Tuesday, August 6, 2019

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. 

Saturday, August 3, 2019

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. 

Thursday, August 1, 2019

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.