US Bankruptcy Court denies approval of settlement transferring claimant's rights against debtor's insurer to debtor; also, Florida insurance law is insane

On February 2011, David DeVeau was in a car accident in Florida in which Ashly Rierson suffered devastating injuries.  DeVeau was insured by Progressive Select Insurance Company, apparently under a Florida policy that did not include bodily injury coverage.  Rierson sued DeVeau in Florida.  Progressive defended the lawsuit under a reservation of rights.  A jury found in DeVeau's favor in 2018, but that verdict was vacated on appeal.  The case is scheduled for retrial in 2020.

Meanwhile, in 2011 Progressive had filed a declaratory judgment action in Florida seeking a declaration that it had no duty to defend or indemnify DeVeau. DeVeau asserted in that action that he had bodily injury coverage under the policy.  Progressive filed a motion under a Florida statute that permits an insurer that prevails in a coverage action to recover attorneys' fees and costs in equal amounts from the losing party and the losing party's attorney.

Let that sink in.  

In 2015, DeVeau and Progressive executed a stipulation and mutual release under which DeVeau released and discharged Progressive of all liability arising under the policy it issued to DeVeau, the declaratory judgment action, and the duty to defend DeVeau in the personal injury claim.  DeVeau withdrew his defense in the coverage action and assented to entry of declaratory judgment in favor or Progressive.

A few months later, DeVeau filed a Chapter 7 bankruptcy petition in Massachusetts.  Rierson filed an adversary proceeding asserting that her claim against DeVeau was not dischargeable in bankruptcy.
The bankruptcy trustee commenced an adversary proceeding to avoid or set aside the release against Progressive as a fraudulent conveyance.

The bankruptcy trustee then negotiated a settlement with Progressive, for which it sought approval from the Bankruptcy Court.  Under the agreement, within 30 days of DeVeau receiving a discharge in bankruptcy, Progressive would pay the bankruptcy estate $825,000 and the bankruptcy trustee would transfer to Progressive all right, title and interest in all Progressive insurance policies issued to DeVeau.  All claims against Progressive relating to DeVeau's Progressive policy, including Rierson's claims, would be permanently enjoined.

Unsurprisingly, Rierson objected to the motion to approve the settlement.

In In re DeVeau, 2019 WL 7000066 (Bankruptcy Court, D. Mass), the United States Bankruptcy Court for the District of Massachusetts denied the motion to approve the settlement.  It first examined whether it should approve the sale of the policy free of clear of any interest of Rierson. Rierson argued that the bankruptcy estate did not own DeVeau's interest in the policy because he had released all rights under the policy before he filed for bankruptcy.  The court agreed with that argument.

The court next analyzed the request for an injunction that would permanently enjoin Rierson from prosecuting any claim against Progressive  related to DeVeau's policy.  The court denied the request as it was predicated on a sale free and clear of liens.  As there could be no sale of property that did not belong to the bankruptcy estate, there could be no injunction.

Finally, the court held that the agreement was not reasonable because under it the injunction on claims against Progressive would immediately go into effect but DeVeau would receive payment from Progressive only if he received a discharge in bankruptcy.

2019 amendments to ISO forms

Many insurers use standard insurance forms and endorsements issued by the Insurance Services Office, or ISO, which is subsidiary of a company called Verisk Analytics.  ISO recently made several changes to its forms and endorsements.  The law firm of Saxe Doernberger & Pita has described the changes here. 

As summarized in the Saxe blog post, the changes expand who is an additional insured, especially in the context of construction defect and liquor liability claims.  They also affect waiver of subrogation clauses. 

US District Court for District of Massachusetts holds that exception to exclusion does not create coverage barred by a different exclusion

On February 19, 2019, an employee of Performance Trans, Inc. ("PTI") drove a tanker truck off the road in New York.  The truck overturned and spilled 4,300 gallons of gasoline and diesel fuel.

PTI undertook an emergency response action to clean up the spill.  It sought coverage for its costs in doing so from its insurer, General Star Indemnity Company.  General Star disclaimed coverage on the basis of a total pollution exclusion.

Utica Mutual Insurance Company provided malpractice insurance to PTI's insurance broker.  It agreed to reimburse PTI for the cleanup costs in exchange for an assignment of PTI's rights against General Star.  The case proceeded to a declaratory judgment action.

The General Star policy included a Special Hazards and Fluids Limitation endorsement, which excluded coverage for "the unloading of drilling fluids from any auto, mobile equipment, machinery or equipment, whether unloading is the result of movement of property by a mechanical device, an accident, a spill or otherwise."  The exclusion contained an exception for unloading of the fluids caused by the upset or overturn of an auto.

Utica and PTI argued that the exception to the exclusion indicated that General Star agreed to provide coverage for unloading caused by the upset or overturn of an auto.

In Performance Trans., Inc. v. General Star Indemnity Co., __ F.Supp. 3d __, 2019 WL 6307227 (D. Mass.), the United States District Court for the District of Massachusetts disagreed.  "An exception to an exclusion does not affirmatively create coverage."  Rather, an exception merely prevents the exclusion itself from applying in specified circumstances.  (In a footnote the court noted that by their plain meaning the total pollution exclusion of the policy and the Special Hazards and Fuel Limitation endorsement can coexist, so that the exception to the latter exclusion is not superfluous or illusory.)

SJC holds that insurer is not liable for bad faith litigation tactics if the bad faith did not cause damages

In my last post I discussed how in  Rawan v. Continental Casualty Company (no citation available yet) the SJC upheld the legality of consent-to-settle clauses. 

The plaintiffs in Rawan also alleged that Continental Casualty Insurance had violated Mass. Gen. Laws chs. 93A and 176D by its "persistent effort" to hide a report that supported their claim that the insured engineer, Kanayo Lala, had done faulty work, and by its misrepresentation of the applicable policy limits. 

The court noted that an insure has a duty to a third-party claimant not to engage in misleading, improper, or extortionate conduct or otherwise act in bad faith.  "We emphasize that the conduct at issue here, viewed in the light most favorable to the plaintiffs, is problematic to Continental's duty as an insurer to act in good faith, and we do not condone it."

Here, however, the court held, any bad faith by Continental did not cause any damages to the Rawans.  The delay in issuing the report made no difference with respect to Lala's refusal to settle. 

Continental had claimed to both Lala and the Rawans that the policy limits were $250,000/$500,000, when in fact they were twice that.  However, once it revealed the actual policy limits Lala did not change his position that he would not settle.  Continental tendered its policy limits to the plaintiffs after judgment, and Lala paid the excess judgment.  Therefore, the plaintiffs were not harmed by the initial incorrect representation of the limits. 

SJC holds that consent-to-settle clauses are legal and do not violate chs. 93A or 176D

When I was an insurance defense litigator -- an attorney hired by insurance companies to represent people who were covered by insurance who had been sued -- I was always thrilled to have the rare client who actually cared about the case in which I was representing them.  One of the biggest benefits that liability insurance provides is that if you cause an accident, your insurance takes care of it for you.  You might have to help with discovery responses, or show up to a deposition or (less likely) trial, but ultimately the insurer will pay whatever damages are assessed against you.  So for a lot of clients, while they might feel bad that someone was injured as a result of their carelessness (if that's what happened), the lawsuit itself does not particularly concern them. 

There were some exceptions.  Neighbors getting sued by neighbors, or the occasional client who was offended by being sued -- especially if they did not do anything wrong.  But almost across the board, professionals sued for malpractice are deeply invested in the outcome of the case against them, and for good reason.  A doctor found liable for not meeting the standard of care for doctors, or an accountant accused of causing their client to lose money because of their lack of skill -- claims like that affect the very livelihood of the professionals.

That is why many professional liability insurance policies have  consent-to-settle  clauses, under which the insured professional must give consent to any settlement.  This is very different from other policies, in which the insurer has complete discretion in settling a case, as long as it acts in good faith. 

Today the Supreme Judicial Court of Massachusetts affirmed the legality of consent-to-settle clauses.  In Rawan v. Continental Casualty Company (no citation available yet), homeowners Douglas and Kristen Rawan sued engineer Kanayo Lala for errors in calculating building loads and stresses in the structural members of their house.  Lala was insured by Continental Casualty Company.  He refused to consent to settle as recommended by Continental.  The Rawans then sued Continental for its failure to effectual a prompt, fair and equitable settlement as required by Mass. Gen. Laws ch. 176D §3(9)(f). 

The SJC held that consent-to-settle clauses do not violate ch. 176D as a matter of law, but that under the statute the insurer still has "residual duties" to a third-party claimant even when an insured refuses to settle. 

In the underling lawsuit, the Rawans sued Lala for professional negligence, among other causes of action.  An expert hired by insurance defense counsel agreed that Lala had made significant errors in his work on the house.  Lala refused to authorize a settlement in excess of $100,000.  Insurance defense counsel informed Lala that he could face a verdict vastly in excess of that amount and well over his policy limit.  Lala refused to engage in further settlement discussions. 

The case proceeded to trial.  A jury found against Lala and awarded damages of $400,000.  A 93A claim resulted in an additional damages. 

Continental issued to the plaintiffs a check of $141,435.98, which was the amount remaining on the policy limit after deducting the legal fees Lala had incurred in defending the claim.  Lala paid the plaintiffs the rest of the verdict.

The case against Continental then went forward and made its way to the SJC. 

The SJC held that consent-to-settle clauses do not violate chs. 176D and 93A.  The clauses predate the passage of the statutes, and the legislature did not prohibit them.  Public policy supports the right of professionals to purchase insurance with such clauses. Ch. 176D does not require insurers to settle claims; it requires them only to make good faith efforts to settle claims.  Although some policyholders will unreasonably withhold their consent to settle, those policyholders would probably not buy insurance at all if the policy did not include a consent-to-settle clause.  (This last rationale seems a little weak.) 

Although consent-to-settle clauses are legal, an insurer must act with good faith and transparency towards both the insured and the third-party claimant.  The SJC held that in the present case Continental did so.  It thoroughly investigated the underlying facts and informed Lala of the result of the investigation.  It encouraged Lala to settle and explained to him the weaknesses of his defense. 

The SJC discussed another interesting aspect of the case, which was that although Commerce might have acted with bad faith against the Rawans in some of its defense strategies, any such bad faith did not cause the Rawans to suffer any damages.  I will discuss that ruling in my next post.

Massachusetts enacts hands-free driving bill

Agency Checklists has a good summary of the bill, here.  One thing the article notes that I have not seen in more general news reports is that a third offense will result in an insurance surcharge.

OK Boomer confessions:  Until recently I had been using a Garmin GPS that sat nicely on my dashboard, except when it slid off into my lap.  When it died I switched to the GPS on my phone, which I put in my cup holder.  I believe that technically that will remain legal, but the passage of the bill has encouraged me to order one of those devises that will allow me to mount my phone in my vent so I'm not looking way down to see how far away my next turn is.

I love using the phone navigation system.  I am one of those people who rants about how terrible it is that our kids don't know how to read maps.  I still print out a map from Mapquest before I go anywhere, just in case.  (Yes, Mapquest.  Yes, I still use Hotmail for my main personal email account.)  

But my phone has taken me through neighborhoods within two miles of my house that I have never seen before.  Sorry to all the people who don't want riffraff like me driving down their leafy streets (especially while I'm looking down in the direction of my cup holder), but in addition to avoiding  traffic -- I love those new streets.  An entire world has been opened up to me. 

According to the new law we're not supposed to touch our phones.  But what about every time the screen gets covered with a question about whose WiFi you want to connect to, which happens approximately every minute in city driving?  

United States District Court for the District of Massachusetts finds duty to defend sex trafficking claim under personal injury coverage

In my last post I was discussing Ricchio v. Bijal, Inc., 2019 WL 6253275 (D. Mass.) (unpublished), a case that addresses insurance coverage for a claim of kidnapping and sex trafficking.  Peerless Indemnity Insurance Company insured Bijal, the owner of Shangri-La Motel.  Plaintiff Lisa Ricchio had been taken to the motel against her will by Clark McLean and imprisoned there, allegedly with the knowledge of Bijal and two of its employees, Ashvinkumar and Sima Patel.  She brought a civil lawsuit under federal anti-trafficking laws. 

In my last post I discussed the summary judgment decision of the United States District Court for the District of Massachusetts holding that there was no coverage under Coverage A, for Bodily Injury, because of an exclusion for bodily injury arising out of personal injury, including false imprisonment. 

The court then moved on to a discussion of coverage under Coverage B, Personal Injury Coverage.  (While personal injury and bodily injury are often used interchangeably in personal injury law, they have very different meanings in insurance policies.  Bodily injury means, generally, physical injury, like a broken leg.  Personal injury encompasses injuries that don't have a directly physical component, such as injury to reputation as a result of defamation.)

Coverage B provided coverage for "personal . . . injury caused by an offense arising out of [the insured's] business."

Peerless argued that Ricchio's claims did not amount to a personal injury because they are based upon violations of the TVPA, an anti-trafficking law, and violations of the TVPA do not constitute personal injuries.

The court dismissed that argument.  It held that the relevant question was whether Ricchio's injuries -- which were caused by violations of the TVPA -- constitute a personal injury under the policy definition.  The policy definition includes injuries arising out of false imprisonment.  Ricchio's injuries arose at least in part from her false imprisonment.  They therefore were personal injuries.

Peerless then argued that Ricchio's injuries were not caused by an offense "arising out of" Bijal's business, because Bijal is not in the business of human trafficking.

The court held that the agreement to continue renting a room to McLean, providing him with the privacy he needed to abuse Ricchio, was an activity that caused an injury that arose out of the business.  The court referenced a two part test: (1) whether the activity is one which the insured regularly engages as a means of livelihood, and (2) whether the purpose of the activity is to obtain monetary gain.  The complaint alleged that the defendants regularly rented out rooms for the purpose of making money.  Therefore, Ricchio's injuries arose out of the business.

Peerless argued that Ricchio's claims were excluded by an exclusion for "personal injury arising out of a criminal act committed by or at the direction of the insured."  Peerless argued that Ricchio's injuries were caused by criminal violations of the TVPA committed by the Patels, and therefore fell within the exclusion. 

Ricchio argued that while McLean committed criminal acts in violation of the TVPA, the other defendants in the civil case were alleged to have violated only civil provisions. 

The court agreed that it was possible to be civilly liable under the sex trafficking laws without being criminally liable.   Although the complaint alleged that the defendants acted intentionally, not negligently, that did not foreclose a duty to defend.  A duty to defend arises when a complaint shows through general allegations a possibility that the claims are covered by the policy.  Ricchio's complaint was reasonably susceptible to an interpretation finding only negligence. Peerless therefore had a duty to defend. 

US District Court for District of Massachusetts holds that injuries to woman kidnapped, held against her will and sex trafficked come within exclusion for false imprisonment

Lisa Ricchio alleged that she was kidnapped by Clark McLean in 2011, that he held her captive and raped and abused her for several days at the Shangri-La Motel, and that he made clear to her that he intended to force her to work as a prostitute. 

The motel was owned by Bijal, Inc.  Ashvinkumar and Sima Patel worked and lived at the motel at the time.  Ricchio alleged that Bijal and the Patels were aware of McLean's abuse of her and profited from it. She brought a civil lawsuit against them under the federal Victims of Trafficking and Violence Protection Act of 2000 (TVPA) and the Trafficking Victims Protection Reauthorization Act of 2003 ((TVPRA). 

Peerless Indemnity Insurance Company insured Bijal. In Ricchio v. Bijal, Inc., 2019 WL 6253275 (D. Mass.) (unpublished), the United States District Court for the District of Massachusetts considered Peerless's motion for summary judgment in its declaratory judgment action on its duty to defend and indemnify. 

The court first held that Ricchio had standing to oppose Peerless's motion for summary judgment even though she was not an insured, because she had an interest in defining the scope of insurance coverage separate from the interest of the insured. 

The court next addressed whether bodily injury coverage (Coverage A) was excluded by an exclusion for "bodily injury arising out of personal . . . injury."  The policy defined personal injury as including "injury, including consequential 'bodily injury,' arising out of one or more of the following offenses: . . . False arrest, detention or imprisonment." 

Peerless argued that all of Ricchio's claims "arose out of" her "false imprisonment" and therefore came within the exclusion.  Ricchio argued that the source of her personal injury was not her false imprisonment, but rather McLean's act of trafficking her. The court held that her injuries arose of of both the trafficking and the false imprisonment.  The court held that it was irrelevant that the policy contained an asbestos exclusion that excluded injury "arising, in whole or in part, either directly or indirectly out of" asbestos.  If the policy had such broad language in a clause applying to false imprisonment, then the false imprisonment exclusion could be read more narrowly. 

The court then addressed whether there was coverage under Coverage B, Personal Injury Liability.  I will discuss that in my next post.  

First Circuit holds insurer did not act in bad faith in relying on property damage estimate that was lower than policyholder's estimate, or in delays that were also caused by the policyholder

River Farm Realty Trust owns property in Sherborn, Massachusetts.  Paul and Linda DeRensis live on the property.  As at so many homes in Massachusetts in the winter of 2015 (blog readers who lived here then will remember this well), in February and March 2015 ice dams caused water infiltration into the house.

The property was insured by Farm Family Casualty Insurance Company ("FFI").  The DeRensises notified FFI of the damage in early March, 2015. Throughout the adjustment of the claim FFI made a number of small errors, such as emailing Linda DeRensis incorrect claim information because the adjuster had mixed up her claim with another claim from a different Linda.  All such errors were quickly corrected.  

 In June, 2015, after inspecting the property, an outside adjuster for FFI provided the DeRensises with an estimate of about $18,000 to repair the damage.

The DeRensises did not make any response until November 2015, when they submitted to FFI  estimates indicating a loss of about $155,000. They retained an attorney who, in February 2016, submitted a new estimate of about $236,000.  FFI had the house reinspected by a new outside adjuster.  The new estimate, less the deductible and depreciation, was for $28,000.  FFI issued payment to the DeRensises in that amount.

On March 28, 2016, River Farm demanded a reference proceeding.  (A reference proceeding is the proceeding required by Massachusetts statute, and incorporated into property insurance policies,  in which a panel of three referees determines a dispute over the amount of loss in a property damage claim.)

The reference proceeding was conducted in June and July, 2016.  The referees found the actual cash value of the loss to be $137,888.  (Although there is a lot of debate about the precise meaning of actual cash value, in shorthand it is the value of the damaged property just before the loss, taking into account that the property is not in new condition.  Under property damage policies, an insurer pays the actual cash value up front.  After repairs are actually made, it pays the difference between actual cash value and replacement cost value.)  FFI paid the actual cash value amount within a month of the decision.

River Farm sued FFI for breach of contract and violations of Mass. Gen. Laws chs. 93A and 176D.  It alleged that FFI violated the statutes because it was first notified of the claim in March, 2015 and did not resolve it until the reference award in July 2016.  River Farm also alleged that a violation was established by the disparity in amounts between FFI's estimates, River Farm's November demand, and the final reference award.

In River Farm Realty Trust v. Farm Family Casualty Insurance Company, __ F.3d __, 2019 WL 6124489 (1st Cir.), the United States Court of  Appeals affirmed summary judgment for FFI. 

The court held that the length of time it took to resolve the claim was not a violation of the statutes. There was no evidence that the time period was unreasonable, and no evidence that delays were a result of a desire to delay or of bad faith.  Although FFI made some internal errors, those errors were not in bad faith.  Other delays were a result of the DeRensises own failure to communicate timely.  The court held that delay caused by a legitimate dispute between the policyholder and the insurer is not a bad faith delay by the insurer.

The court held that the disparity in estimates was not bad faith by FFI.  River Farm offered no evidence or argument that FFI failed to act reasonably in estimating the damage, or that its estimate varied from industry practice.  Moreover, when irrelevant numbers were removed from the estimates, they were not that far apart from each other. 

The insurance industry and climate change

Fortune has an interesting article, here. 

Massachusetts Appeals Court discusses rule that only referees of reference proceeding can seek court order compelling witnesses to testify

A few years ago I wrote a series of posts about a decision of the United States District Court for the District of Massachusetts on a case in which a restaurant called Bearbones alleged bad faith by an insurer with respect to a reference proceeding. 

(A reference proceeding is the proceeding required by Massachusetts statute, and incorporated into property insurance policies,  in which a panel of three referees determines a dispute over the amount of loss in a property damage claim.)

One of the issues at the reference proceeding was the value of damaged kitchen equipment.  The plaintiffs had wanted Blake Purry and Jim Clary, employees of B & G Restaurant, to testify about an estimate that B & G provided for the removal and replacement of the damaged equipment. 

During the reference proceeding the plaintiffs summoned Purry to appear and testify.  When it became apparent that he did not plan to do so, they filed an emergency motion for a capias (which would have forced him to attend) in Superior Court.  A judge denied the motion because the plaintiffs had not followed the proper procedure.  The proper procedure required the referees, rather than a party, to seek the capias. 

The referees asked plaintiffs' counsel if he knew of any authority by which they could enforce the summons.  Plaintiffs' counsel responded that he know of no such authority -- even though the Superior Court judge had informed the attorney of the proper procedure.

The plaintiffs subsequently summoned Clary to appear and testify at the reference proceeding, but he did not appear.  

The plaintiffs filed a lawsuit in which they sought a preliminary injunction requiring Perry and Clary to appear at the reference proceeding, and damages under Mass. Gen. Laws ch. 233 §4, a statute that provides tort damages for failure to comply with a summons. 

In Bearbones, Inc. v. B & G Restaurant Supply, Inc., 2019 WL 4898481 (Mass. App. Ct.) (unpublished), the Massachusetts Appeals Court noted that a witness summoned to testify at a reference proceeding is not always required to do so, as a judge has discretion to compel (or not compel) such testimony.  The plaintiffs did not follow the proper procedure for compelling the testimony of the witnesses, which was to have the referees submit the motion to compel their attendance.  The court affirmed summary judgment for the defendants. 

US District Court for District of Massachusetts holds that where insurer pays for repairs to damaged vehicle it is not responsible for post-repair diminishment in market value

There are a category of insurance issues that I classify as "cocktail party issues."  If it comes out in a social setting that I'm an insurance coverage geek, there a few questions that come up over and over again from people who are making conversation/seeking free advice.

One of those questions is about damages to a car after an accident.  Specifically, can the owner recover from the insurer for the diminished value of the car after it is repaired?  Everyone who has ever negotiated to trade in their car at a dealership knows that the dealership will use the fact that the car was in an accident -- even if it was (more or less) fully repaired -- as an excuse to offer less for it.
 In Martins v. Vermont Mutual Ins. Co., __ F.Supp.3d __, 2019 WL 3818293 (D. Mass.), the United States District Court for the District of Massachusetts has held that under the standard Massachusetts Automobile policy, a vehicle owner cannot recover from the other driver's insurer for both the cost of repairs and the diminution of market value. 

Part 4 of the 2008 Standard Massachusetts Auto Policy (the version still in effect) provides that an insurer will "pay damages to someone else whose auto . . . is damaged in an accident.  The damages we will pay are the amounts that person is legally entitled to collect for property damage through a court judgment or settlement." 

The United States District Court is bound to follow the rulings of the Massachusetts Supreme Judicial Court in interpreting Massachusetts insurance policies.  In Given v. Commerce Insurance Co., 440 Mass. 207 (2003), the SJC held that collision coverage (Part 7 of the standard policy, which insures the policyholder's own vehicle) does not require insurer to pay for diminished value.  Part 7 states that the insurer will pay for cost of repair or diminution in value, but not both. 

The US District Court noted that Part 4 of the policy is not identical to Part 7 and therefore requires its own analysis.  Under Part 4 the precise issue was whether a plaintiff would be "legally entitled to collect" diminished value from the at-fault drive.  The court turned to cases discussing damages to real property, which hold that the measure of damages is either the cost of repairs or the diminished market value, whichever is less.  The court held that the same measure of damages applies to property damage to vehicles. 

The plaintiff has filed an appeal.  Stay tuned. 

US District Court holds that insurer with $20,000 limit cannot intervene in case in federal court because of diversity jurisdiction

A vehicle driven by Susan Ingham and owned by William Ingham struck a vehicle driven by Ansley Dunbar.  Dunbar's vehicle was insured by Patriot Insurance Company.  The Inghams' vehicle was insured by Progressive Direct Insurance Company. 

Patriot made payments to Dunbar for her injuries pursuant to her underinsured motorist coverage. 

A digression:  Underinsured motorist coverage provides coverage to the injured insured above the policy limit of the person responsible for the accident. In other words, if you have $300,000 of underinsured motorist coverage on your own car insurance, and you get hit by some idiot texting while driving with a $20,000 policy limit, your own insurance will cover your proven damages up to $300,000. 

Underinsured motorist coverage and its sibling uninsured motorist coverage (which covers you if you are injured by someone with no insurance or in a hit and run) are the most important coverages you can buy.  While most insurance will pay other people injured by your negligence, underinsured and uninsured motorist coverage protects you from other people's negligence. 

If you don't have underinsured and uninsured motorist coverage, call your agent right now and add it to your policy.  If you do have it, call your agent right now to discuss raising your coverage limits.

Back to the case:  After paying Dunbar for her injuries caused (allegedly) by the negligence of the Inghams, Patriot  brought a subrogation action against the Inghams.  (In a subrogation action an insurer who has paid a claim seeks reimbursement from the people responsible for the damages.) 

Progressive moved to intervene in the subrogation action, for the purpose of securing a coverage determination as to the limits available under Progressive's policy. 

In Patriot Ins. Co. v. Ingham, 2019 WL 5394503 (unpublished), the United States District Court for the District of Massachusetts held that Progressive could not intervene as of right because the question of the applicable limit would not arise unless and until the Inghams were found to be liable for the accident.

The court also held that Progressive could not intervene under the permissive intervention rule.  The Patriot claim was in federal court under diversity jurisdiction, which requires the claim to exceed $75,000.  In order to permissively intervene, Progressive's claim would also have to exceed $75,000.  Since its policy had a $20,000 limit (begging the question of why it was asking the court to determine the applicable limit), it did not meet the jurisdictional amount. 

The court held that the denial of intervention would not cause Progressive significant prejudice, as it could bring a separate action for declaratory judgment.  However, the court denied Progressive's motion to stay the lawsuit until Progressive filed its declaratory judgment action.

Insurance experts weigh in on Thanksgiving mishaps

Master of the obvious:  be careful when you deep-fry your turkey. 

More on Szafarowicz

In my last post I discussed Commerce Ins. Co. v. Szafarowicz, __ N.E.3d __, 2019 WL 4774348 (Mass.), a case in which the SJC upheld the legitimacy of settlement/assignment agreements, but only to the extent that the settlement is reasonable including in light of the available insurance coverage.

A settlement/assignment agreement generally consists of three parts:

1.  The plaintiff and insured defendant agree to a settlement amount.
2.  The plaintiff agrees not to enforce the agreement against the defendant but only against the defendant's insurer.
3.  The defendant assigns his or her own rights against the insurer to the plaintiff.

Unsurprisingly, this case has received a lot of attention. Dennis Wall, a Florida attorney who writes the Claims and Bad Faith Law Blog, posted about it here.    

In his post Dennis asked me, if I understand him correctly, to comment on the courage of the insurer, Commerce, and its attorneys in holding fast in fighting what could have been a multi-million dollar loss far exceeding the policy limit.

In reading the case the first thing that jumped out at me was that the attorneys for all the parties seem to have done a stellar job of protecting and advocating for their client’s interests -- and the trial court and SJC made decisions that showed a broad understanding of the competing interests.  I wrote about how the parties' interests overlapped and diverged in my last post.

As far as the positions that Commerce took, Dennis seems to be implying that there may have been a lot of pressure on Commerce to settle the claim because of the settlement in the underlying case in which both sides agreed that the insured driver had been negligent, and that the damages vastly exceeded the policy limit.

To understand why Commerce resisted the settlement, we need to acknowledge that the primary purpose of the settlement agreement was to get insurance coverage for the loss.  If the insured driver, Matthew Padavano, intentionally struck David Szafarowicz with his vehicle, resulting in David's death, there was no coverage under the policy.  There seemed to be plenty of evidence that Matthew did act intentionally and eventually the trial court so found in the declaratory judgment action.  The settlement agreement providing that  Matthew had acted negligently was an effort to protect the assets of Matthew and his family and to provide insurance funds to David's survivors.  It was not proof, or even evidence, of negligence as opposed to an intentional action.  

The only reason that the case was complicated was because of the weird quirk of the insurance policy that required Commerce to pay interest on the entire amount of the underlying multimillion dollar judgment.  That clause exists to encourage settlements -- but there are times when an insurer is justified in holding firm even in the face of the high risk of a big price tag when it does so.  The policy exclusion for intentional acts -- insurance doesn't pay damages when a policyholder murders someone, for example, which the declaratory judgment trial court found is what happened here -- exists for very good reasons.  I'm terribly sorry for David's family, who have suffered an unimaginable loss.  But insurance simply cannot cover murder, and I applaud Commerce for holding firm on that, despite the fact that ultimately the company would have saved money if it had simply settled the case. 

SJC upholds settlement/assignment agreement between plaintiff and insured tortfeasor, but holds that a settlement amount that exceeds the policy limit is per se unreasonable

In Commerce Ins. Co. v. Szafarowicz, __ N.E.3d __, 2019 WL 4774348 (Mass.), after  David Szafarowicz and Matthew Padovano argued at a bar,  Matthew drove a vehicle that struck and killed David.  Matthew's father Stephen owned the vehicle.   Commerce insured it. The policy limits were $20,000 in compulsory coverage and $480,000 in optional coverage.

Matthew pleaded guilty to voluntary manslaughter.  David’s mother brought a wrongful death action against the Padovanos in Superior Court, claiming that David’s death was caused by Matthew’s gross negligence in operating a motor vehicle that was negligently entrusted to him by Stephen. 

Commerce acknowledged its duty to defend.  It acknowledged its duty to indemnify up to the $20,000 compulsory limit.  It reserved its rights to deny a duty to indemnify under the  $480,000 optional coverage if it was determined that David’s death was caused by Matthew’s intentional act and was therefore not an “accident” that was covered by the optional portion of the policy.  It then filed a declaratory judgment action on that issue. 

Thus, the stage was set.

To understand this case you have to understand how the interests of the three parties (the Padovanos, David's estate, and Commerce Insurance) were in conflict and how they overlapped.

The conflict arose because the optional portion of the Commerce auto policy does not cover intentional injuries.  Commerce’s theory was that Matthew had intentionally hit David, so that there was no optional coverage for the loss.  It appropriately agreed to defend  the Padovanos while reserving its right to deny a duty to indemnify (in other words, to refuse to pay a judgment or settlement because of a determination that the loss is not covered under the policy).

The Padovanos and David’s estate would both benefit from a finding that the accident had been a result of negligence and was not intentional.   That way David's estate would recover, but Commerce rather than the Padovanos would pay the judgment.   Commerce’s interest was in a finding that Matthew had acted intentionally, so that it would not have to pay the judgment.

Commerce filed motions to intervene in the wrongful death trial and to stay the trial until after the dispute over insurance coverage was resolved.  Although it lost those motions, the trial court ruled that after the wrongful death trial Commerce could seek a determination about whether the issue in the wrongful death trial that related to coverage – whether Matthew’s actions had been negligent or intentional – had been fairly litigated and, if not, to relitigate it. 

The Padovanos and David’s estate countered by entering into an three-part agreement.  First, the parties stipulated that Matthew’s actions had been negligent (rather than intentional).  Second, in what was perhaps a move to prevent a ruling that the settlement was unreasonable, they agreed that the wrongful death damages would be determined by a judge.  Third, David’s estate agreed to release the Padovanos and that it would collect damages only from Commerce.   

The judge found damages in the millions of dollars, many times the $500,000 policy limit.

Now Commerce was in a particularly difficult situation, because of a policy term (as required by Massachusetts law) that provided that Commerce was liable for post-judgment interest on the entire judgment, not just the policy limit.  The verdict was so high that the annual interest would exceed the policy limit.  The only way Commerce could avoid the interest would be to pay the policy limit, but that would mean that it was giving up its argument that there was no coverage under the policy because Matthew had acted intentionally.

The court noted that the interest policy provision, which is set by state law, has been revised so that under current auto policies the insurer is only required to pay post-judgment interest on an amount of a judgment up to the policy limit. But that revision did not apply to Commerce in this case. 

Commerce tried to limit interest by offering to put the policy limit in a separate fund, but the court denied that motion. 

In the meantime, the trial court ruled that for the purposes of the coverage dispute, Matthew’s actions had been intentional.  But that still did not get Commerce out of the interest payments on the entire amount of the damages found by the court in the wrongful death action. 

The SJC revisited the reasonableness of the settlement agreement for the purposes of insurance coverage.  The first part of the agreement, in which the parties stipulated that Matthew’s actions had been negligent and not intentional, had already been held by the trial court not to apply to Commerce.  The SJC examined the second part of the agreement – that the damages would be determined by a trial court judge.  The SJC held that that part of the agreement was per se unreasonable, because the trial court’s damages assessment exceeded the insurer’s liability limit.  It remanded the case for a reasonableness hearing to determine what would have been reasonable under the circumstances (with a strong implication that the only reasonable amount would be the policy limit).  The court held that Commerce would have to pay retroactive interest only on that amount. 

Finally, the court held that in future cases, a judge who finds that a settlement/assignment agreement is not reasonable should “invite” the parties to renegotiate an agreement to an amount that “might’ prove reasonable. 

One takeaway from this case is that while Massachusetts courts will continue to uphold settlement/assignment agreements, the settlement amounts in those agreements had better be within the applicable insurance policy limit.  Of course, that does not limit the ability of the parties to a tort case to request that the court determine the amount of damages – as long as the settlement agreement provides that the upper limit of damages is the policy limit.

But it is worth noting that there will be times when it is not in the interests of the parties to settle within the policy limits.  In this case it seems quite clear that Commerce's reservation of rights and refusal to settle was reasonable, given the strong evidence that Matthew's actions had been intentional.   But there are times when the plaintiff wants to preserve the possibility of an excess judgment -- a judgment over the policy limit.  That could happen when a policyholder has sufficient assets to pay an excess judgment.  It can also happen when an insurer has arguably acted in bad faith in not protecting its policyholder from an excess judgment by settling the case.  In that situationion the insurer can be liable to the policyholder under Mass. Gen. Laws ch. 93A for the excess amount, and for treble damages.  In the past, a policyholder has been able to settle the claim for the excess judgment amount in exchange for a release against the policyholder and an assignment of rights against the insurer.  In Szafarowicz the court does not address what a reasonable settlement would be in that situation. 

US District Court denies summary judgment to first insurer sued by second insurer for violating ch. 93A by seeking defense and indemnity from second insurer's policyholder

Joyce Richards sued MacDougalls' Cape Code Marine Services to recover for personal injuries she alleged she suffered while working as an employee of Boston Yacht Service (BYS) at MacDougalls' boatyard, where BYS leased an office. 

MacDougalls was insured by Atlantic Specialty Insurance Company.  BYS was insured by Quincy Mutual Fire Insurance Company. 

At Atlantic's direction, MacDougalls requested that BYS and Quincy defend and indemnify it against Richards' claims.  Quincy refused, in part on the ground that the indemnity provision of the lease between MacDougalls and BYS was void and unenforceable. 

At Atlantic's direction, MacDougalls filed a third-party complaint against BYS and Quincy.  Quincy filed a counterclaim, alleging that McDougalls violated Mass. Gen. Laws ch. 93A by asserting groundless indemnification and defense claims that relied on the unenforceable and void indemnity provision of the lease.  The Massachusetts Superior Court entered summary judgment in favor of Quincy on MacDougalls' claims. 

Quincy subsequently filed a new lawsuit against Atlantic, in which it sought to recover under Mass. Gen. Laws ch. 93A s. 11 litigation costs that it had incurred in the Richards litigation.  (It filed a new lawsuit because Atlantic was not a party to the Richards litigation.)  Quincy served discovery requests.  Rather than engaging in the discovery process, Atlantic told Quincy that it intended to move for summary judgment.  Quincy moved to compel discovery, and Atlantic moved for summary judgment. 

In Quincy Mutual Fire Ins. Co. v. Atlantic Specialty Ins. Co., 2019 WL 3409980 (D. Mass.), the United States District Court for the District of Massachusetts denied Atlantic's motion for summary judgment.

Atlantic argued that the parties were insurers who never had a business relationship necessary for a claim under ch. 93A §11.  The court rejected that argument, noting that ch. 93A allows actions where an individual or company is injured a a result of an insurer's unfair or deceptive behavior, regardless of whether the plaintiff is the named insured on the policy at issue. 

Atlantic argued that no commercial relationship between two parties exists where the only contact between the parties occurs in the context of litigation.  The court noted that there is an exception to that rule; "an insurance company may be liable for litigation expenses that flow from its failure to conduct a reasonable investigation and effectuate a prompt, fair, and equitable settlement once its liability has become clear."  The court noted that Quincy's complaint was principally based on Atlantic's failure to comply with its statutory obligations before it filed the third-party complaint in the Richards litigation. 

Atlantic argued that statements and conduct of attorneys are immune to ch. 93A liability.  The court held that the immunity doctrine may not apply to Atlantic's failure to carry out a proper investigation before directing its insured to file the third-party complaint. 

In the discovery dispute, Atlantic argued that Quincy's discovery requests sought information subject to the attorney-client and work product privileges.  The court held that those privileges did not apply to the extent that Atlantic was defending itself on the basis that it had reasonably relied on the advice of counsel when it instructed MacDougalls to seek defense and indemnity from BYS.

Practice note:  the judge drafting the decision made clear that she was annoyed by Atlantic's failure to answer discovery, and that the decision could have come out differently on some of the issues if the full facts had been before her.  In short: refuse to answer discovery at your own risk. 

Insurance defense attorney describes her own tornado loss

Tricia Murray, an insurance defense attorney with ForbesGallagher, owns property on Cape Cod that suffered fallen trees in a recent tornado.  Luckily the damage was only to the trees and the yard, and the people, pets, and house itself were not harmed.  In her article at the wonderful blog Agency Checklists about dealing with the aftermath, one of the things she discusses is how even she, an experienced insurance litigator, did not really know what was covered and what was not covered under her homeowner's policy.  (She learned that tree damage that does not affect her house is not covered under her policy.) 

That has been my experience as well; after every minor water infiltration into my house from a bad storm or fender bender to my parked car I have to read my policy to figure out what is or is not covered.  The advantage of being an insurance litigator in my own life is not so much that I can make a better argument about coverage than anyone else, as that I can speak to adjusters with an air of polite confidence when I know that they are wrong about coverage. 

Massachusetts Appeals Court holds that verdict against insured does not make liability or damages reasonably clear until appeal is resolved

Surabian Realty Co. and Maja Hospitality Corporation sued Central One Federal Credit Union and two of its officers, David L'Ecuyer and Craig Madonia in connection with a failed attempt to obtain a commercial loan to develop a hotel on property in Shrewsbury.  A jury returned a verdict in favor of the plaintiffs, and the trial judge ruled in favor of the defendants on ch. 93A claims. Both sides appealed.

While the appeals were pending the plaintiffs sent a 93A demand letter to CUMIS, the insurer for Central One and its officers, demanding that it settle the claims against L'Ecuyer (but not the other two parties).  CUMIS responded that the appeal rendered liability unclear, and declined to pay the judgment against L'Ecuyer.  The plaintiffs then sued CUMIS.  Subsequently the trial court decisions in the underlying case were affirmed.

In Surabian Realty Co., Inc. v. CUNA Mutual Group, 95 Mass. App. Ct. 1118, 2019 WL 2591286 (unpublished), the Massachusetts Appeals Court held that the cross-appeal injected uncertainty as to L'Ecuyer's liability and the amount of damages, so that CUMIS did not act in bad faith in refusing to settle.  In particular the court noted that the memorandum of the trial judge on the 93A claim in the underlying case made clear that the judge disagreed with the determination of the jury.  In addition, CUMIS was relying on the advice of counsel in declining to settle. 

US District Court For District of Massachusetts holds that auto exclusion in pedicab's general liability policy excludes injuries caused by car hitting insured's customers in a pedicab

Laura Gentry Reagan and her husband Robert Reagan hired a pedicab that was licensed and registered to Boston Rickshaw and operated by its employee Dennis Suozzi.  During the ride, Suozzi allegedly changed lanes without looking or signaling.  That caused a vehicle to hit the rear of the pedicab, injuring the Reagans.  They sued Suozzi and Boston Rickshaw.

Atain Specialty Insurance provided general liability insurance to Boston Rickshaw.  It denied a duty to defend or indemnify on the basis of an exclusion for bodily injury "arising out of . . . any auto . . . whether or not owned, maintained, used, rented, leased, hired, loaned, borrowed or entrusted to others or provided by another to any insured." 

In Atain Specialty Insurance Co. v. Boston Rickshaw LLC, __ F.3d __, 2019 WL 2766980 (D. Mass.), the United States District Court for the District of Massachusetts first dismissed the argument that the declaratory judgment action was not yet ripe because the underlying lawsuit had not yet resolved, as the declaratory judgment action raised the issue of the duty to defend as well as the duty to indemnify.   

The court then addressed the first part of the auto exclusion, excluding coverage for body injury "arising out of . . . any auto."  It cited the usual definitions for "arising out of," a phrase which "must be read expansively, incorporating a greater range of causation than that encompassed by proximate cause," etc.  It held that the exclusion "therefore, appears to apply to the Reagans' alleged injuries, because the injuries arose directly of the operation of the automobile, and would not have occurred but for the collision."

The Reagans argued that taking the exclusion as a whole, it applies only to autos under the control of the insured, and does not include the auto that struck the pedicab. The court held that such an interpretation was contradicted by the plain meaning of the policy interpreted by the rules of grammar.

Finally, the Reagans argued that a reasonable insured that operates pedicabs would not expect the auto exclusion to apply to autos outside of their control or use, or to autos that strike pedicabs.  The court responded to that argument in part by pointing out that it is commonplace for insureds to have separate automobile and general liability policies.  I find that comment troubling.  After all, insureds who don't own or use automobiles generally don't have automobile policies, but that doesn't mean that their customers or visitors can't get hit by cars in a variety of circumstances under which the insured could be found liable. 

That led me to wonder whether a standard homeowner's policy, which I know excludes coverage generally for motor vehicle accidents, would exclude coverage if an unknown person drove a car through the wall of a house (and then drove away).  The standard ISO homeowner's policy form (a form used by many insurers) does not exclude coverage in those circumstances:

·       The property damage coverage (covering damage to the house itself) excludes coverage to motor vehicles themselves, but does not exclude coverage for damage to the house caused by a motor vehicle. 

·       The liability coverage (covering claims against the homeowner brought by an injured person) excludes "motor vehicle liability," which is defined in the policy as liability arising out the ownership or use of the vehicle by an insured. 

It's worthwhile to note that the exclusion interpreted in the case is also not a standard exclusion (or at least is not in the first general liability ISO form that I grabbed).  I’m not going to speculate about the insurance policy negotiations of a company whose business involves being a part of traffic, or whether that company has an auto policy that is providing coverage.