Monday, August 3, 2020

Be nice to your adjusters!

I get it.  You have suffered a catastrophic event.  You are seriously injured, or your house burned down,  or you have made a mistake that you are worried has put your career in jeopardy.  You have faithfully paid your insurance premiums and you don't understand why your insurer is giving you a hard time, or not moving quickly enough.

A word of advice:  Be nice to your insurance adjusters.

Be polite to them.  Be calm when communicating with them. Say thank you. 

Don't vent on them.

I work with adjusters from both sides.  I represent policyholders and claimants seeking coverage.  I also represent insurance companies and get hired by insurers to represent policyholders.  From both perspectives I have known many adjusters who have the highest professional standards and who work hard to resolve claims quickly and fairly.  I've also known adjuster who are poorly trained and overworked and who let their unhappiness with their job situation seep into how they handle claims.

But one thing all adjusters have in common: they are human.

Yes, they are required by law to use good faith in adjusting losses, and there are penalties to the insurer if they fail to do so.

But you know what?  Every adjuster will treat you better if you are pleasant to them.  That doesn't mean that they will overvalue your claim, or find liability when there is none.  And if you are rude to them they will not necessarily undervalue your claim or purposefully give you a harder time.

But they are human.  Remember that they are going through the Coronavirus pandemic too.  They may have kids at home.  They may have elderly parents they are worried about, or have their own health problems.

Be pleasant to them.  Then (politely) document your interactions with them so that you have a record.  If you can't resolve the claim, turn your documentation over to the attorney you will hire.  If there was bad faith, the lawyer will have that fight for you.  That's our job. 

Tuesday, July 28, 2020

Cheers bar joins the fray -- files lawsuit for business interruption coverage for Covid-19 losses

Some (actually not so) important background: when the TV show Cheers was popular, a bar opened in Boston which was named Cheers to attract tourists who were fans of the show.  Natives knew that the "legitimate" Cheers bar was the Bull & Finch Pub, on Beacon Hill -- because the exterior of the TV show's bar was shot there.  Back in the day, it was a pretty good bar, although nobody knew my name when I went there.  Eventually the fake Cheers bar also took over the Bull & Finch and renamed it Cheers. 

Yesterday Hampshire House Corporation, the owner of both Cheers bars as well as a couple of other restaurants, filed a lawsuit in the United States District Court for the District of Massachusetts against Fireman's Fund Insurance Company, Associated Indemnity Corporation, and Allianz Global Risks United States Insurance Company, alleging that the insurers have wrongfully denied coverage for business interruption claims caused by -- not the Covid-19 pandemic, but the emergency orders limiting the operation of restaurants during the pandemic.  Presumably that is because the policies have a virus exclusion that would apply to pandemic losses. 

According to the complaint, the emergency orders "were not a foregone conclusion or obvious consequence of the Covid-19 pandemic, as evidenced by the great variance between states and localities as to the types and extent of restrictions placed on business and public activities." 

The complaint alleges that the emergency orders caused Hampshire House to lose the ability to provide restaurant, alcohol, and retail sales, prevented its customers from physically occupying the premises, and caused the properties to be physically uninhabitable.  According to the complaint, those losses constituted "physical loss of and damage to the insured properties for regular business operations."  Since the policies cover physical loss and damage, the business losses from the emergency orders are covered losses. 

Hampshire House takes issue with the insurers' across-the-board denial of all Covid-19 business interruption claims, alleging that the insurers have a duty to investigate the different circumstances that apply to each claim. 

Wednesday, July 22, 2020

Insurance for PPP loans

My first thought was that insuring against the possibility that the Small Business Administration may find that a business was not eligible for a loan it received from the Paycheck Protection Program, or PPP,  was a little . . . off.  Sure, regulations about eligibility for the loan itself and for loan forgiveness seem to change every day, but how can you insure a business against receiving funds that it should not have received?  I don't want to minimize the importance of those funds in keeping many businesses afloat during the pandemic, but still, the insurance struck me as counterintuitive.

As with so many things, the reality is a bit more complicated.  Businesses applying for PPP funds are required to certify that the funds are necessary to support their ongoing operations.  But what does "necessary" mean?  Despite the uncertainty, the SBA may review loans of a certain size -- currently, $2 million or more -- for whether they actually were necessary.  It is empowered to impose fines and treble damages for statements that are found to be false and misleading.

The purpose of insurance is to protect against uncertainty.  There is enough uncertainty in the PPP rules for it to make sense that businesses consider insuring against the possibility that they will have to repay those funds.

Thanks to Kelly Beaudoin in the Manchester office of HUB International for letting me know about this insurance. 

Friday, July 17, 2020

Shameless self-promotion: The accolades keep rolling in

In the obligatory "I am not a robot" paragraph on the biography page of my website I mention that I am an award-winning poet.  Previous awards have now been completely overshadowed.  I am  thrilled to announce that Randy Maniloff of the otherwise excellent online magazine Coverage Opinions has chosen my poem as a winner of the Coverage Opinions 2020 Home Quarantine Haiku Contest.  My prize, an autographed copy of John Grisham's Camino Winds, arrived in today's mail.

My haiku:

Coverage lawyer

Blouse no pants on Zoom meeting

Not much coverage

Poetic license and all that. 

Tuesday, July 14, 2020

Mass. Appeals Court holds insurer estopped from denying lead paint coverage when it did not inform policyholder that lead paint certificate was insufficient

In 1992, John Cerasuolo sought to purchase coverage for lead paint claims that might arise from an apartment building he owned with his wife.  His agent told him that he would have to obtain letters of compliance in order to obtain such coverage, but did not explain what a letter of compliance was or how to obtain one.

John had the apartments inspected by a lead inspector, who issued letters for each unit that John incorrectly believed were letters of compliance.  He submitted them to his agent, who submitted them to Northern Security Insurance Company.  Over the next years Northern issued consecutive insurance policies to the Cerasuolos.  John believed that the policies provided the requested coverage for lead poisoning claims.  

In 2010, a tenant notified John of  lead paint claim.  Northern declined to defend or indemnify, on the ground that the Cerasuolos had not submitted a letter of compliance.

Two juries determined that Northern was estopped to deny coverage.  In Rabassa v. Cerasuolo, __ N.E.3d __, 2020 WL 3635887, the Massachusetts Appeals Court affirmed.

Northern contended that estoppel cannot create coverage.  Without ruling on whether Massachusetts has adopted the general rule that the doctrines of waiver and estoppel will not create, enlarge, or expand the coverage of a policy, the court noted that the general rule has exceptions.  One exception is when an insurer misrepresents the extent of coverage to an insured, thereby inducing the insured to purchase coverage which does not cover the disputed risk.

The court held that the facts of the case fell into the exception.  John specifically requested coverage for lead poisoning claims.  Northern, through its silence when it had a duty to speak, misrepresented that the polices provided the requested coverage.  Relying on that misrepresentation, the Cerasuolos purchased the policies.

The court relied on expert testimony that Northern had a duty to inform the Cerasuolos that the documents they submitted were insufficient for lead paint coverage.  It affirmed the jury's finding that the Cerasuolos' reliance was reasonable.

Thursday, June 25, 2020

First Circuit holds insurer does not have duty to defend or investigate when allegations of complaint do not sketch facts showing coverage

Denise Doherty sued Lundgren Management Group, Inc., a building management company, alleging negligence and other claims stemming from water infiltration into her condominium unit beginning in 2004 in a building managed by Lundgren.  She alleged that Lundgren did not make timely or appropriate repairs.

Lundgren was insured by Clarendon National Insurance Company from June 24, 2004 to June 24, 2005.  It was insured by Philadelphia Indemnity Insurance Company from September 1, 2007 to September 1, 2008.

Philadelphia denied coverage in part on the ground that there were no occurrences during its policy period.  Clarendon defended Lundgren.  After the underlying case settled Clarendon sued Philadelphia for contribution.  That case eventually arrived at the United States Court of Appeals for the First Circuit.  In Clarendon Nat't Ins. Co. v. Philadelphia Indemnity Ins. Co., 954 F.3d 397 (1st Cir. 2020), the court affirmed summary judgment for Philadelphia.


Clarendon first argued that although the underlying complaint alleged that one leak occurred in 2004, it did not allege specific information as to the time of other leaks.  Therefore, the complaint was reasonably susceptible of an interpretation that some of the leaks occurred during Philadelphia's policy period.

It initially appeared that the First Circuit was going to decide the issue under the law relating to the perennial question of when reasonably knowable facts outside the complaint can affect the duty to defend.  But the court pivoted and held that the allegations of the complaint itself showed that there was no coverage under the Philadelphia policy. 

The First Circuit pointed out that an insurer does not have a duty to defend if there is "undisputed, readily knowable, and publicly available information" in court records that demonstrates that the insurer has no duty to defend, or if "there is an undisputed extrinsic fact that takes the case outside the coverage and that will not be litigated in the trial of the underlying action." 

But the court held that there was no coverage because allegations in the complaint itself showed that the loss was outside of Philadelphia's policy period.  The complaint alleged that the leaks started in 2004, that repairs were not made in an appropriate manner, and that Doherty continued to request repairs. The complaint also referenced chronic dampness that began before the Philadelphia policy period.  The duty to defend was not triggered.


Clarendon argued that Philadelphia had a duty to investigate the loss regardless of the language of the underlying complaint.  The court disagreed, holding that while an insurer must look at facts "known or readily knowable by the insurer" to determine whether a duty to defend has been triggered, that does not apply when the complaint does not adumbrate a claim.  (In other words, where coverage is unclear based on allegations in a complaint -- for example, the complaint does not allege the date of a car accident -- the insurer must investigate.  If lack of coverage is not ambiguous based on allegations in a complaint -- the complaint alleges a date of a car accident prior to the coverage period -- there is no duty to investigate.)

Thursday, June 11, 2020

Mass. Appeals Court holds that "results in" means "causes," and that chain of causation theory does not apply to third party claims

Four related companies known as Cold Storage Solutions operated cold storage warehouses. They hired Eastern Insurance Group to obtain warehouse liability insurance for them.  Eastern informed them that it had done so, but in fact it had failed to obtain insurance for one of the entities, CSS III.

On October 9, 2011, a forklift operator drove into a racking system in a freezer at the CSS III warehouse, causing racks holding millions of pounds of frozen food to collapse.

Whitecap International Seafood Exporters stored snow crab at the warehouse. Some crab was undamaged in the accident but had to be moved from the warehouse because of the risk that additional racks would collapse.  CSS employees allowed the crab to be left outside the freezer for five to six hours during the process of moving it from the warehouse.  That caused temperature fluctuation damage.

Litigation ensued.  As part of the settlement agreement, Cold Storage Solutions assigned to Whitecap the claim against Eastern for its failure to obtain insurance for CSS III.  In Whitecap Int'l Seafood Exporters, Inc. v. Eastern Ins. Group, LLC, __ N.E.3d __, 2020 WL 3023105 (Mass App. Ct.), the issue before the court was whether CSS III's liability would have been covered if Eastern had obtained insurance for it.

The Superior Court had granted summary judgment to Eastern, holding that there would have been no coverage under the policy that Eastern would have obtained for CSS.  On appeal, the Massachusetts Appeals Court examined three policy provisions.  It held that there was a factual dispute as to coverage under one of the provisions, and remanded the case to the Superior Court.
The policy was an all risks policy.  It contained an exclusion for "loss to perishable stock caused by spoilage."

The spoilage exclusion had an exception providing that "if spoilage results in a specified peril, we do cover the loss or damage caused by that specified peril."  Specified perils as defined by the policy means explosion, falling objects, hail, fire, etc. 

Eastern argued that the phrase "results in" in the exception means "causes."  Whitecap argued that it means "results from."

The Appeals Court agreed with Eastern.  It held that because the temperature fluctuation to the crab did not cause a specified peril the exception did not apply.
The policy included supplemental coverage for cold storage, if spoilage "is caused by . . . a sudden or accidental breakdown or malfunction of refrigeration equipment" or by "the incorrect usage of the refrigeration equipment."  The court held that that coverage did not apply because those causes were not the immediate cause of the damage to the crab.  Rather, the damage was caused by the decision of CSS to leave the crab in the loading area for five to six hours. 

Whitecap made a chain of causation (sometimes called train of events) argument, under which "if the efficient proximate cause is an insured risk, there will be coverage even though the final form of  property damage, produced by a series of related events, appears to take the loss outside the terms of the policy."

Chain of causation arguments are among my least favorite to make or oppose in the entire realm of insurance coverage, because when fully analyzed under the case law interpreting it the theory is confusing and slippery and usually requires me to make a chart with arrows.

The court did not dive into the weeds of the argument.  It dismissed the theory on the ground that chain of causation applies only to first-party claims.

Alas, that was a fake out.  The court proceeded to a chain of causation analysis before again concluding that the doctrine did not apply. 

The court held that a chain of causation analysis distinguishes between "an excluded event which causes a loss and a covered event which causes a loss in the form of an excluded event.  An insured may recover under a policy only in the event of the latter."

The court held that the chain of causation theory did not apply because the decision to leave the crab in the loading area for five to six hours was an intervening force and efficient proximate cause of the damage.  
Finally, the policy included a coverage extension for "any direct physical loss to covered property while it is being moved . . . to prevent a loss caused by a covered peril."  The court held that the word "any" means that any type of direct physical loss is covered unless excluded.

Whitecap argued that there were genuine issues of material fact as to whether the crab was moved to prevent a loss caused by additional freezer racks collapsing and whether the loss occurred within the ten day time period from when the crab was first moved, as required by the coverage extension.  The court agreed, and vacated the trial court's grant of summary judgment to Eastern.

Lawsuits filed over denial of claims for business interruption losses as a result of coronavirus pandemic

I am aware of two Massachusetts cases to date against insurers alleging wrongful denials of claims for business interruption losses as a result of the coronavirus pandemic.  Both have been filed in the United States District Court for the District of Massachusetts.

In the amended complaint in the first lawsuit, Legal Sea Foods, LLC v. Strathmore Ins. Co., restaurant chain Legal Sea Foods alleges that its policy issued by Strathmore Insurance Company did not have a virus exclusion -- putting Legal's a step ahead of most policyholders.

Legal's alleges that the coronavirus caused direct physical loss or damage to its insured properties because the virus can be spread through contact with surfaces such as metal and glass used in preparing and serving the restaurant meals.  It also alleges that it is eligible for coverage for losses caused by civil authority.

According to the complaint, Strathmore denied coverage on the grounds that there was no direct physical loss or damage and that the claim was excluded by exclusions for losses caused by ordinance or law or by "acts or decisions, including the failure to act or decide, by any person, group, organization, or governmental body."  Legal's alleged that both exclusions are inapplicable.

The second lawsuit, Rinnigade Art Works v. The Hartford Financial Services, is a class action suit.  The named plaintiff, Rinnigade Art Works, is a graphic design and screen printing business.  Rinnigade alleges that its policy does not contain any applicable exclusions.  The complaint does not specifically discuss whether the policy contains a virus exclusion.

Like in Legal Sea Foods, Rinnigade alleges that it is entitled to coverage for business interruption losses under the policy because the coronavirus caused direct physical loss or damage and that that the state-ordered closings created a loss caused by civil authority.

Tuesday, June 9, 2020

An open invitation

One of the results of the current protests over racial injustice in this country is that business communities are revisiting the perennial topic of the barriers to advancement for people of color in the corporate and legal world. 

So I would like to put this out there, especially to attorneys of color:  I love to talk to lawyers of all levels of experience about insurance coverage and bad faith issues. If this is an area that you practice in or that you're interested in or that you have an orphan case in or that you just want to know more about, reach out to me.  Ask me substantive questions (after a conflict check).  Ask me career questions.  Or don't ask me anything, just introduce yourself and chat with me. 

I am the co-chair of the Boston Bar Association's Insurance and Reinsurance Subcommittee, which means that I am often looking for panelists to speak about insurance topics.  I get invitations to speak to other groups.  If you would like the opportunity to speak on a panel, or want to suggest an insurance topic, tell me.

Wednesday, June 3, 2020

Mass. Appeals Court hold that title insurer is not subrogee of mortgagee absent express subrogation clause in insurance contract

I'm always excited when I see a title insurance case, because they are so few and far between.  When such a dispute does arise it is not unusual to cite case law from a century ago.

In 2003, Shane Kelly took out a first mortgage with Chevy Chase Bank for a property he owned in Boston. 

In 2007, Kelly took out a second mortgage on the property with JPMorgan. JPMorgan retained Attorney Roseann Conti to conduct the closing.  Conti had also conducted the closing on the first mortgage.  Although Conti had knowledge of the first mortgage, which was recorded at the Registry of Deeds, she did not notify JPMorgan of it. 

JPMorgan obtained title insurance from Stewart Title Guaranty Company.  Conti acted as Stewart Title's agent.

JPMorgan eventually learned of the first mortgage.  It made a written demand on Kelly that he discharge it, based on a provision of the second mortgage that allowed it to require Kelly to discharge a priority lien on the property.  Kelly did not discharge the first mortgage.  He also stopped making payments on the second mortgage. 

In response to a claim by JPMorgan on the title insurance policy, Stewart Title paid $268,084.83 to discharge the first mortgage.  It did not inform Kelly that it had taken this action. It asserted an attorney malpractice action against Conti, which it settled for less than the amount paid to discharge the first mortgage.

Stewart Title then sued Kelly, seeking the difference between the payment it made to discharge the first mortgage and the sum recovered from Conti. In Stewart Title Guaranty Co. v. Kelly, 97 Mass. App. Ct. 325 (2020), the Massachusetts Appeals Court affirmed summary judgment for Kelly, who was acting pro se.

The court first addressed Stewart Title's allegation that Kelly breached the mortgage contract when he failed to discharge the first mortgage upon demand.  Stewart Title was not a party to the mortgage. It alleged that it was the subrogee of JPMorgan.

Subrogation is a doctrine that in the context of insurance allows an insurer who has paid a loss to a policyholder to bring suit against the person who caused the loss, standing in the shoes of the policyholder.  Insurance policies typically have a clause allowing the insurer to do so.  In this case, however, the title insurance policy did not have a subrogation clause.

 (In the trial court Stewart Title had submitted a motion for reconsideration of the granting of summary judgment to Kelly to which it attached a jacket to the policy that contained an express subrogation provision.  The Appeals Curt held that the trial court judge acted within her discretion to deny the motion to reconsider.) 

Stewart Title argued that the trial court judge's reliance on its failure to produce an express subrogation clause was error because it was not aware that its status as subrogee was disputed.  However, Kelly had denied Stewart Title's allegation that it was a subrogee to JPMorgan throughout the litigation, beginning with the answer to the complaint.  (Even if that were not the case, it's hard to see how Stewart Title could succeed on such an argument where it has the burden of proof on breach of contract.)

Stewart Title then argued that it is entitled to pursue the claim under the doctrine of implied subrogation.  It argued that JPMorgan would otherwise receive a windfall because it would have benefited from the removal of the first mortgage.

The Appeals Court noted that allowing Stewart Title to pursue a claim against Kelly would not avoid a windfall to JPMorgan.  In addition, Kelly was not primarily responsible for JPMorgan's loss.  He did not represent that the property was clear of encumbrances.  Rather, Stewart Title, through its agent, Conti, knew that the first mortgage encumbered the property and failed to disclose that fact to JPMorgan.  The court held that the doctrine of implied subrogation did not apply to such a situation.

The court also held that Stewart Title could not recover against Kelly on a theory of unjust enrichment, because there was no evidence that Kelly had accepted the actions of Stewart Title with knowledge that Stewart Title would expect reimbursement from him.  

Tuesday, June 2, 2020

Business interruption and property damage coverage for businesses affected by riots

As I discussed here, most businesses do not have insurance coverage for business interruption as a result of the coronavirus pandemic.  There are some attempts at legislation to retroactively change that, and some class action lawsuits challenging the exclusions that prevent the coverage. 

Now, just as businesses are starting to reopen, many of them have been vandalized in riots.  Some are afraid to open because of the fear of additional violence.  Others may be unable to open as a result of curfews.

The good news is that most business property policies do provide coverage for property damage and business interruption as a result of civil unrest.  The business interruption coverage generally requires either property damage or shutdown as a result of an order by a civil authority, so coverage is unlikely if a business owner fears damage from riots but has not been ordered to shut down.

In the bigger picture and the longer term, the best way to prevent business losses from riots is justice for everyone.  Black lives matter.  

Thursday, May 28, 2020

Class action lawsuit filed over insurer's denial of claim for trip insurance on ground that trip cancellation due to coronavirus does not come within definition of quarantined

A class action lawsuit against a travel insurance company was filed yesterday in the United States District Court for the District of Massachusetts, seeking reimbursement for money paid for a school trip canceled due to the coronavirus pandemic.

In Corrigan v. EF Education Tours, Inc., et al, Amy Corrigan alleges that in October 2019 she enrolled her daughter, an 8th grader, in a school trip to Spain that was scheduled for April 2020.  She paid in full over $4,000 for the trip, which was coordinated by EF Education Tours and related organizations.

In November 2019, Corrigan purchased travel insurance marketed by EF and apparently written by United States Fire Insurance Company (USFIC).  The coverage  included reimbursement of trip costs if the student was prevented from traveling because she was "quarantined."  According to the complaint "quarantined" was not defined by the policy.

On March 12, 2020, EF announced that it was postponing all tours scheduled for April because of the coronavirus pandemic.  As we know, later that month the Massachusetts governor issued an executive order restricting public movement of non-essential personnel and banning gatherings of ten or more people.  He subsequently closed all public schools through the end of the school year. On March 31, 2020, the United States Department of State advised US citizens to avoid all international travel due to the pandemic.

Corrigan sought reimbursement from USFIC for the funds she had paid for the trip.  USFIC denied the claim, stating that trip cancellation due to the state quarantine and the threat of COVID-19 did not come within the coverages of the policy.

Corrigan's class action complaint alleges breach of contract, breach of the duty of good faith and fair dealing, unjust enrichment, and conversion.

This lawsuit is at the very beginning stages.  I expect to see many similar suits filed against trip insurers, summer camp insurers, and the like.  But I do note that if Corrigan's allegations are correct, her policy differs from others that I have seen that do in fact provide a definition of "quarantined."  In insurance coverage disputes, it is (almost always) the terms of the specific policy that will control the outcome.

Tuesday, May 26, 2020

First Circuit holds that church group splintering off from church is not covered by church's directors and officers coverage

The definition of the word chutzpah is when a man kills both his parents and then begs for the court's mercy because he is an orphan.

Typically I would not apply a Yiddish word to a church dispute.  And yet . . .

In January, 2017, members of the Newton Presbyterian Church (NPC) voted to withdraw from the national Presbyterian organization.  The withdrawing members called themselves the Newton Covenant Church (NCC).  The schism arose because the withdrawing members disagreed with the progressive stance of the national organization with respect to same-sex marriage and the ordination of gay, lesbian, bisexual, and transgender ministers.

NPC and the Boston affiliate of the national organization sued NCC and its officers, alleging that they had unlawfully exerted control over real property and bank accounts owned by NPC, had rejected the church's authority to resolve an ecclesiastical schism, and had conducted a vote not authorized under the constitution of  national organization. They sought in part a declaratory judgment that NPC owned church property at 75 Vernon Street in Newton, Massachusetts.

The Massachusetts Superior Court granted partial summary judgment to NPC.  It also held that NPC is the sole and exclusive owner of the real property and ordered NCC and its members to vacate the premises.  The parties subsequently settled. 

NCC had requested a defense from Great American Insurance Company (GAIC) under a Directors and Officers policy GAIC had issued to NPC. NCC asserted that it  was the same legal entity as NPC. GAIC denied the claim.

In Newton Covenant Church v. Great Am. Ins. Co., 956 F.3d 32 (1st Cir. 2020), the United States Court of Appeals for the First Circuit held that NCC was not covered by the policy.  The policy defined "Insured" as the "Organization" and "Insured Persons."  The policy defined the "Organization" as the entity named in the declarations, which in this case was the NPC.  The policy defined "Insured Persons" as "persons who were, now are, or shall be directors, trustees [or] officers . . . of the Organization."

The court held that there was no coverage even to the extent that NCC claimed that it was a segment of the original NPC, and therefore within the definition of Insured, because the policy contained an exclusion for claims between insureds.  The same exclusion excluded coverage to the extent that NCC claimed that it was the original NPC and had simply undergone a name change.  "Because insureds would be on both sides of the litigation, the exclusion would apply."

Wednesday, May 13, 2020

View webinar on Insurance Issues for New Personal Injury Attorneys

On May 6, 2020 I moderated a Boston Bar Association panel on Insurance Issues for New Personal Injury Attorneys.  Many thanks to panelists Frank Riccio and Andy Caplan, who did a stellar job.  You can view the webinar here.

Monday, May 4, 2020

Free Boston Bar Association webinar: Insurance Issues for New Personal Injury Attorneys

This Wednesday, May 6, 2020 from 12:30 to 1:30 PM I will be moderating a Boston Bar Association panel discussion webinar with Frank Riccio and Andy Caplan on Insurance Issues for New Personal Injury Attorneys. 

Like all BBA webinars at this time, it is free for both members and non-members.  If you are a member you can sign up here.  If you are not a member, send me an email (my contact information is on the left) and I'll put you in touch with someone at the BBA who will give you a link to log in. 

Thursday, April 16, 2020

First Circuit holds that deemed-made clause in claims-made policy requires only notice of the possibility that a claim will be brought against the policyholder

On September 23, 2013, the SEC began investigation of an investment advisory firm called F-Squared.  An investigation order (the "Formal Order") indicated that the SEC had information that tended to show that from at least January 1, 2009, F-Squared had distributed false and misleading advertisements to clients or prospective clients in violation of law. 

On October 2, 2013, the SEC served a subpoena on F-Squared in connection with the investigation. On October 18, 2013, upon request from F-Squared, the SEC provided it with a copy of the Formal Order.

F-Squared had been issued a primary insurance policy by Columbia Casualty Company for two consecutive policy years.  For the first year, October 3, 2012 to October 3, 2013, F-Squared had an excess policy from Federal Insurance Company,  The total limit between the two insurers for that  policy year was $10 million.

For the second policy year, October 3, 2013 to October 3, 2014 F-Squared had additional excess coverage from Zurich and XL, for a total of $20 million in coverage.

The policies were claims made policies that provided coverage for "any claim first made against F-Squared during the policy period."  The policies had a "deemed-made" clause under which a claim is deemed "first made" upon "an insured being identified by name in an order of investigation [or] subpoena . . .  as someone against whom a civil. criminal, administrative or regular proceeding may be brought."

F-Squared notified the insurers of the investigation and requested coverage under the policies. Columbia and Federal paid their combined $10 million policy limit for the 2012-2013 policy year.

The other excess insurers denied coverage on the basis that the SEC investigation constituted a claim that was first made prior to the 2013-2014 policy year.

F-Squared filed for bankruptcy.  Craig Jalbert, in his capacity as trustee of the F2 Liquidating Trust, sued the excess insurers.   He argued that the deemed-made clause was inapplicable because the Formal Order did not state that the SEC would bring a proceeding against F-Squared.  He argued that the phrase "may be brought" in the deemed-made clause required a "reasonable possibility," not a  "weak possibility" of a claim.  He asserted that the Formal Order did not indicate whether and to what extent SEC proceedings against F-Squared were a reasonable possibility.

In Jalbert v. Zurich Services Corp. 953 F.3d 143 (1st Cir. 2020), the United States Court of Appeals for the First Circuit disagreed.  It held that the deemed-made clause precluded coverage because the word "may" in the clause required only notice of a possiblity that a proceeding will be brought, and the Formal Order expressed such a possibility.

Saturday, April 11, 2020

Insurance coverage for loss of income from business interruptions due to coronavirus

Last time I posted about coronavirus liability insurance issues, a little more than a month and a lifetime ago, I had no idea that I would be writing this post from my home office, taking my temperature every few hours because I need to go three days with  no fever before I can stop self-quarantining away from my kids.  I am grateful for how lucky I have been: that my kids are old enough that they've been able to handle little supervision beyond my pestering them by text; that I did not get sicker; that friends and acquaintances and even strangers have helped my family out in all kinds of ways, from deliveries of toilet paper to making masks for us; and that I have a law practice will survive my not working for a couple of weeks.

Many businesses are worried that they will not survive.  One of the questions for them is whether they can recoup their coronavirus losses from their general liability insurance.  These are the major issues that arise from that question: 

·       Does the business interruption insurance provide coverage for loss of income from coronavirus?  

As with every insurance question, the first place to look is the language of the policy. 

Most policies provide business interruption coverage in the case of "direct physical loss or damage" to the insured property (such as a fire loss).  

There will no doubt be litigation over whether the coronavirus itself is damage to the property, at least where there were known cases of coronavirus at the business which caused it to shut or lose revenue.  

Many policies have an exclusion for losses due to viruses or bacteria.  The courts will have to address whether a “pandemic” comes within that exclusion  

Many policies also provide business interruption coverage if the losses are caused by “civil authority,” where access to the business is prohibited by an act of government.  (For example, after the Boston Marathon bombings, the government shut down businesses near the bomb site.)  Such losses do not require direct physical loss or damage to the business property, but are generally limited in scope to a few weeks.  

·       Is there any chance that insurance will provide coverage even if coverage seems to be excluded by the language of the policy?

The Massachusetts legislature is considering a bill under which insurers would pay business interruption losses from coronavirus up to the policy limit for small businesses.  The insurers would then by reimbursed by the state.  There’s a good summary of the bill here.  

·       What do I do if my insurer denies my business interruption claim?

Don’t give up without consulting with an attorney.  Insurers may reflexively deny claims.  You may have a policy that provides coverage, or a court decision may come down in the future interpreting your policy as providing coverage.  You want to make sure you don’t lose any rights. 

·       What do I do in my insurer says that there is coverage for my business interruption claim?

You should consider hiring a public adjuster to help you make sure you are submitting the full value of your claim.  Public adjusters are non-attorneys who advocate for policyholders on the amount of loss, almost always on a contingency fee.  

·       Upcoming Boston Bar Association webinar

The Insurance and Reinsurance Committee of the Boston Bar Association will be holding a webinar on these issues on Friday April 17, 2020 from noon to 1 PM.  (I am one of the chairs of this committee but the credit for putting the program together goes to my co-chair Sara Perkins Jones as well as to Nathan Cole.)  You do not need to be a member of the BBA to participate in this webinar.  

Thursday, March 26, 2020

First Circuit affirms judgment that insurer acted in bad faith in shutting down investigation that would have made insured's liability clear

Last summer I posted about Capitol Specialty Ins. Co. v. Higgins, in which the United States District Court for the District of Massachusetts held that an insurer, Capitol Specialty Insurance Corp., had acted in bad faith and was liable for treble damages when it failed to investigate fully and settle a claim by Kailee Higgins, a minor who worked at a strip club owned by policyholder PJD. Higgins alleged that she was injured in a drunk driving accident after drinking at the club. 

The United States Court of Appeals for the First Circuit has now affirmed that decision in all respects except for the determination of  prejudgment interest.  __ F.3d __ (1st Cir. 2020), 2020 WL 1164681.

Capitol tendered its policy limit after attorney's fees it had paid. PJD and Higgins then entered into a consent judgment for $7.5 million.  They agreed that Centerfolds would pay Higgins $50,000 and assign its claims against Capitol to Higgins.

Higgins then sued Capitol for bad faith settlement practices under Mass. Gen. Laws chs. 93A and 176D on her own behalf and as assignee of PJD's claim against Capitol.  The United States District Court ruled in Higgins' favor on her own claim, assessed actual damages of $1.8 million against Capitol, and trebled actual damages to $5.4 million.

Both parties appealed.  Higgins argued that the District Court should have adopted the $7.5 million consent settlement amount as actual damages and that it failed to rule on the claims against Capitol assigned to her by PJD.

Capitol appealed the findings against it, the calculation of actual damages, and the award of prejudgment interest on treble damages rather than actual damages.

The First Circuit first addressed the question of actual (or single) damages.  It noted that under Mass. Gen. Laws ch. 93A the amount of actual damages is the amount of a judgment.  The court affirmed the District Court's finding that the consent judgment was not a judgment within the meaning of the statute.  Higgins argued that the consent judgment should be the basis for damages because it was reasonable and non-collusive. The First Circuit held that the District Court had found, in using the phrase "not an arm's length transaction," that the $7.5 million judgment was sufficiently collusive as to preclude it from being a judgment within the meaning of the statute.

Massachusetts Lawyers Weekly  quoted me on that aspect of the case.   As I pointed out there, allowing parties to call a settlement a "consent judgment" and then making the settlement amount the basis for 93A damages would result in consent judgments that are farther and farther from the actual value of the case. After all, when they have agreed that the claimant will not collect the judgment from the policyholder, the policyholder has nothing to lose by agreeing to whatever figure the claimant suggests.  The larger the number, the more the claimant will recover from the insurer if they prove a 93A violation.

The First Circuit next rejected Higgins' claim that she was entitled to additional damages from the claim against Capitol assigned to her by PJD.  "Given that Capitol met its duty to defend and that, as to indemnity, Capitol offered the policy limit to Higgins, we are doubtful the insurer violated a duty to PJD."

The First Circuit also held that there was no evidence of any monetary loss as to the assigned claim, which is required under Mass. Gen. Laws ch. 93A §11.  Higgins argued that Capitol's actions caused PJD monetary loss by exposing it to a judgment in excess of the policy limit, causing an erosion of the policy limit to attorneys' fees, causing it to pay $50,000 in exchange for the covenant not to sue, and causing it to incur fees and expenses to its personal counsel while defending the court action.

The First Circuit rejected those arguments.  There was no evidence that Capitol could settle the claim within the policy limit.  The erosion of funds for attorney's fees was actually less than Capitol should have spent in investigating the claim.  Capitol's actions did not cause PJD to pay the $50,000 in settlement or the necessity of personal counsel because its exposure was above the policy limit. 

The First Circuit then addressed Capitol's argument that the District Court had erred in holding that it failed to conduct a reasonable investigation, in violation of  Mass. Gen. Laws ch. 176D.  Capitol had shut down its investigation after minimal and inadequate work had been done on it, when its own investigator had told it more work needed to be done, its attorney immediately realized there was a good likelihood of liability, and it should have known that there was a good likelihood of liability.  

For those reasons, the First Circuit  affirmed the District Court's finding that Capitol's action's had been willful, knowing and in bad faith, making it liable for multiple damages.

Finally, the First Circuit agreed that the District Court had erred when it calculated prejudgment interest on the trebled damages rather than single damages.  The court held that if there had been a judgment, prejudgment interest would have applied to the entire amount.  With no judgment, it applied only to single damages.

Saturday, March 7, 2020

Summer camp insurance and coronavirus

I received an email from a sleepaway camp where I'm considering sending my younger daughter this summer.  The camp advised families to strongly consider purchasing camp insurance because of the potential impact of coronavirus.

I took a look at the policy being offered for that camp and another one my daughter will attend.  Although they vary in some of the details, the pertinent coverages are the same.  The insurer will reimburse me for camp fees if:

1)  My daughter cannot attend camp because she is sick.
2)  My daughter cannot attend camp because she is personally quarantined.

The policies do not provide for a return of fees if the camps are closed because of coronavirus.

I have reached out to a couple of camp directors to ask whether fees will be returned by the camp itself if camp is cancelled.  The response I'm getting is that they have never had to deal with a situation like this before and they are looking into it.

Some thoughts and takeaways:

1)   Sleepaway camp is the best. Attending and working at them were bright spots in my life, and my younger daughter has loved hers as well.  (My older daughter . . .  let's just say every camp is not right for every kid.)

2)  Before deciding on whether to purchase camp insurance for your child, read the policy that is offered.  If it's like the ones that I have seen, your calculation should not be based on how likely you think that it is that the camp will close.  It should be based on how likely you think it is that the camp will remain open but your child will not be able to attend because he or she is personally sick or quarantined.

3)  I'm not trying to join in the coronavirus fear-mongering.  Whether or not camps close or stay open may well have more to do with the perception of the dangers of coronavirus than the actuality of how dangerous it is.

4)  Obligatory reminder: wash your hands.

Tuesday, January 21, 2020

Invitation: On February 4 I'll be speaking at a panel on insurance issues in professional liability claims

On February 4, 2020, from 7:30 to 9 AM I will be addressing insurance issues in malpractice claims on a panel titled "What To Do When You’ve Made a Mistake,  or a Client Thinks You Have: Malpractice Actions, BBO Complaints, and Professional Liability Insurance."

The panel is sponsored by the Business Lawyers Network, and there is no charge to attend.  It will take place at the Gould Street Café, 160 Gould Street in Needham.  Registration information is below.  

Here's the complete information:

Top           Topic:   What To Do When You’ve Made a Mistake,  or a Client Thinks You Have: Malpractice Actions, BBO Complaints, and Professional Liability Insurance 

 Place:   Café at 160 Gould St., Needham, MA

 OVERVIEW:   We all want each one of our clients to be thrilled with our representation of them.  Unfortunately, sometimes attorneys make mistakes  -- and sometimes clients are unsatisfied with even the best possible outcome.  Joe Berman, General Counsel to the Massachusetts Board of Bar Overseers, and Nina Kallen, a solo practitioner specializing in insurance coverage litigation, will discuss what lawyers should do when faced with a malpractice action or BBO complaint.  How can you safeguard and make the most of coverage under your professional liability policy?  What can you expect from a BBO proceeding?  What is the interplay among fee disputes, malpractice actions, and BBO claims?   

 It is not necessary to print tickets.


Joe Berman is the General Counsel to the Board of Bar Overseers, a position he has held since May, 2017.  As General Counsel, Joe advises the BBO on enforcement of the Massachusetts Rules of Professional Responsibility.  Prior to his current position, Joe was in private practice with several firms.  His work focused on commercial litigation, including the defense of lawyers in civil malpractice and BBO claims.  He has also worked as a mediator and arbitrator.

Nina Kallen, a member of BLN, is a solo practitioner who specializes in insurance coverage and bad faith litigation.  She also drafts dispositive motions and appellate briefs on a subcontract basis for other attorneys in all areas of civil litigation.  She has represented parties in malpractice litigation and fee disputes both directly and in her subcontract practice.  You can learn more about her on her website,

 UP NEXT: March 11th presentation on different corporate structures for legal practices

ABOUT BLN:   Business Lawyers Network (BLN) comprises lawyers concentrating in complementary disciplines such as corporate, securities, commercial contracts, government contracts, secured lending, taxes, litigation, import/export, immigration, real estate, environmental, patents, trademarks, licensing, etc. Non-lawyer business professionals are also welcome, but the topic and focus of discussion will be on lawyers and the legal profession.