Stephanie Cotto was injured in an automobile accident while riding as a passenger in a vehicle owned by George Luddy Chevrolet and driven by her friend, Luddy employee Julie Bertholdt. Bertholdt was an insured under a policy issued by Universal to Luddy.
Cotto filed suit. She obtained a default judgment as a result of Bertholdt's failure to answer interrogatories. Damages were assessed. Universal refused to satisfy the judgment, asserting that Bertholdt had breached her duty to cooperate.
Cotto filed an action to reach and apply coverage under the policy . The Superior Court held that Universal was entitled to disclaim coverage.
On appeal Cotto argued that Universal had failed to exercise due diligence in obtaining Bertholdt's cooperation.
In Cotto v. Universal Underwriters Ins. Co., 81 Mass. App. Ct. 1142, 2012 WL 2093331 (unpublished), the Massachusetts Appeals Court reversed.
The record on summary judgment showed that Universal had made various attempts to locate Bertholdt and seek her cooperation and that, at one point, she told insurance defense counsel that she was "not going to trial." The Appeals Court held those facts were insufficient to sustain a summary judgment verdict. "Especially given Bertholdt's youth and transient lifestyle, a trier of fact reasonably could conclude that due diligence required Universal to take further steps."
The court noted that after the reach and apply action was filed, Cotto testified at a deposition that she had been able to maintain contact with Bertholdt through text messages, MySpace, and Facebook. "In contrast, there is nothing in the record to indicate that such sites were consulted by Universal or its investigators, despite the importance of social media sites as centers of communication and sources of information. Nor does the record reflect that Universal considered Cotto, herself, as a source of information about Bertholdts' whereabouts."
Showing posts with label duty to cooperate. Show all posts
Showing posts with label duty to cooperate. Show all posts
Saturday, June 16, 2012
Friday, September 16, 2011
Appeals Court holds insureds should raise public policy issue at arbitration
Congratulations to my friend Marie Cheung-Truslow at Smith & Brink, who just won a nice victory in the Massachusetts Appeals Court. Marie is a fabulous attorney who frequently represents insurers on large loss subrogation matters and in reference proceedings, and who I have often turned to for advice.
Marie's client, Northern Assurance, provided a yacht insurance policy covering a yacht called "Blaze of Glory." The yacht was destroyed in a fire. Fire investigators concluded that the fire was intentionally set and that its point of origin was the Blaze of Glory. (The Appeals Court decision doesn't state whether the yacht's name was a clue in the case.)
The insureds made an insurance claim for the fire loss. They appeared for an examination under oath and provided numerous documents but, according the Northern, not all the documents that were requested. Northern denied coverage on the grounds that the insureds had failed to cooperate. It filed a declaratory judgment complaint. The insureds responded with a demand for arbitration, as they were entitled to do under the policy.
The arbitrator ruled in favor of Northern. The insureds filed a motion to vacate the arbitration award on the ground that the arbitrator had exceeded her authority and contravened public policy by shifting the burden of proof on the cooperation issue from Northern to the insureds. The trial judge agreed with the insureds and vacated the arbitrator's award.
In Northern Assurance Co. of Am. v. Payzant, 80 Mass. App. Ct. 23 (2011), the Massachusetts Appeals Court overturned the decision of the trial court judge. It held that the insureds had waived their burden-shifting argument by not raising it at arbitration and by affirmatively asserting at arbitration that the burden-shifting clause of the insurance policy applied.
The court held that the proper procedure would have been for the insureds to challenge the legality of the burden-shifting clause of the policy before the arbitrator. The arbitrator would have ruled on this issue, and the right to a judicial determination would have been preserved. Alternatively, the insureds could have refrained from demanding arbitration.
Marie's client, Northern Assurance, provided a yacht insurance policy covering a yacht called "Blaze of Glory." The yacht was destroyed in a fire. Fire investigators concluded that the fire was intentionally set and that its point of origin was the Blaze of Glory. (The Appeals Court decision doesn't state whether the yacht's name was a clue in the case.)
The insureds made an insurance claim for the fire loss. They appeared for an examination under oath and provided numerous documents but, according the Northern, not all the documents that were requested. Northern denied coverage on the grounds that the insureds had failed to cooperate. It filed a declaratory judgment complaint. The insureds responded with a demand for arbitration, as they were entitled to do under the policy.
The arbitrator ruled in favor of Northern. The insureds filed a motion to vacate the arbitration award on the ground that the arbitrator had exceeded her authority and contravened public policy by shifting the burden of proof on the cooperation issue from Northern to the insureds. The trial judge agreed with the insureds and vacated the arbitrator's award.
In Northern Assurance Co. of Am. v. Payzant, 80 Mass. App. Ct. 23 (2011), the Massachusetts Appeals Court overturned the decision of the trial court judge. It held that the insureds had waived their burden-shifting argument by not raising it at arbitration and by affirmatively asserting at arbitration that the burden-shifting clause of the insurance policy applied.
The court held that the proper procedure would have been for the insureds to challenge the legality of the burden-shifting clause of the policy before the arbitrator. The arbitrator would have ruled on this issue, and the right to a judicial determination would have been preserved. Alternatively, the insureds could have refrained from demanding arbitration.
Thursday, December 16, 2010
The real downside to the secondary mortgage market: consecutive mortgagees can't get their paperwork to insurer
WMC was the mortgagee of property in Athol, Massachusetts. (Reminder: the mortgagee is the entity such as a bank to whom the homeowner makes mortgage payments.) MPIUA issued a homeowners policy for the property which provided coverage to both the homeowner, Brohl, and WMC.
WMC transferred the mortgage note to UBS. UBS retained Ocwen to service the loan. The MPIUA policy was amended to add Ocwen as a mortgagee.
On January 25, 2007, Brohl notified MPIUA that the property had sustained water damage. On February 4, 2007, there was a fire at the property.
On June 12, 2007, Ocwen sent MPIUA a notice of claim seeking damages under the policy. The letter defined Ocwen as "the mortgagee." (Meanwhile, Brohl was being foreclosed upon.)
MPIUA requested documents from Ocwen. On July 16, 2007, the mortgage note was sold back to WMC, and Ocwen never provided MPIUA with the requested documents.
On December 20, 2007, WMC resold the mortgage loan to Credit Suisse. SPS serviced the loan for Credit Suisse.
On June 19, 2008, SPS submitted a claim to MPIUA on behalf of SPS "as the insured mortgagee under the policy." SPS enclosed with the letter a number of documents regarding the transfer of the loan. MPIUA responded with a request for documentation showing SPS' or Credit Suisse's status as proper claimants, including a paper trail from WMC to SPS. It also requested documents showing that SPS had notified MPIUA of its mortgagee status or any efforts to amend the declarations page of the policy.
SPS provided documentation regarding the mortgage transaction, and stated that it was unaware of notices to MPIUA regarding the change in mortgagees.
MPIUA responded to SPS that the documentation it provided was insufficient, and requested copies of the agreements assigning the mortgage from WMC to any subsequent mortgagee. SPS did not provide the requested information.
On September 28, 2008, WMC repurchased the loan from Credit Suisse.
WMC did not notify MPIUA that it had repurchased the mortgage. Instead, on March 23, 2009, it sued MPIUA, claiming that MPIUA breached its contract by failing to pay WMC’s mortgagee claim and had engaged in unfair settlement practices.
After the lawsuit was filed MPIUA continued to request evidence of WMC’s status as mortgagee. On September 22, 2009, WMC produced documents proving that it was now (again) the mortgagee. However, MPIUA did not pay the loss.
MPIUA argued that it was entitled to summary judgment because prior to filing suit WMC and its predecessors failed to provide satisfactory proof of their right and title as mortgagees. In WMC Mortgage Corp. v. Mass. Property Ins. Underwriting Ass’n, 2010 WL 3734120 (D. Mass.), the court held that MPIUA was entitled to summary judgment on the claim that it failed to act in good faith when it refused to provide coverage without additional documentation.
The court also held that MPIUA could not avoid coverage of the loss. Under Mass. Gen. Laws ch. 175 §97, a statute regulating fire insurance, MPIUA’s obligation to provide coverage to a mortgagee named in the policy arose upon satisfactory proof of the mortgagee’s rights and title as a mortgagee.
WMC was named as a mortgagee in the policy, and after the lawsuit commenced it provided sufficient evidence to establish its status as the current owner of the mortgage.
Finally, the court found that the various mortgagees breached the duty to cooperate when they failed to comply with MPIUA’s requests for information and that MPIUA was thereby prejudiced. The court held that the prejudice would be remedied by an order directing WMC to pay MPIUA’s attorney’s fees and costs incurred in the lawsuit.
WMC transferred the mortgage note to UBS. UBS retained Ocwen to service the loan. The MPIUA policy was amended to add Ocwen as a mortgagee.
On January 25, 2007, Brohl notified MPIUA that the property had sustained water damage. On February 4, 2007, there was a fire at the property.
On June 12, 2007, Ocwen sent MPIUA a notice of claim seeking damages under the policy. The letter defined Ocwen as "the mortgagee." (Meanwhile, Brohl was being foreclosed upon.)
MPIUA requested documents from Ocwen. On July 16, 2007, the mortgage note was sold back to WMC, and Ocwen never provided MPIUA with the requested documents.
On December 20, 2007, WMC resold the mortgage loan to Credit Suisse. SPS serviced the loan for Credit Suisse.
On June 19, 2008, SPS submitted a claim to MPIUA on behalf of SPS "as the insured mortgagee under the policy." SPS enclosed with the letter a number of documents regarding the transfer of the loan. MPIUA responded with a request for documentation showing SPS' or Credit Suisse's status as proper claimants, including a paper trail from WMC to SPS. It also requested documents showing that SPS had notified MPIUA of its mortgagee status or any efforts to amend the declarations page of the policy.
SPS provided documentation regarding the mortgage transaction, and stated that it was unaware of notices to MPIUA regarding the change in mortgagees.
MPIUA responded to SPS that the documentation it provided was insufficient, and requested copies of the agreements assigning the mortgage from WMC to any subsequent mortgagee. SPS did not provide the requested information.
On September 28, 2008, WMC repurchased the loan from Credit Suisse.
WMC did not notify MPIUA that it had repurchased the mortgage. Instead, on March 23, 2009, it sued MPIUA, claiming that MPIUA breached its contract by failing to pay WMC’s mortgagee claim and had engaged in unfair settlement practices.
After the lawsuit was filed MPIUA continued to request evidence of WMC’s status as mortgagee. On September 22, 2009, WMC produced documents proving that it was now (again) the mortgagee. However, MPIUA did not pay the loss.
MPIUA argued that it was entitled to summary judgment because prior to filing suit WMC and its predecessors failed to provide satisfactory proof of their right and title as mortgagees. In WMC Mortgage Corp. v. Mass. Property Ins. Underwriting Ass’n, 2010 WL 3734120 (D. Mass.), the court held that MPIUA was entitled to summary judgment on the claim that it failed to act in good faith when it refused to provide coverage without additional documentation.
The court also held that MPIUA could not avoid coverage of the loss. Under Mass. Gen. Laws ch. 175 §97, a statute regulating fire insurance, MPIUA’s obligation to provide coverage to a mortgagee named in the policy arose upon satisfactory proof of the mortgagee’s rights and title as a mortgagee.
WMC was named as a mortgagee in the policy, and after the lawsuit commenced it provided sufficient evidence to establish its status as the current owner of the mortgage.
Finally, the court found that the various mortgagees breached the duty to cooperate when they failed to comply with MPIUA’s requests for information and that MPIUA was thereby prejudiced. The court held that the prejudice would be remedied by an order directing WMC to pay MPIUA’s attorney’s fees and costs incurred in the lawsuit.
Wednesday, January 20, 2010
U.S. District Court holds that right to cure breach of duty to cooperate is limited in scope
I wrote here about Miles v. Great Northern Ins. Co., 2009 WL 2998529 (D. Mass.), in which on summary judgment the court punted on the question of whether an insured can cure a breach of the duty to cooperate.
After trial the United States District Court held "[o]rdinarily, an insured's failure to cooperate is grounds for denial of coverage only if the insurer makes an affirmative showing of actual prejudice . . However, there is a limited exception to the prejudice requirement in cases of an insured's wilful and unexcused failure to submit to an examination under oath."
The court stated, "an insured's right to cure a breach of the duty of cooperation is limited in scope, particularly in cases of willful failure to submit to an examination under oath." Miles v. Great Northern Ins. Co., __ F.2d __, 2009 WL 4363211 (D. Mass.)
The court held that under the facts of the case before it the insureds' "willful refusal to comply with the terms of their insurance contract resulted in a material dilution of [the insurer's] rights. . . . Accordingly, there is no legal or equitable basis on which to give [the insureds] a second (or third) chance to comply with their contractual obligation."
After trial the United States District Court held "[o]rdinarily, an insured's failure to cooperate is grounds for denial of coverage only if the insurer makes an affirmative showing of actual prejudice . . However, there is a limited exception to the prejudice requirement in cases of an insured's wilful and unexcused failure to submit to an examination under oath."
The court stated, "an insured's right to cure a breach of the duty of cooperation is limited in scope, particularly in cases of willful failure to submit to an examination under oath." Miles v. Great Northern Ins. Co., __ F.2d __, 2009 WL 4363211 (D. Mass.)
The court held that under the facts of the case before it the insureds' "willful refusal to comply with the terms of their insurance contract resulted in a material dilution of [the insurer's] rights. . . . Accordingly, there is no legal or equitable basis on which to give [the insureds] a second (or third) chance to comply with their contractual obligation."
Wednesday, December 2, 2009
Appellate Division holds that insurer does not need to show prejudice from violation of duty to cooperate
In Trinidad v. Pilgrim Insurance Company, 2009 WL 3844469 (Mass. App. Div.), the insured sought PIP coverage. He skipped two medical examinations scheduled by the insurer. The insurer denied coverage on the grounds that the insured failed to cooperate.
The insured argued that the insurer failed to prove that it had been prejudiced by his failure to cooperate. The Massachusetts Appellate Division held that a showing of prejudice is not required. It noted that both the PIP statue and the policy required the insured to submit to medical exams by physicians selected by the insurer. The court held:
The insured argued that the insurer failed to prove that it had been prejudiced by his failure to cooperate. The Massachusetts Appellate Division held that a showing of prejudice is not required. It noted that both the PIP statue and the policy required the insured to submit to medical exams by physicians selected by the insurer. The court held:
Neither the policy, nor the statute, requires an insurer to show prejudice before invoking the defense of noncooperation by the claimant as a condition precedent to denying a claim.
Friday, November 6, 2009
U.S. District Court dodges question of whether insured can cure breach of duty to cooperate
In Miles v. Great Northern Ins. Co., 2009 WL 2998529 (D. Mass.), the insureds sought first-person coverage for fire damage. The insurer denied the claim on the ground the insureds had breached their duty to cooperate.
In a motion for summary judgment the insureds argued that although they initially did breach that duty, they cured the breach by later providing the requested documents.
The United States District Court for the District of Massachusetts noted that there is no controlling Massachusetts caselaw on whether a breach of the duty to cooperate can be cured prior to a court ruling that the insureds breached the duty (when it is clearly to late to cure).
The court chose not to rule on that question of law, holding instead that whether the insurer had suffered prejudice as a result of the insureds' initial breach was a question of fact.
In a motion for summary judgment the insureds argued that although they initially did breach that duty, they cured the breach by later providing the requested documents.
The United States District Court for the District of Massachusetts noted that there is no controlling Massachusetts caselaw on whether a breach of the duty to cooperate can be cured prior to a court ruling that the insureds breached the duty (when it is clearly to late to cure).
The court chose not to rule on that question of law, holding instead that whether the insurer had suffered prejudice as a result of the insureds' initial breach was a question of fact.
Saturday, August 9, 2008
Appeals Court holds that insured's failure to cooperate with examination under oath discharges insurer's obligations
Mike Tracy at Rudolph Friedmann LLP brought to my attention a ruling handed down by the Massachusetts Appeals Court on Friday. In Hanover Ins. Co. v. Cape Cod Custom House Theater, Inc., the Appeals Court held that an insurer's failure to cooperate with an examination under oath excuses an insurer from its obligations under the policy, even if the insurer was not prejudiced by the lack of cooperation.
In Hanover the insured sought coverage under a business owner's policy for a break-in at the insured's place of business. After an investigation the insurer reasonably suspected that the break-in might be an inside job, and requested that the insured submit to an examination under oath.
The insured did not appear at the first scheduled examination, and on the advice of counsel refused to answer material questions at the next two examinations.
The trial judge ruled that the insured had materially breached the insurance contract, and that such breach had prejudiced the insurer. However, the trial court declined to relieve the insurer of its obligations under the policy, stating that the prejudice could be cured by an order requiring the insured to pay the attorney's fees of the insurer.
The Appeals Court reversed. The Appeals Court held that an insured's wilful, unexcused refusal to comply with a reasonable request for an examination under oath consititutes a material breach of a condition precedent to the insurance contract and discharges the insurer's obligations under the contract. The Appeals Court stated that this holding is an exception to the general rule that the insurer must show that it was prejudiced by the insured's breach of contract before it is excused from its obligations under the policy.
In Hanover the insured sought coverage under a business owner's policy for a break-in at the insured's place of business. After an investigation the insurer reasonably suspected that the break-in might be an inside job, and requested that the insured submit to an examination under oath.
The insured did not appear at the first scheduled examination, and on the advice of counsel refused to answer material questions at the next two examinations.
The trial judge ruled that the insured had materially breached the insurance contract, and that such breach had prejudiced the insurer. However, the trial court declined to relieve the insurer of its obligations under the policy, stating that the prejudice could be cured by an order requiring the insured to pay the attorney's fees of the insurer.
The Appeals Court reversed. The Appeals Court held that an insured's wilful, unexcused refusal to comply with a reasonable request for an examination under oath consititutes a material breach of a condition precedent to the insurance contract and discharges the insurer's obligations under the contract. The Appeals Court stated that this holding is an exception to the general rule that the insurer must show that it was prejudiced by the insured's breach of contract before it is excused from its obligations under the policy.
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