Wednesday, November 28, 2018

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. 

Monday, November 26, 2018

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).   

Wednesday, November 21, 2018

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.

Saturday, November 10, 2018

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.