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 (unpublished), a case that addresses insurance coverage for a claim of kidnapping and sex trafficking.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.