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.