Massachusetts Appeals Court holds that tortfeasor's insurer's payment to homeowner whose house is an insured location under the policy offsets tort judgment against insured

Williams & Son installed and serviced an oil tank in Shirley Gilbody's house.  After an oil spill, Bunker Hill Insurance Company, Gilbody's homeowner's insurer, paid for full remediation of the property.

Bunker Hill then sought reimbursement for the loss twice.  First, it sought reimbursement directly from International Insurance Company of Hannover.  Hannover was Williams' insurer, and its policy listed Gilbody's house as an insured location.  Because Gilbody's house was an insured location, Gilbody was essentially entitled to bring a first party claim for property damage under the policy regardless of whether Williams was negligent.  Since the house was an insured location under both the Bunker Hill policy and the Hannover policy, a court applied an "other insurance" analysis and determined that the loss must be split equally between the two insurers.  Hannover reimbursed Bunker Hill for fifty percent of what Bunker Hill had had paid.

Bunker Hill then sought reimbursement a second time by bringing a subrogation action against Williams.  That means that Bunker Hill exercised its right under the policy it issued to Gilbody to stand in her shoes and sue Williams for damages caused by its negligence, up to the amount Bunker Hill had paid Gilbody.  In other words, it brought a third party claim against Williams.

A jury rendered a verdict in the full amount that Bunker Hill had originally paid Gilbody. Williams moved to offset the amount that Bunker Hill had already been reimbursed by Hannover.  The Massachusetts Superior Court denied the motion, holding that the payment Hannover had made was from a source collateral to the judgment in the negligence action, because the payment had been pursuant to coverage in the Hannover policy under which Gilbody's house was an insured location (first party coverage), not under negligence coverage for Williams (third party coverage).

In Bunker Hill Ins. Co. v. G.A. Williams & Sons, __ N.E.3d __, 2018 WL 6544124 (Mass. App. Ct.), the Massachusetts Appeals Court overturned the Superior Court decision and held that an offset was required.  Although the court used a fairly complicated analysis, the ruling boiled down to the common sense idea that Hannover should not have to pay the same loss twice (or one and one half times), and Bunker Hill should not get a windfall, simply because Williams had had the foresight and business sense to list Gilbody's house as an insured location on the Hannover policy.  In more technical terms, the first payment from Hannover was not a collateral source payment with respect to the tort judgment against Williams; it was from the same source as the tort payment would come from.

See the comments section on this post for a different take on this case.  

Superior Court holds that dispute over coverage for companies related to corporate policyholder does not create conflict between insurer and policyholder

Massachusetts Lawyers Weekly has quoted me in an article about a recent Massachusetts Superior Court case, Crosby Valve, LLC v. OneBeacon America Insurance Co.  The decision is not published on Westlaw, but if you need a copy of it send me an email and I will send it to you.  This case builds on a Massachusetts Appeals Court decision from last year, OneBeacon Ins. Co. v. Celanese Corp., 92 Mass. App. Ct. 382 (2017), which explored when a conflict between an insurer and a policyholder may exist even when the insurer has agreed to defend without a reservation of rights.  The issue matters because if there is a conflict then the policyholder rather than the insurer may control the defense, including selecting its own defense counsel to be paid by the insurer.

In Crosby Valve, the issue was whether a conflict existed when an insurer agreed to defend a policyholder in long-tail asbestos claims without a reservation of rights, but reserved its rights with respect to closely related companies. The policyholder argued that it should be able to control the defense because settlements of individual claims would deplete the coverage limits and would ultimately harm the related companies.

The dispute arose after a series of mergers and acquisitions in which rights under insurance policies were transferred from one corporate entity to another.  The Superior Court held that the dispute over coverage with respect to the related entities did not give rise to a conflict between the insurer and the entity that the insurer had agreed to defend without reserving its rights. 

Superior Court continues to whittle away innocent coinsured doctrine

I wrote here about the case of Shepperson v. Metropolitan Prop. & Cas. Ins. Co., 2018 WL 2324089 (D. Mass.), in which the United States District Court for the District of Massachusetts discussed the innocent coinsured doctrine.  That doctrine applies to property policies that insure more than one person.  If one of them commits an intentional act that causes damage to the insured property, that insured is not covered because damages from intentional acts are excluded.  Under the innocent coinsured doctrine, the other, innocent, insured person also cannot recover under the policy.
 

In Shepperson, the court held that an insured homeowner cannot be denied coverage for a fire loss even if the fire was set by another household member who is an insured on the homeowner’s policy, as long as two conditions are met.  First, the homeowner did not participate in the arson.  Second, the household member was made an insured by the operation of the policy language, such as a definition of insureds that includes any relatives who are household members, rather than by a conscious decision to make them an insured listed by name on the policy.   

The federal judge in Shepperson predicted that even though a 1951 decision of the Massachusetts Supreme Judicial Court held that there was no coverage for the innocent coinsured under similar facts, if the case were before the SJC today it would hold that there is coverage.  

A judge of the Massachusetts Superior Court has now addressed the innocent coinsured doctrine, in the context of a coinsurered who intentionally set the fire who, unlike in Shepperson, is a named insured on the policy. 

In Aquino v. United Property & Cas. Ins.  Co., 2018 WL 5532541 (Mass. Super.), Wenda Aquino sought coverage under a homeowner's policy issued by UPC after a fire in her home.  UPC denied coverage.  It asserted that the fire was intentionally caused by Aquino's fiance, Kelly Pastrana, who was a named coinsured on the policy, and that in those circumstances there was no coverage for any insured.

Both Aquino and Pastrana were listed on the deed and mortgage for the property.  Aquino was innocent of any involvement in Pastrana's intentional setting of the fire.  Pastrana died in the fire.

The Superior Court addressed the policy provision stating that intentional loss means "any loss arising out of any act an 'insured' commits or conspires to commit with the intent to cause a loss.  In the event of such a loss, no 'insured' is entitled to coverage, even 'insureds' who did not commit or conspire to commit the act causing the loss."

Aquino argued that that provision was broader than the provisions allowed by the Massachusetts Standard Form of Fire Policy statute, Mass. Gen. Laws ch. 175 §99.  The statute sets policy language for fire insurance policy.  Under the statute, such language includes a provision that the insured "shall not be liable for loss occurring . . . while the hazard is increased by any means within the control or knowledge of the insured" and that the insurer "shall not be liable for loss by fire . . . caused . . . by . . . neglect of the insured to use all reasonable means to save and preserve the property at and after a loss."

 Aquino argued that the statute used the phrase "the insured," but the UPC policy used the phrase "an insured."  The Superior Court agreed with Aquino that that change had impermissibly broadened the policy exclusion.

UPC argued that Aquino should be allowed to recover only half of the amount due under the policy because of Pastrana's intentional setting of the fire.  The court agreed, holding that Pastrana's intentional act forfeited his share of recovery available under the policy.  The court construed his share to be one half of the damages, noting that he and Aquino were tenants in common.  The judge also held that under the same logic Aquino was entitled to only one half of her additional living expenses (for example, rent while the house is being rebuilt).   

US District Court for District of Massachusetts holds Builder's Risk policy does not provide defense or indemnity for claim by purchaser of defectively constructed property

A builder called 689 Charles River, LLC built a single family home in Needham, Massachusetts.  The purchasers of the house sued, alleging "spectacularly shoddy and stunningly substandard design and construction" and "serious latent defects" caused by "improper design, material and/or workmanship" that combined to make the house "unfit for human habitation."   

Charles River sought coverage under a Builders' Risk policy issued by Zurich, and a declaratory judgment lawsuit followed.  In 689 Charles River, LLC v. Am. Zurich Ins. Co., 2018 WL 4211365 (D. Mass.) (unpublished), the United States District Court for the District of Massachusetts granted summary judgment to Zurich.  It held that the Builder's Risk policy had no defense or indemnity provisions and provided only first-party coverage (coverage for losses to the insured, not to a third party who sues the insured). 

The court also held that even if there were a duty to defend and indemnify under the policy, the allegations in the lawsuits fell squarely within the policy exclusions for dishonesty by the insured and for faulty, inadequate or defective (1) planning, zoning, development, surveying, siting,  (2) design, specifications, workmanship, repair, construction, renovation, remodeling, grading compaction; (3) materials used in repair, construction, renovation or remodeling; or (4) maintenance.

Massachusetts Appeals Court holds that child's father is not related by blood to child's mother's parents

Massachusetts Lawyers Weekly quoted me in an article about a recent Massachusetts Appeals Court case, Oliveira v. Commerce Ins. Co., 94 Mass. App. Ct. 276 (2018), which addressed the meaning of "related by blood" in underinsured motorist coverage.  The injured plaintiff had a child with his partner, and the three of them lived with his partner's mother and stepfather.  He sought coverage under an auto policy issued to his partner's mother and stepfather.  The policy included coverage for household members, which it defined as "anyone living in your household who is related to you by blood, marriage or adoption."

In a split decision, the Appeals Court held that the plaintiff was not related by blood to the policyholders.

As I pointed out to Lawyers Weekly, in other policies the phrase might be considered ambiguous and therefore interpreted in favor of coverage.  However, ambiguous terms in auto policies are not interepreted against the insurer because the language of those policies is set by state law.

Underinsured motorist coverage provides the difference in the value of a claim between the coverage limit of the policy of the driver who caused the accident and the coverage limit of the policy of the person who was injured.  In other words, if you are rearended and seriously injured by a driver who has a $20,000 auto policy, and you have $100,000 in underinsurance coverage, you can receive $20,000 from the other driver's policy and up to $80,000 from your own underinsurance coverage.

The dissent argued that the objective of underinsured motorist coverage is to ensure that victims of automobile accidents are adequately compensated for injuries caused by underinsured drivers.  I believe that overstates the purpose of the coverage.  It is certainly true that one purpose of any third-party insurance coverage – coverage for injuries caused by the insured to someone else – is to ensure that victims of the insured are fairly compensated, whoever they may be.  Underinsured motorist coverage is not third-party coverage, however.  It is first-party coverage.  Its purpose is to make sure that an insured who is injured (not who injures someone else) is fairly compensated.  Expanding the definition of who is an insured does not follow from that purpose. 

This brings me to my last point:  Everyone who has an opportunity to do so should purchase uninsured and underinsured motorist coverage.  I’m a strong believer that we all have a duty to have adequate third-party insurance to compensate those who we may harm by our mistakes.  Uninsured and underinsured motorist coverage serves a different purpose:  it prevents us from having to hope that the drunk or texting driver who just rear-ended us purchased enough insurance to compensate us for our injuries. 

Insurers, what insurance coverage and bad faith issues would you like staff trainings on?

I'm in the process of developing presentations for insurance adjusters and in-house attorneys on coverage and bad faith issues.  Let me hear from you -- what topics would you like to receive trainings on?  Anything from basic education for new adjusters on how to respond to 93A demand letters to obscure coverage issues.

Respond in the comments or send me an email. 

U.S. District Court holds that regular wages paid to employees after a loss do not come within extra expense coverage, but extra wages and benefits do

On July 9, 2015, water infiltrated the electrical system of Interstate Gourmet Coffee Roasters, Inc., knocking out all power.  The business was suspended for thirteen days.  During that time Interstate's employees "redirected their efforts" to restore regular business operations.  Hourly employees were paid their regular rate and overtime pay.  Salaried employees were given additional vacation time to make up for the weekends they worked.

Interstate submitted a claim to Phoenix Insurance Company, it's insurer.  The coverage under the policy included "the actual Extra Expense you incur during the 'period of restoration.'" The policy defined extra expense as "reasonable and necessary expenses . . . that you incur during the 'period of restoration' and that you would not have incurred if there had been no direct physical loss of or damage to property." 

Interstate sought reimbursement from Phoenix for employee compensation incurred ruing the suspension period.  Phoenix reimbursed Interstate for the overtime paid to hourly employees, but denied the rest of the claim.

In Interstate Gourmet Coffee Roasters, Inc. v. Travelers Indemnity Company, 2018 WL 3733937 (D. Mass.), the United States District Court for the District of Massachusetts held that the extra expense coverage does not provide coverage for payment of wages to employees whose normal schedules are disrupted or inconvenienced, except for hourly employees who work additional hours because of the loss and extra vacation time offered to salaried employees.   

US District Court holds professional liabilty insurer has duty to defend action relating to breakup of law firm

Massachusetts Lawyers Weekly quoted me in an article about a recent U.S. District Court case on coverage under a lawyer's professional liability policy for a claim arising from the breakup of a law firm.  The departing attorneys sued the firm, alleging in part that the firm refused to release client file materials and property to their new firm. 

In Governo v. Allied World Ins. Co., __ F. Supp. 3rd __, 2018 WL 4685566 (D. Mass.), the court held that the firm's professional liability insurance had a duty to defend.  The allegation of refusal to release client material came within coverage for Legal Services Wrongful Acts, which the court held implicates the specialized professional obligations and ethical standards of attorneys. 

More specifically, the policy provided coverage for claims “arising out of” a Legal Services Wrongful Act.  The court noted that  there might not have been coverage if the policy language had provided coverage for claims occurring “by reason of” such an act. And that, ladies and gentlemen, is why insurance coverage law is a specialty in the practice of law. 

Attorneys beware: Insurance agents generally have no duty to ensure you have the professional liability insurance coverage you need

Attorney Simon Mann settled a legal malpractice claim brought against him for failure to file a wrongful death claim within the statute of limitations.  As part of his settlement he assigned to plaintiff Kenneth Perreault his rights against AON, the malpractice insurance broker that had sold to him or his firms three consecutive insurance policies.  At issue was whether there was a special relationship between Mann and AON, such that AON had a duty to make certain that Mann had adequate malpractice insurance to cover all of his work as an attorney. 

 

In Perreault v. AIS Affinity Ins. Agency of New England, Inc., 93 Mass, App. Ct. 673 (2018), the Massachusetts Appeals Court held that there was no such special relationship. 

 

Like almost all malpractice policies, the three policies sold by AON were claims made and reported policies that required that the alleged misconduct and resulting claim arise during the policy period. 

 

The earliest  policy was issued to a firm that Mann had worked for.  Mann had no involvement in purchasing the policy.

 

The second policy was issued to a firm in which Mann was a partner.  Mann was responsible for acquiring the coverage.  Mann claims that he relied exclusively on the advice of an AON employee, Burns, but Burns was not asked to provide risk management services or consultation with respect to the scope of coverage. 

 

The third policy was issued to a firm in which Mann was the sole partner.  Mann relied on Burns to purchase a new policy.  Although Mann had received a demand on the Perreault claim by this time, he did not disclose the Perreault claim on the application.  He told Burns that he needed coverage for all his past work since he became an attorney.  The policy that was issued did not have prior acts coverage.  The earlier two policies were canceled. 

 

When Perreault sued Mann, the insurer, Liberty, declined coverage under the second policy because it had been cancelled. It declined coverage under the third policy because that policy did not have prior acts coverage.  It agreed to provide a defense (but presumably not indemnity) under the first policy. 

 

The Massachusetts Appeals Court noted that there is no general duty of an insurance agent to ensure that insurance policies provide coverage that is adequate for the needs of the insured.  However, an agent may acquired a greater duty if special circumstances exist.  Among the factors creating such special circumstances are a prolonged business relationship; the complexity and comprehensiveness of the customer's coverages; the frequency of contact between the customer and agent with respect to insurance needs; and the extent to which the customer relies on the advice of the agent by reason of the complexity of the policies. 

 

The court held that no no such special circumstances existed between AON/Burns and Mann.  Their business relationship spanned only three years.  Mann's insurance needs were not complex.  His communications with Burns were perfunctory.  Burns was not asked to provide risk management services or consultation with respect to the scope of insurance. 

Massachusetts Appeals Court holds that contractual limitations period in life insurance policy does not apply to 93A claim

Daniel Brown purchased a life insurance policy from SBLI.  Ten years later, the premium on the policy was due to increase by more than ten times.  An SBLI sales agent left Daniel and his wife Michelle a voicemail message pointing out that the premium was going through the roof and that they had options available to keep the coverage going.  He recommended that they purchase a new policy. 

 

Daniel did not pay the increased premium, so his policy lapsed.  He also did not  purchase a new policy.  When Michelle learned of this, the SBLI agent advised her that Daniel should apply for a new policy.  He did not offer the option of reinstating Daniel's policy pending approval of the new policy.  Daniel's application for a new policy was denied.  Michelle, who had separated from Daniel, was not informed of the denial until after Daniel's death a month later. 

 

Michelle sued SBLI more than two years after Daniel's death, for breach of contract, deceit by failing to recommend that she should continue to pay the premium on the old policy while the application for the new policy was pending, negligent supervision of the agent, and breach of ch. 93A. 

 

SBLI argued that the suit was untimely because the policy set forth a two year contractual limitations period for any suit "brought on or in respect to this policy." 

 

Michelle agreed that her breach of contract claim was time-barred.  In Brown v Savings Bank Life Ins. Co., 93 Mass App. Ct. 572 (2018), the Massachusetts Appeals Court held that the contractual limitations periods did not apply to the deceit and negligent supervision claims.  It also held that the contractual limitations period did not apply to the 93A claim.  The court gave a number of interrelated reasons for that decision.  First, the claim was based on deceit and did not arise "in respect to" the policy.  Second, the term "on or in respect to" is ambiguous and must be interpreted against the insurer.  Third, imposition of a contractually shortened limitations period on a tort-based consumer protection claim would violate public policy. 

First Circuit affirms coverage for defamation claims against Bill Cosby

I've posted here, here, and here about the declaratory judgment lawsuit brought by AIG Property Casualty Company asserting that it has no duty to defend Bill Cosby in the defamation lawsuits brought against him.  Those suits allege that Cosby lied when he denied allegations of rape, thereby defaming his accusers.

 

In AIG Property Casualty Co. v. Cosby, __ F.3d __, 2018 WL 2730762 (1st Cir.), the United States Court of Appeals for the First Circuit has affirmed the decision of the United States District Court for the District of Massachusetts holding that AIG must defend Cosby. 

 

The AIG homeowner's and umbrella policies provide coverage for defamation claims.  The issue in dispute is whether  exclusions for claims "arising out of" sexual misconduct apply.  The District Court had held that the meaning of arising out of is ambiguous and therefore AIG must defend. 

 

The court noted that in a different coverage of the umbrella policy there is an exclusion for damages "arising out of, or in any way involving, directly or indirectly, any sexual misconduct."  The exclusion applicable to the defamation claim did not include that specific language.  Since every word in an insurance contract must be presumed to have meaning, the less specific language in the applicable exclusions must be interpreted as requiring a closer connection between the alleged defamation and the alleged sexual assaults. 

 

The court added that the phrase arising out of is not inherently ambiguous, and that its holding is limited to this case, where the ambiguity question is close to begin with and where a similar exclusion in the same policy was more broadly worded. 

 

U.S. District Court weighs in on innocent coinsured doctrine

Massachusetts Lawyers Weekly quoted me in an article about Shepperson v. Metropolitan Prop. & Cas. Ins. Co., 2018 WL 2324089 (D. Mass.), in which the United States District Court for the District of Massachusetts addressed the innocent coinsured doctrine.  That doctrine applies to property policies that insure more than one person.  If one of them commits an intentional act that causes damage to the insured property, that insured is not covered because damages from intentional acts are excluded.  Under the innocent coinsured doctrine, the other, innocent, insured person also cannot recover under the policy. 

 

In Shepperson, the court held that an insured homeowner cannot be denied coverage for a fire loss even if the fire was set by another household member who is an insured on the homeowner’s policy, as long as two conditions are met.  First, the homeowner did not participate in the arson.  Second, the household member was made an insured by the operation of the policy language, such as a definition of insureds that includes any relatives who are household members, rather than by a conscious decision to make them an insured listed by name on the policy.   

 

The case started in Massachusetts state court and was removed by the insurer to federal court.  The federal judge predicted that even though a 1951 decision of the Massachusetts Supreme Judicial Court held that there was no coverage for the innocent coinsured under similar facts, if the case were before the SJC today it would hold that there is coverage.  He based that prediction on changes to the statute regulating fire insurance policies and on Massachusetts Superior Court decisions. 

Massachusetts Appeals Court interprets alcohol exclusion in PIP coverage

Margarita Rodriguez was injured in an auto accident. A police report indicated that an occupant of the other vehicle said that Rodriguez's car "came out of nowhere."  The report did not provide any other statements with respect to causation.  It did not indicate whether alcohol was involved in the crash.

 

Rodriguez was taken to the hospital.  Hospital records indicated that she was intoxicated. 

 

Rodriguez's insurer was Commerce. Commerce refused to reimburse a medical provider under PIP coverage, citing an exclusion applicable if the insured "contributed to his or her injury by operating an auto while under the influence of alcohol." 

 

The Massachusetts Appeals Court overturned the granting of summary judgment to Commerce.  In Dorchester Chiropractic & Rehab Centers Inc. v. Commerce Ins. Co., 2018 WL 2247343 (Mass. App. Ct.) (unpublished), the court held that the exclusion required that two distinct elements be met: (1) the insured was operating under the influence of alcohol, and (2) the insured's conduct contributed to her injury.

 

The court held that there was no evidence showing how the car accident occurred, or of how Rodriguez contributed to it.  Therefore, the second element necessary for the exclusion to apply was not met. 

 

The court also held that whether or not Rodriguez was under the influence of alcohol at the time of the accident was a disputed question of fact, since the police officer who had interacted with her at the accident scene did not mention alcohol in the police report. 

Massachusetts Appeals Court holds that under New Hampshire law insurer can settle claim over objection of insured

Dr. Ellen Johnson was sued for medical malpractice.  She was insured by Proselect.  A jury found against Johnson and awarded her patient $5 million in damages. 

 

The Proselect policy gave Proselect the right to settle a case after verdict without the consent of the insured.  Proselect chose not to file post-trial motions or to appeal.  Instead, it settled the case for $3.75 million, an amount within Johnson's $4 million coverage limit. 

 

Johnson then sued Proselect, alleging that it breached its duties to her by settling the case without her consent.  She asserted that the settlement harmed her professional reputation and her career prospects and caused her emotional distress. 

 

In Johnson v. Proselect Ins. Co., 92 Mass. App. Ct. 1118, 2017 WL 6327844 (unpublished), the Massachusetts Appeal Court affirmed summary judgment to Proselect.  Applying New Hampshire law, it held that the duty of reasonable care in the defense of a claim applies only where the insurer's misconduct exposes an insured to personal liability.  Because the settlement extinguished the excess judgment, Proselect had met its duty of reasonable care and did not violate the covenant of good faith and fair dealing. 

The lesson here:  If you want to have control over whether or not a case against you will be settled, buy a policy that gives you that control.