC.  "Where, as here, the insured fails to submit to a request for an IME, that amounts to non-cooperation which is a complete defense.  The insurer is not required to make any payments where that condition precedent was not met." 

Friday, July 24, 2015

Liberty Mutual approved to use drones to assess property damage

The Boston Business Journal reports here

My first thought was that the use of drones would allow insurers to make faster initial assessments of property damage after large- or largish-scale disasters.  Although insurers have in place the ability to mobilize adjusters from all over the country to descend on a region that has been hit by a hurricane, severe winter storm, or other event, it can still take weeks to get an adjuster to a particular property to assess damages. Sometimes after one look the adjusters realize they are from the wrong department and they need someone who can approve higher reserves to come out.

Unfortunately, though, the reality appears to be that, if anything, the use of drones will slow down initial assessments because they will require two people per drone -- an observer of the drone and a licensed pilot.  It's not clear whether the drone observer will also be an adjuster who can assess damages, including internal damage to a building; nor does the article say what type of specific training will be required for the drone-observer. 

Unless insurers team up to use a single drone team after a disaster, use of drones is unlikely to add much to efficiency, since in any neighborhood many homeowner's or general liability insurers provide coverage for the various properties located there. 

As the Boston Business Journal points out, however, use of drones will improve safety for adjusters and also allow photographs to be taken of otherwise inaccessible areas such as roofs shortly after the loss. 

As with any technological change, we'll see how it plays out in practice. 

Tuesday, July 21, 2015

Mass. Appeals Court holds insurer has 93A liability under doctrine of apparent authority

William Fiore worked as a bail bondsman as an agent for International Fidelity Insurance Company (IFIC).  Under the agreement between Fiore and IFIC, Fiore was to collect and deliver to IFIC collateral and to collect bond premiums.  Cash collateral received on behalf of IFIC was required to be held in a separate account and not comingled with other funds. 

The plaintiffs utilized Fiore's services as bail bondsman to obtain their own releases or the release of a third party on bail.  They each paid a premium and posted cash collateral. 

Fiore instructed the plaintiffs that ten percent of the total bond amount constituted a nonrefundable cash bail bond insurance premium payment.  According to the Massachusetts Appeal Court in Ramos v. International Fidelity Insurance Co.,  __ N.E.3d __, 2014 WL 10044905 (Mass. App. Ct. 2015)*, such practice violated rules governing professional bondsmen that prohibit charging fees in excess of five percent. 

When, at the end of their criminal cases most of the plaintiffs sought return of their collateral, they discovered that Fiore had died without having deposited their collateral in escrow. 

The plaintiffs sent 93A demand letters to IFIC.  IFIC responded that Fiore was a contractor and that it was not liable for his wrongdoing.  The plaintiffs sued for violation of ch. 93A and for breach of contract.

The trial court judge granted summary judgment to IFIC on the 93A claim, concluding that IFIC's response to the 93A demand letters, in which it asserted that Fiore was an independent businessman, did not cause the plaintiffs' harm. 

The Appeals Court noted that a jury could find that the response letters from IFIC falsely denying the agency relationship were sent when IFIC knew that it had an obligation because of that relationship to return the plaintiffs' collateral, and in an attempt to cause the plaintiffs to decline to enforce their rights, and that such conduct constituted an independent 93A violation.  But the trial court judge was correct that there was no evidence that such conduct injured the plaintiffs. They were not misled into failing to file suit before the expiration of the statute of limitations.

However, the court held, the overcharges themselves were violations of ch. 93A. 

IFIC argued in the alternative that vicarious liability under ch. 93A was unwarranted because Fiore's actions were not motivated by a desire to benefit it and it was wholly ignorant of Fiore's actions.  The court disagreed, holding that the doctrine of apparent authority applies to 93A claims. 

* Westlaw still hasn't corrected its error in 2015 Massachusetts case citations, making it appear that such cases are 2014 decisions.

Sunday, June 28, 2015

Declaratory judgment action filed on Bill Cosby defamation lawsuit

My favorite Boston news source, Universal Hub, has posted about a declaratory judgment complaint filed by Bill Cosby's insurer with respect to the defamation allegations against him. 

As is well-known, the plaintiffs in the underlying suit allege that Cosby gave them roofies and then raped them while they were unconscious.  Because the statute of limitations has expired on the sexual assault charges themselves, the underlying plaintiffs have alleged that Cosby defamed them by denying their allegations. 

Cosby's homeowners' policies and excess policy, all issued by AIG, provide coverage for personal injury, which includes defamation.

In the lawsuit just filed, AIG, seeks a declaration that coverage is excluded because the defamation claims were claims for personal injury "arising out of" actual, alleged or threatened sexual misconduct, molestation or harassment. 

It is well-settled under Massachusetts law that "arising out of" denotes an intermediate causation, more than causation-in-fact but less than proximate cause. 

The complaint does not say whether AIG is currently defending Cosby under a reservation of rights.  If it is, one can expect that the strategy from Cosby's attorneys will be to stall on the declaratory judgment lawsuit, because if the eventual ruling finds no coverage the longer it takes to make that decision the more of Cosby's attorney's fees in the underlying suit get paid by AIG.  Even if AIG is not currently defending the underlying claim, Cosby's side is unlikely to be in a rush to have the DJ action decided.  Unlike most people, Cosby is presumably in a financial position to pay whatever attorneys' fees are incurred in defending the underlying suit; if he wins the declaratory judgment action he will be reimbursed for those fees.  If he files a counterclaim for breach of contract he'll get interest on those fees as well. 

Tuesday, June 16, 2015

A reminder to keep your insurance policies forever

In 2013 Cardigan Mountain School received a demand letter asserting a claim about events that allegedly occurred in the 1967-1968 school year.  (While the parties did not give information to the court about what the allegations were, it's pretty easy to guess.)

The school tendered the defense to New Hampshire Insurance Company as the school's general liability carrier at that time.

New Hampshire rejected the tender of defense on the ground that it was unable to locate any policy for the relevant period of time and thus it was not the school's carrier at the time.

The school filed a declaratory judgment action seeking a decree that New Hampshire was the carrier. 

The United States District Court for the District of New Hampshire granted New Hampshire's motion to dismiss.  The school appealed.

In Cardigan Mountain Sch. v. N.H. Ins. Co., __ F.3d ___, 2015 WL 3393771, the First Circuit reversed. 

In its complaint the school relied on circumstantial evidence for the existence of the policy.  An audit report from September 1971 indicated that the school had a policy with New Hampshire.  One of the principals in the accounting firm that did the audit believes that if the school had changed carriers since the prior school year the auditors would have noted the change in the report. 

The school's business manager from 1967 to 1970 is certain that the school had insurance during his tenure and does not believe it changed carriers during that time. 

The complaint asserted that upon information and belief the insurance brokerage the school used had a close association with New Hampshire and advised most of its commercial clients like the school to place their policies with New Hampshire. 

The court held that the allegations in the complaint are entitled to the presumption of truth at the motion to dismiss stage because they are specific and factual and refer to individuals with relevant knowledge recalling facts plausibly known to them. 

The court then held that the allegations of the complaint make a plausible showing that New Hampshire issued a policy to the school for the 1967-1968 school year.  That was enough at the pleading stage to nudge the claim "across the line from conceivable to plausible." 

Saturday, June 13, 2015

First Circuit certifies question of selective tender and equitable contribution

In Ins. Co. of Penn. v. Great N. Ins. Co., __ F.3d __, 2015 WL 3440342 (1st Cir.), the First Circuit has certified to the Supreme Judicial Court of Massachusetts the question of whether, when an insured has two insurance policies that cover the same loss, the insured can opt to have one insurer cover the entire loss or if either insurer can insist that both share equitably in covering the loss. 

In the underlying case, an employee of Progression, Inc. was injured while on a business trip.  The employee pursued a worker's compensation claim.  Progression had two insurance policies that covered work-related injuries, one with ISOP and one with Great Northern.  It tendered its claim to ISOP only and did not notify Great Northern of the loss.  ISOP defended and indemnified.

ISOP later learned of the Great Northern policy, notified it of the claim, and requested contribution.  Great Northern informed ISOP that it had contacted Progression after receiving notice from ISOP and that Progression had purposefully tendered the claim only to ISOP.  Great Northern asserted that ISOP was legally obligated to handle the claim and that there was no practical reason for Great Northern to assume its handling. 

The First Circuit discussed the doctrine of equitable contribution, which allows a party to seek contribution from a co-obligor who shares the same liability as the party seeking contribution.  The SJC has never addressed whether equitable contribution is available to seek a claim for contribution by one insurer against another. 

The First Circuit noted that neither party disputes that the SJC would likely adopt equitable contribution in a case in which an insured looks to multiple, similarly-obligated insurers for payment.  But the issue before the court was whether it should apply where the insured does not want one insurer to pay anything and has intentionally avoided giving the insurer notice of the claim. 

It's important to note that the issue of selective tender comes up most frequently not, as in this case, with concurrent policies, but with consecutive policies in long tail losses.  The doctrine of selective tender in long tail losses favors policy-holders, because it allows them to force a single insurer to pay the entire loss up to its limits regardless of whether there are periods during the loss when the insured had no coverage or insurers for those periods are no longer in business.  In that context, selective tender would contradict the decision the SJC made five years ago in Boston Gas v. Century Indem. Co.

Thanks to Mike Tracy of The Law Office of Michael G. Tracy for bringing this case to my attention.

Thursday, June 11, 2015

Appeals Court holds trial court cannot award attorney's fees to insurer where underlying action never developed into a claim

I have been writing about OneBeacon Am. Ins. Co. v. Narragansett Elec. Co., 2014 WL 9865738 (Mass. App. Ct. 2015). 

The last subject the court addressed was a voluntary dismissal by NEC of claims with respect to some of the sites.

In 2011, after prosecuting its case against the insurers for over five years, NEC moved to voluntarily dismiss its claims with respect to three of the locations.  Although NEC had anticipated legal action by the Rhode Island Department of Environmental Management with respect to those sites, no such action had come.  Thus there existed no claim under the policies and no justiciable controversy. 

The trial court judge who heard the motion for voluntarily dismissal conditioned its allowance without prejudice on NEC's payment of the insurers' reasonable costs and attorneys' fees in responding to those claims.  A month later the parties reported that they had not reached agreement on how to proceed and the insurers had therefore not yet submitted their fee requested.  In the interest of "moving this case on," the judge dismissed the claims with prejudice and omitted the award of attorney's fees.

On appeal NEC argued that the claims should have been dismissed without prejudice.  The court agreed.  Because the claims presented no justiciable controversy, the court lacked subject matter jurisdiction to enter an order of dismissal with prejudice. 

The court also held that NEC's actions did not warrant dismissal with prejudice.  The evidence suggested that NEC was not recalcitrant in paying the insurer's fees but was waiting information from them regarding the amount of their fees. 

The court also held that the trial court judge had no authority to order that NEC pay the insurer's attorney's fees as a condition of dismissal without prejudice when the court lacked subject matter jurisdiction.

Tuesday, June 9, 2015

Appeals Court addresses statute of limitations for breach of duty to indemnify environmental claim

In my last post I wrote about the statute of limitations with respect to the duty to defend discussed in OneBeacon Am. Ins. Co. v. Narragansett Elec. Co., 2014 WL 9865738 (Mass. App. Ct. 2015).  (As I stated in my last post, the decision was issued on June 3, 2015, not in 2014 as the Westlaw citation indicates.)

The decision went on to discuss the statute of limitations with respect to the duty to indemnify. 

The court held that the claims accrued when the insurers breached their duty to indemnify by failing or refusing to pay environmental costs that NEC became legally obligated to pay.

NEC argued that the cause of action did not accrue until its legal obligation to pay environmental damages was established through adjudicatory proceedings by judgment, settlement, or other binding determination.

The court held that a legal obligation imposed by a governmental agency pursuant to an environmental statute is different.  "The insured's liability for remediation in such instances may be determined long before final judgment . . .[or] may arise without any litigation at all."  The court noted the long-settled Massachusetts rule that a notice of responsibility from the EPA (or DEP) is sufficient to trigger a duty to defend.  Similarly the duty to indemnify is triggered when an environmental agency seeks response actions from an insured.

The court concluded that the statute of limitations began to accrue when  the governmental agencies imposed essentially mandatory obligations that NEC take action.  "Neither litigation nor final resolution was necessary, in this context, to impose liability for purposes of accrual of NEC's indemnification claims on the insurers."

NEC argued that its costs incurred prior to the mid-2000's were investigative rather than remedial and so implicated only the accrual of its claims for breach of the duty to defend, not the duty to indemnify. 

The court disagreed, noting that NEC had earlier in the litigation characterized its costs incurred for both investigation and remediation as indemnification costs.  (Would the decision have been different if NEC has initially characterized the investigation costs as defense costs?)  It also held that as a factual matter, NEC's response "took a remedial turn long before the accrual dates for its indemnification claims against the insurers" when it entered into a consent order, agreed to pay for remediation, and took other actions. 

As I discussed in my last post, the court held that the statute of limitations on the duty to defend can begin to run after an insurer issues a reservations of rights letter and then makes no decision with respect to coverage.

In the indemnity argument the court came to a different conclusion.  "We think a question of fact exists as to whether the insurers' failure to make coverage determinations . . . constituted disclaimers of their duty to indemnify prior to October, 2001." 

The court held that an insurer's duty to indemnify depends on actual facts, while the duty to defend depends on allegations.  Therefore, the duty to indemnify might require more time to investigate.  Moreover, the insurers continued to communicate with NEC about the claims after the initial reservation of rights were issued.  That was sufficient to raise a question of fact as to whether the insurers' responses to the claims constituted disclaimers prior to 2001.

The court's conclusion does not address the issues I raised with respect to its analysis on the duty to defend.  An insured is still required to guess at what point after a reservation of rights letter asserting that the insurer has not made a decision the insured is to conclude that coverage has been denied. 

Friday, June 5, 2015

Massachusetts Appeals Court holds that statute of limitations on breach of duty to defend begins to run on date of denial or at some point after reservation of rights letter

Predecessors to Narragansett Electric Company (NEC) had used sites for manufactured gas plants, electric operations, and waste disposal from the mid-1800's to the 1980's.  Soil and groundwater contamination were eventually discovered at the sites, prompting governmental and private actions against NEC.  Most of the sites were located in Rhode Island. 

NEC sought defense and indemnity from a number of insurers that had issued primary and excess policies to it between 1945 and 1986.

In OneBeacon Am. Ins. Co. v. Narragansett Elec. Co., 2014 WL 9865738 (Mass. App. Ct. 2015)*, the Massachusetts Appeals Court addressed statute of limitations issues with respect to the claims.

* As I remarked in my last post about a different case, although the Westlaw cite indicates the decision was issued in 2014, it was actually issued on June 3, 2015. 

The court first held that the six year statute of limitations for contracts of the forum state, Massachusetts,  rather than the ten year statute of limitations of Rhode Island, where most of the sites were located, would apply unless exceptional circumstances make the result unreasonable.  The court held that there were no such exceptional circumstances.  NEC could have filed suit in Rhode Island.  (That's an interesting and somewhat controversial point, considering that NEC's claims against the insurers were filed as counterclaims to a suit one of the insurers filed in Massachusetts.)

NEC also argued that its claims were timely because they accrued within the six-year limitation period. 

As with any contract action, the statute of limitations for a claim for breach of an insurance policy begins to run on the date of the breach.  The court held that under this rule, NEC's claims accrued when the insurers failed or refused to pay defense and indemnity costs.

However, the court noted, such an action may be tolled until the insured discovers the facts giving rise to its claim.  "When . . . the parties press different events as triggering accrual, the factual inquiry focuses on which was the first event reasonably likely to put the plaintiff on notice that the defendant's conduct had caused him injury."  Citing Massachusetts law, the court held that NEC's claims for breach of the duty to defend accrued when its demand to the insurers for costs associated with defending the claim was refused and NEC began to incur such costs.  (It's interesting that the court seems to hold that the two dates are the same.  An insured can incur defense costs either before or after an insurer refuses to defend.)   

The court rejected NEC's argument that it should adopt the majority rule in other states, which requires resolution of the underlying litigation against the insured before a claim for breach of the duty to defend accrues.  Massachusetts does not follow that rule. 

NEC also argued that the accrual should be tolled because the duty to defend is a continuing obligation which the insurer might cure by the conclusion of the underlying litigation.  The court again rejected that argument because it is not the law of Massachusetts. 

In a footnote the court rejected what, in my opinion, was a stronger argument of NEC:  Some of the policies included a "no action" provision stating that "[n]o action shall lie against the [insurer] . . . until the amount of the Insured's obligation to pay shall have been finally determined either by judgment  . . . or by written agreement."  The court held that that provision does not apply where an insurer has without right refused to defend an action against its insured. 

The court held that with respect to Century, which had issued reservation of rights letter and then failed to make a coverage decision for several years while NEC incurred costs, the failure to make a decision itself constituted a breach that triggered the statute of limitations.  The court held that the delay after the reservations of rights letters "constituted a breach that triggered the statue of limitations at some point well before 2003 [six years before NEC filed claims against the insurers]."

Even if that is the case, the court's ruling is too vague.  The main purpose of a statute of limitations is to have a clear point after which no case can be filed.  (With the discovery rule, among other doctrines, it does not always work that way -- which is why in some cases we have statutes of repose, which are statutes of limitation with no discovery rules and very few exceptions.)  At what point after insurer has stated, "we're thinking about it and we'll get back to you" is an insured to understand that the statute of limitations has started to run?  Thirty days?   Six months?  A year?  What if the insurer continues to let the insured know that it's still looking into the matter?  What if the insurer requests additional factual material from the insured and it takes the insured some time to gather it? 

While the court stated that an insurer can make a decision with respect to the duty to defend by comparing the letter of responsibility issued to it by the governmental agency with the terms of the policy (a/k/a the eight corners test), that doesn't address the issue.  It is the insurer which delays too long in coming to a decision but the insured which must guess how long is too long -- and if it guesses wrong it waives coverage. 

I'll be discussing this case again in my next post. 

Thanks to Mike Tracy of the Law Office of Michael G. Tracy for bringing this case to my attention. 

Wednesday, June 3, 2015

Appeals Court holds that towing cars comes within automobile business exclusion

Eduardo Silva worked for company that transported cars to and from auto dealerships.  While driving a tow truck to pick up a car for a dealership Silva struck a vehicle in which plaintiff Rita Borden was a passenger.  Borden's medical bills exceeded the amount of primary insurance available through the tow truck's insurer.  She turned to the insurer of Silva's personal car, which was covered under a Progressive Insurance policy issued in Rhode Island. 

Progressive denied the claim for excess coverage under Silva's personal automobile policy on the basis of its automobile business exclusion.  The exclusion provided that coverage did not apply to "bodily injury . . . arising out of an accident involving any vehicles while being maintained or used by a person while employed or engaged in any auto business."  The policy defined auto business as "the business of selling, leasing, repairing, parking, storing, servicing, delivering or testing vehicles."

In Borden v. Progressive Ins. Co.,  __ N.E.3d __, 2014 WL 8850495 (Mass. App. Ct. 2015*), the Massachusetts Appeals Court held that the loss was excluded.  It noted that the automobile business exclusion has been used to apply to cases involving the insured's use of a nonowned vehicle in the course of employment.  While an insurer of a personal automobile is expected to provide coverage for an insured's occasional or infrequent use of other vehicles, the court held that the risk of Silva's use of the tow truck in the course of his employment falls outside the range of ordinary risks contemplated by insurer of personal automobiles.

The court also held that towing vehicles unambiguously falls within the definition of "the business of . . . delivering  . . .vehicles." 

This decision once again underscores the importance of purchasing underinsurance and uninsurance coverage.  Those coverages protect you if you are injured by someone with inadequate auto insurance.  They cover the difference between the negligent driver's insurance and the coverage that you purchase. (So if the negligent driver has $100,000 in coverage and you have $300,000 in underinsurance coverage, the negligent driver's policy covers the first $100,000 and your policy covers the next $200,000.)  That way you do not have to depend on insurance decisions made by the person who injures you to have a reasonable amount of coverage after an accident. 

*  Although the Westlaw citation indicates a 2014 decision, the case was decided on May 21, 2015.

Wednesday, May 27, 2015

First Circuit holds that in fraud sentencing, sentence is based on amount of fraudulent claim not fraudulent plus legitimate claim

John Alphas owned a wholesale produce distributor.  He routinely obtained insurance for produce shipments.

Starting in March, 2007, Alphas submitted at least ten fraudulent claims to his insurers for lost, stolen or damaged produce.  Some of the claims were partially legitimate and partially fraudulent.

The federal government prosecuted Alphas.  Alphas pleaded guilty.  However, Alphas and the government did not agree on the amount of loss, a necessary step for determining sentencing. 

Alphas argued that the loss figure should exclude legitimate claims embedded in the fraudulent claims. 

The government asserted that the amount should be based on the total amount Alphas claimed, not how much he received.  It argued that the under the terms of the policies the insurer would have voided an entire claim if it had known that any part of it was fraudulent.

In United States v. Alphas, __ F.3d __, 2015 WL 2124771 (1st Cir. 2015), the United States Court of Appeals held that the loss-computation should distinguish between a fraudster who wholly fabricates a non-existent claim and a fraudster who artificially inflates s a legitimate claim.  "A fraudster who has suffered no loss at all but invents a $100,000 claim out of thin air is not the same as a fraudster who has suffered a legitimate $50,000 loss but artificially inflates his claim to $100,000." 

The court noted that the void-for-fraud clause in an insurance policy imposes on the fraudster a penalty for acting corruptly: "if the insurer discovers the fraud, the insured forfeits everything."

But the concept of loss under the criminal sentencing guidelines serves a different purpose.  The guidelines are "designed to ensure that the sentence imposed on the defendant 'reflect[s] the nature and magnitude of the loss caused or intended by [his] crimes.'"  It would make no sense to impose a more severe penalty on a fraudster whose policy has a void-for-fraud clause than on a fraudster whose policy does not contain that clause. 

The court held that, contrary to the government's position, the correct inquiry is what the fraudster reasonably expected to "euchre" (to outwit or cheat, not to play a card game in which jacks are high) out of his victim, not what would have slipped through is fingers had he not been caught.  That amount excludes sums that the fraudster would have been paid absent the fraud. 

The court also held that the restitution amount is the fraudulent amount only, not the legitimate claim, regardless of a void-for-fraud clause. 

Wednesday, May 6, 2015

Massachusetts Appeals Court defines risk of loss from misrepresentations in insurance application

Kevin Fitzgerald was injured in a car accident and brought suit against the car's owner, Marcio De Oliveira.  De Oliveira was insured by Commerce.  Commerce denied coverage over the $20,000 compulsory limit. 

Commerce asserted that when he purchased the policy, De Oliveira, who is Brazilian, had supplied materially false information in the form of an altered Brazilian driver's license.  The alterations were to the license's expiration date and to the Brazilian government identification number (equivalent to a social security number in the United States.)

Fitzgerald argued that the alterations to the license were not "material."  He cited Mass. Gen. Laws ch. 175 §186(a), which  provides that insurers may deny coverage based on a misrepresentation in insurance applications only when the misrepresentation was made "with actual intent to deceive" or when "the matter misrepresented . . . increased the risk of loss." 

The trial judge found, after a bench trial, that both criteria were met.  On appeal Fitzgerald argued that the alterations did not increase the risk of loss because De Oliveira had a valid Brazilian driver's license at the time of the application, the license remained valid during the policy period, and his separate license number appeared on the license so that the insurer could gain access to his driving history in Brazil.  Fitzgerald also argued that based on those facts the alterations could not have been made with the intent to deceive. 

In Commerce Ins. Co. v. De Oliveira, 73 Mass. App. Ct. 1001, 2015 WL 1880299 (unpublished), the court held that Fitzgerald's argument was based on too narrow a conception of what it means for an insurance applicant to increase the insurer's risk of loss.  The alterations "were of the sort that would have raised obvious red flags to one considering whether to take on the risks that the applicant presented."  "The concept of 'risk of loss' is not limited to an increase in the actual risk loss, but rather embraces an insurer's generally increase risk of economic loss or exposure." 

Thursday, April 9, 2015

U.S. District Court holds insurer's removal to federal court untimely based on information in underlying complaint

Addison Automatics filed a lawsuit in Suffolk Superior Court seeking a declaration that defendant Netherland Insurance Company had a duty to defend and indemnify Precision Electronic Glass Company in a class action lawsuit.  In the underlying action Addison alleged that Precision violated the law by sending junk faxes. 

Netherlands removed the case to the United States District Court for the District of Massachusetts.  Addison filed a motion to remand the case to state court, contending that the removal was untimely because it was not done within 30 days of service of the complaint.  Netherlands asserted that it was not until a decision of the Superior Court on a motion to dismiss that it knew that the suit was a class action suit that could be removed.

In Addison Automatics, Inc. v. Netherlands Ins. Co., 2015 WL 461958 (D. Mass.), the court held that there was enough information in the initial complaint for the defendants to ascertain that it was a class action suit.  Among other things, it referred to the complaint in the underlying litigation, which was a class action.  The defendants could have determined from that that Addison was seeking relief not just for itself but as a representative of the class. 

Tuesday, March 17, 2015

SJC holds that under PIP statute any licensed health care practitioner can conduct IME

I posted a few months ago, here, about a Massachusetts Appeals Court decision in Ortiz v. Examworks, Inc. in which plaintiff Flor Ortiz sued his insurer for having an IME for a PIP claim conducted by a physical therapist.  The Appeals Court dismissed the claim on the basis that Ortiz suffered no damages, and did not address whether the insurer had acted in bad faith. 

In Ortiz v. Examworks, Inc., 2014 WL 7930423 (Mass.), the SJC has now taken up that question. 

The SJC quoted the PIP statute, Mass. Gen. Laws ch. 90 §34M, which provides that an injured person claiming PIP benefits "shall submit to physical examinations by physicians."  The SJC held that the word "physicians" in the statute refers not only to medical doctors, but also to "additional types of licensed health care practitioners."  The court stated, "We interpret the statute to intend the broader definition of the word because it is the one most consonant with the statutory purpose." 

Sunday, March 8, 2015

Appeals Court affirms trial decision on commissions due to insurance agent

Marguerite Cocco owned an insurance agency.  In 2002 she contracted with another insurance agency, LJM, to refer customers to it in exchange for fifty percent of commissions received from her referrals.

After a number of years LJM reduced the percentage of commissions paid and then abruptly ceased paying all commissions.  Cocco sued.

The trial judge allowed LJM's motion to preclude any evidence of unpaid commissions owed prior to August 13, 2004, based on the six year statute of limitations for breach of contract. 

After the jury-waived trial the judge found in favor of Cocco and awarded her damages for commissions due from and after August, 2004.  The judge offset the amount due by $2,000 on the ground that LJM had paid that amount in 2008. The total amount awarded was $23,058.57 plus interest. 

Cocco appealed the preclusion of evidence and the offset. 

In Cocco v. LJM Ins. Agency, Inc., 87 Mass. App. Ct. 1106, 2015 WL 709623 (unpublished), the Massachusetts Appeals Court affirmed the rulings of the trial court.

The Appeals Court held that, contrary to Cocco's argument, nothing in LJM's 2008 payment was intended to renew its promise to her so that the statute of limitations would be reset. 

The court also held that the judge properly offset the 2008 payment from the judgment.  Cocco argued that the payment should have been applied to payments due prior to 2004.  The court held, "as the judge excluded all evidence of debts prior to 2004 on statute of limitations grounds, there was no evidence properly before the court of debts prior to August, 2004."  This ruling only makes sense if Cocco made no proffer of evidence of the pre-2004 debt for the purpose of showing that the 2008 payment was for the older debts.  The exclusion of evidence of debts prior to 2004 for the purpose of recovering those debts does not equal the exclusion of debts prior to 2004 for the purpose of showing that certain payments were to offset those debts.

It is worth noting that the court also held that both of  Cocco's arguments were deemed waived as not properly preserved for appeal.   

One of the hats I wear is as an appellate lawyer.  This case serves as a reminder that the time to start thinking about an appeal is at the beginning of the case.

Tuesday, January 27, 2015

U.S. District Court holds Progressive automobile policy website violates 93A

Named plaintiffs in a putative class action suit purchased automobile insurance from Progressive Insurance Company.  Some purchased the policies by telephone and others through the Progressive website.  All were subsequently denied PIP benefits because their policies had an $8,000 PIP deductible.  They sued Progressive alleging that they purchased the policies with a deductible because of Progressive's unfair and deceptive acts and practices. 

From 2008 to 2010 Progressive's website gave Massachusetts customers the opportunity to answer a series of questions.  If they indicated that they or their household members did not have health insurance, it generated plans and quotes with no PIP deductible.  If they indicated that they and their household members all had health insurance, it generated plans and quotes that included an $8,000 PIP deductible.  The customers could then choose different options on the website and compare premiums.  The deductible changed the policy price by $3.00.  A customer who chose an $8,000 PIP deductible for himself or herself could purchase $8,000 PIP coverage for household members for no additional charge.

Progressive knew that PIP deductibles were not customary in Massachusetts.  Approximately 90 percent of Massachusetts insureds purchased PIP with no deductible whether or not they had health insurance.  In June, 2008 Progressive held a focus group that found that customers did not understand the PIP deductible. 

In 2009 Progressive began receiving formal complaints through the Massachusetts Department of Insurance from customers who had bought policies with a PIP deductible but thought they were buying policies that did not have a PIP deductible. 

In 2010, as a result of negotiations with the Department of Insurance, Progressive added a line to its website, "Your PIP coverage currently includes a deductible.  You may elect a deductible of up to $8,000 or no deductible."  It also changed the website so that the default position for customers with health insurance was a $250 PIP deductible instead of an $8,000 deductible. 

In Estrada v. Progressive Direct Ins. Co., __ F.Supp.3d __, 2014 WL 5323422 (D. Mass.), the United States District Court for the District of Massachusetts dismissed plaintiffs who had purchased Progressive policies by telephone, as allegations with respect to telephone sales practices were not included in the complaint. 

With respect to claims by plaintiffs who purchased Progressive policies online, the court first dismissed counts alleging only violation of Mass. Gen. Laws ch. 176D, as a private right of action for violation of that statute exists only through a 93A claim.  It also dismissed a count alleging violation of Mass. Gen. Laws ch. 175 §181, as that statute does not create a private cause of action for an insured under an automobile policy.

The court denied summary judgment to Progressive on the 93A count.  It held that the evidence taken as a whole was sufficient to establish that the website had the "capacity or tendency to deceive."  The fact that the plaintiffs testified that if they had been told that they could obtain PIP coverage for their household members with no increase in premiums they would have done so was sufficient to establish causation on the 93A claim. 

Progressive argued that the because after review the Department of Insurance and the Massachusetts Attorney General's office allowed the website to remain, its website was affirmatively permitted by the laws of the Commonwealth, creating an exemption from 93A liability.  The court disagreed, because there was no evidence that the DOI or AG's office explicitly approved the manner in which the website defaulted customers to an $8,000 PIP deductible for themselves and their household members.   

Tuesday, January 20, 2015

1st Circuit holds insurer did not discriminate by not basing sober house premiums on three-family house premiums

PSI operates two sober houses for individuals suffering from substance abuse.  Each house has three floors and capacity for 30 residents.  Prior to the buildings becoming sober houses they were three-family rental properties. 

PSI sought insurance from Nautilus Insurance. Nautilus based the premiums on the category of "Halfway Houses -- Other Than Not-For-Profit."  Just as with shelters, rooming houses, transitional housing for the formerly homeless, student housing, etc., premiums were calculated according to the number of beds at the property.

PSI  sued Nautilus, alleging that its calculation of premiums violated the Fair Housing Act.  It alleged that Nautilus should have provided PSI with insurance rates applicable to three-family houses.

The FHA makes it unlawful to discriminate in the sale or rental of a dwelling because of a handicap, including substance abuse. 

In PSI, LLC v. Nautilus Ins. Co., 2014 WL 740 (D.Mass. 2014), the court first held that PSI had standing to bring the FHA suit because it properly alleged it was harmed by Nautilus's allegedly discriminatory rates.

The court held that Nautilus was not liable for discrimination on the basis of disparate treatment of PSI.  Nautilus  had a nondiscriminatory reason for classifying the sober houses as halfway houses rather than three-family dwellings: they were not operating as three-family dwellings and therefore posed a different liability risk.  The sober houses would have more foot traffic and higher turnover of tenants.  The premium determination was not made because of disability of the residents but on the same formula that applied to other types of housing such as boarding houses and rooming houses.

The court held that Nautilus also could not be liable under a disparate impact theory.  PSI alleged that because premium calculations for three-family houses are not based on the number of occupants, Nautilus' occupancy-based premium calculation for sober houses was facially discriminatory and disadvantageous to the disabled.  The court held that there was no evidence that the challenged practice caused a discriminatory effect, and that Nautilus had provided a legitimate, nondiscriminatory reason for its rates. 

The court held that the request for lower premiums was not a reasonable accommodation and was  unnecessary to allow the residents to enjoy the housing in question where there was no evidence that cost-savings would be passed on to residents. 

Finally, the court held that PSI's allegation that Nautilus violated the Americans with Disabilities Act must fail for the same reasons as the FHA claims must fail.