Thursday, March 31, 2016

US District Court holds that "insured contract" provision does not require insurer to defend third party absent request from insured that it do so

Ski resort Jiminy Peak purchased from Weigand Sports a ride called an Alpine Coaster.  The purchase and sale contract provided that that Wiegand would defend and indemnify Jiminy in lawsuits related to the Coaster. 

Six years after the Coaster was installed two minors were injured while riding it.  Weigand was insured by Navigators Specialty Insurance at that time. 

The Navigators policy provided that it would pay "those sums that [Weigand] becomes legally obligated to pay as damages" because of bodily injury, including damages it assumed in an "insured contract."   The policy defined insured contract as "[t]hat part of any other contract or agreement pertaining to [Wiegand's] business . . . under which [Wiegand] assume[d] the tort liability of another party to pay for 'bodily injury' . . . to a third person or organization."

In the case of an insured contract, Navigators would pay reasonable attorney fees and litigation expenses "incurred by or for a party other than in insured . . . deemed to be damaged because of 'bodily injury' . . . 'provided  . . .that the party's defense [had] also been assumed in the same 'insured contract'" and that the damages arose in a suit to which the insurance policy applied. 

Jiminy sought defense from Navigators.  Navigators argued that the insured contract provision only requires it to make payments to the insured, and only when the insured has actually requested payment.  It argued that even if Wiegand is found to owe Jiminy its defense costs, it would be up to Wiegand to determined whether it wishes to pay the amount or to make a claim to Navigators. 

In Jiminy Peak Mountain Resort, LLC v. Wiegand Sports, LLC, 2016 WL 1050260 (D. Mass.), the United States District Court for the District of Massachusetts agreed with Navigators.  It held that the insured contracts  provision indicated that "Navigators and Wiegand did not, in fact, intend that in a case like this one Navigators would have any direct obligations to Jiminy based on the Contract. . . . Any obligation upon Navigators to pay such costs will arise only after an insured, in this case Wiegand, makes a claim for payment and its only obligation will be to Wiegand." 

Tuesday, March 29, 2016

Superior Court holds no coverage for collapse of retaining wall

Plaintiffs Marc Levine and Ute Groening owned a house in Brookline.  The property behind theirs is at a higher elevation.  A 10 foot tall stone retaining wall sat on the property line for a century. 

A new owner purchased the rear property.  In order to level that property they installed a timber wall near the property line and backfilled the space with soil.  The plaintiffs alleged that the weight and pressure of the timber wall and additional soil overburdened the stone retaining wall, causing it to bow and crack.  They sought coverage from Merrimack Mutual Fire Insurance Company, their homeowner's insurer, for the loss.  Merrimack denied the claim.  The retaining wall subsequently collapsed entirely. 

In Levine v. Aljasa Realty LLC, 2016 WL 872903 (Mass. Super.), the Massachusetts Superior Court held that there was no coverage under the Merrimack policy.  Coverage B for "other structures" may have been initially triggered, but an exclusion for "loss involving collapse" applied.  Although there were exceptions to the exclusion, the exceptions did not apply to loss to a retaining wall "unless the loss is a direct result of the collapse of the building or any part of the building."   

Thursday, March 24, 2016

US District Court holds no coverage for intentional torts, and insurer not estopped to deny coverage after insurance defense counsel states he will defend throughout course of action

Kenneth and Donna Kaplan were sued by their neighbors, William and Mary Costello.  The Costellos alleged ongoing harassment by the Kaplans in an attempt to enlarge their own yard at the Costellos' expense.  They alleged that the Kaplans filed five lawsuits involving the Costellos, initiated a number of complaints and appeals to town and state agencies, and wrote many aggressive emails about the matter to public officials and local media.  The Costellos sued for abuse of process, intentional infliction of emotional distress, and violation of the Massachusetts Civil Rights Act. 

The Kaplans had homeowner's insurance with Narragansett Bay Insurance Company.  Narragansett provided a defense.  It then filed a declaratory judgment action, asserting that it has no duty to defend or indemnify.

In Narragansett Bay Ins. Co. v. Kaplan, __ F. Supp. 3d __, 2015 WL 7295462 (D. Mass.), the United States District Court for the District of Massachusetts held that there is no coverage for bodily injury or property damage for two reasons.  First, that policy part has an exclusion for injuries "expected or intended" by an insured.  The elements of causes of action for abuse of process, intentional infliction of emotional distress, and the violation of the Massachusetts Civil Rights Act each include intentional acts.  Second, no bodily injury or property damage within the meaning of the policy was alleged. 

The policy also had a personal injury endorsement that covers five enumerated intentional torts.  They do not include the causes of action alleged by the Costellos. 

Although the court granted summary judgment to Narragansett on the duty to defend it oddly declined to do so on the duty to indemnify, on the ground that such a duty could not be determined until the underlying case is resolved.  The judge did note, "I observe at this point, however, that having determined there is no duty to defend, there is necessarily no demonstrated basis for a duty to indemnify."

The Kaplans had filed a counterclaim in the declaratory judgment action asserting that Narragansett was estopped from halting coverage even though it was defending under a reservation of rights. 

The Kaplans relied on a letter from insurance defense counsel stating that he would provide a defense "throughout the course of this action."  The court held that that letter was insufficient to create estoppel.  In the face of the reservation of rights letter the Kaplans could not have reasonably relied on the statement of counsel.  Nor was their reliance detrimental. 

The Kaplans have filed an appeal of the ruling. 

Tuesday, March 8, 2016

SJC rejects selective tender doctrine in worker's comp cases and generally

As I posted here,, last June the First Circuit certified to the SJC the question of whether, when an insured has two primary worker's compensation 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 Ins. Co. of Penn. v. Great Northern Ins. Co., __ Mass. __, 2015 WL 10428274 (March 7, 2016), the SJC has answered no.  Rather, "the insurance company that pays the loss has a right of equitable contribution to ensure that the coinsurer pays its fair share of the loss.  The employer of the injured employee may not prevent the insurance company that pays the loss from exercising its right of equitable contribution by intentionally giving notice of the injury only to that insurer." 

 Progression had two worker's comp policies.  ISOP provided compulsory worker's comp coverage.  Great Northern provided worker's comp coverage for employees traveling outside the United States and Canada.  Both policies provided primary coverage. The dispute between the insurers arose after an employee of Progression was injured while traveling abroad for work. 

Progression gave notice of the worker's comp claim only to ISOP and did not notify Great Northern.  ISOP later learned of the Great Northern policy and requested contribution.  Great Northern declined, stating that it had learned from Progression that Progression had intended to tender the claim only to ISOP and had not authorized ISOP to report or tender the claim to Great Northern.

Under the doctrine of equitable contribution, where multiple insurers provide coverage for a loss to an insured, an insurer who pays more than its fair share of costs of defense and indemnity may require a proportionate contribution from the coinsurers. 

Great Northern did not challenge the equitable contribution doctrine generally; it argued that it does not apply because Progression purposely tendered the claim only to ISOP.  Without using the term, Great Northern asked that the court adopt the selective tender exception to the doctrine of equitable contribution, allowing an insured to choose whether or not to excuse an insurer from its duty to contribute to a claim. 

The court rejected that argument with respect to worker's compensation insurance.  The worker's compensation statute requires that an employee injured in the course of employment "shall be paid compensation by the insurer."  Therefore, although the employer purchases insurance, the insurer is directly liable to the employee.  Under the statutory scheme, Great Northern's obligation to defend and indemnify the claim was triggered by the notice given to  Progression of its injured employee, regardless of whether or not Progression gave notice of the injury to Great Northern.  Therefore, the language in the insurance policy providing that its duty of coverage is contingent on the employer providing notice of the injury to it is contrary to Massachusetts law and null and void with respect to a Massachusetts employee. 

The court also held that the selective tender exception to the doctrine of equitable contribution does not accord with Massachusetts law governing general liability insurance.  Under Massachusetts law an insurer's coverage obligation is triggered by notice regardless of the timing or source of such notice; late notice or notice from a third party does not preclude coverage unless the insurer is prejudiced. 

As I have previously noted, the selective tender doctrine typically pertains more to the issue of pro rata versus joint and several allocation in a long tail loss.  In a joint and several allocation scheme, an insured may choose (or selectively tender to) one insurer, who will be on the risk up to its policy limit.  The insurer will then have the right of equitable contribution against other insurers on the risk, but cannot recover for periods when the insured had no insurer on the risk or when the insurer on the risk is no longer in business.  The SJC has firmly rejected joint and several liability in favor of pro rata contribution.