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.

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