In huge victory for insureds, SJC holds that measure of multiple damages in 93A claim is underlying judgment

On Friday, in a case which has been closely watched by those on both sides of the insurer/insured divide (and by those of us who straddle the divide), the SJC has overturned in no uncertain terms a ruling by the Massachusetts Appeals Court regarding calculation of multiple damages in a 93A claim against an insurer for unfair settlement practices. The Appeals Court had held that the multiple damages in a 93A claim where the underlying tort claim has gone to judgment are calculated by the loss of use of settlement funds -- in other words, interest from the time a reasonable settlement offer should have been made until it actually was made. I was shocked by the Appeals Court decision when it came out, because it contradicted the plain language of Mass. Gen. Laws ch. 93A s. 2, which states that multiple damages are based on the underlying judgment.

The SJC also held that to recover under ch. 93A the insureds do not have to prove that they would have accepted a reasonable settlement offer had one been made.

In January, 2002, Marcia Rhodes received catastrophic injuries including permanent paraplegia when a tractor trailer rear-ended her car. She and her family sued the truck driver, his employer, and the company to which he had been assigned by his employer.

At trial in September, 2004, the plaintiffs received a trial judgment of approximately $11.3 million. During the appeal process the plaintiffs settled the claim with the defendants' insurers.

Before settlement the plaintiffs filed a 93A claim against the insurers for failing to enter into a prompt, fair, and equitable settlement.

The trial court ruled on the 93A claim that excess carrier AIGDC had violated ch. 93A, but that the violation did not cause the plaintiffs any damages prior to trial because they would not have accepted even a timely reasonable offer prior to trial. The trial court also held that the 93A damages for AIGDC's failure to settle immediately after trial were the loss of use of the settlement funds.

On appeal, the Massachusetts Appeals Court held that the plaintiffs suffered damages as a result of both AIGDC's pre- and post-trial conduct. Like the trial court, it held that the measure of damages was the loss of use of the settlement funds.

On Friday, February 10, 2012, the SJC reversed. In Rhodes v. AIG Domestic Claims, Inc., 2012 WL 401034 (Mass.), the court first held that the plaintiffs are not required to prove that they would have accepted a prompt, reasonable settlement offer if the insurer had made such an offer.

It then held that the measure of damages is the underlying judgment is the plaintiffs' tort action, not loss of use of settlement funds.

The basis for this decision is Mass. Gen. Laws ch. 93A, s. 2, which states, "For the purposes of this chapter, the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence."

Fantastic resource on professional liability insurance

The Washington, D.C. firm of Jackson & Campbell has posted a 50-state review of professional liability insurance coverage. Click here for the link.

First Circuit holds no coverage for breach of contract damages

In Lopez & Medina Corp. v. Marsh USA, Inc., __ F.3d __, 2012 WL 229856 (1st. Cir.), the First Circuit Court of Appeals held that coverage under a liability policy does not extend to breach of contract damages.

The insured argued that the policy covered breach of contract damages because in it the insurer agreed to pay "all sums which the insured shall become legally obligated to pay as damages."

The court, which was deciding a case on appeal for the United States District Court for the District of Puerto Rico, noted that there was no Puerto Rican case law on point. It based its holding on the unanimous opinions of other jurisdictions as well as insurance treatises.

Appeals Court holds insurer not liable for misrepresentations of attorney representing it in subrogation action

During a delivery of heating oil to the residence of Elaine Sandman a delivery line burst, causing her basement to flood with oil. Sandman's insurer, Quincy Mutual, agreed to cover the cost of cleaning the spill, but the policy excluded coverage for damage to Sandman's personal property.

Quincy Mutual hired an attorney to bring a subrogation action against the oil delivery company. According to Sandman's complaint, over the course of five years the attorney consistently led her to believe that he represented her interests as well as those of Quincy Mutual and that he was seeking to recover her damages for loss to personal property.

Quincy Mutual's subrogation claim settled in the spring of 2009. At that time the attorney informed Sandman that he could not help her with her own claim because of a conflict of interest as Quincy Mutual's attorney. Sandmans' claims were barred by that time by the statute of limitations.

Sandman sued the attorney and Quincy Mutual. Quincy Mutual moved to dismiss, on the ground that it was not vicariously liable to Sandman for the attorney's malpractice and misrepresentations.

In Sandman v. Quincy Mut. Fire Ins.Co., 81 Mass. App. Ct. 188 (2012), Judge Grasso held that as a matter of law Quincy Mutual cannot be vicariously liable for the representations and professional negligence of the attorney, "because as an attorney and an independent professional he has a nondelegable duty of care to Sandman." Neither an insurer nor any other third party may exercise control over the independent judgment in the representation of a client.

Judge Brown dissented. Whereas Judge Grasso analyzed the issue from the perspective of the attorney's attorney-client relationship with Sandman, Judge Brown analyzed the issue from the perspective of the attorney's attorney-client relationship with Quincy Mutual. He wrote that the allegations of the complaint were sufficient to establish that the attorney may have had actual authority to act on behalf of Quincy Mutual. He also noted that the acts of an attorney in the conduct of litigation are binding upon the client. He distinguished cases discussing liability of an insurer for counsel it hired to represent an insured, because in that situation the attorney, while paid by the insurer, does not represent the insurer; in the present situation the attorney represented Quincy Mutual.

A blog every insurance agent in Massachusetts should be reading

My colleagues over at ForbesGallagher have a very informative and frequently updated blog, Agency Checklists, aimed at Massachusetts insurance agents. One of the recent articles discusses upcoming changes to the statutorily-mandated commissions that auto insurers pay to agents. Another article describes a recent requirement that homeowner's insurers offer coverage for oil leaks in some circumstances.

Upcoming changes to insurance law

Van Mayhall at Insurance Regulatory Law has posted an informative article on upcoming federal and state changes to liability insurance regulations.

U.S. District Court finds coverage for Pring-Wilson under umbrella policy but not homeowner's policy

I have posted previously here and here about the declaratory judgment action over insurance coverage issues in the civil wrongful death case against Alexander Pring-Wilson. Pring-Wilson was a Harvard graduate student who was in a drunken street fight with Michael Colono, resulting in Colono's death. Pring-Wilson pleaded guilty to involuntary manslaughter. Colono's estate filed a civil wrongful death suit against him, resulting in a judgment of $260,000 which is currently under appeal.

Pring-Wilson sought coverage for the wrongful death suit under a homeowner's policy issued by Fire Insurance and an umbrella policy issued by Farmers Insurance to his mother, Cynthia Pring, in Colorado. The insurers filed a declaratory judgment action in the United States District Court for the District of Massachusetts.

After a bench trial, in Fire Ins. Exchange v. Pring-Wilson, __ F. Supp. 2d __, 2011 WL 6396518, Judge Saris ruled that under Colorado law the Fire Insurance policy is not required to indemnify Pring-Wilson, but the Farmers policy must indemnify him.

The Fire Insurance policy defined "insured" as a "permanent resident" of the policyholder's household under the age of 21 or a relative of the policyholder. The Farmers policy covers "the following residents of your household . . . (1) your relatives." "Relative" is defined in the policy as "persons living with you who are related to you by blood, marriage, or adoption."

The judge had ruled earlier that under the Fire Insurance policy Pring-Wilson was a permanent resident of his mother's household.

Farmers argued that Pring-Wilson is not covered under the umbrella policy because he was not "living with" his mother, the policyholder.

The court disagreed, "Pring-Wilson was not physically living with his mother on the date of the accident because he was away at school, but he was living with her in the sense that his school addresses were all temporary and he was a resident of [his mother's] home. He was not yet formally engaged and planned to move home within weeks."

The court held that under Colorado law coverage was excluded in the Fire Insurance policy by an exclusion for damages that resulted "for any occurrence caused by an intentional act of any insured where the results are reasonably foreseeable."

The Farmers policy did not contain that exclusion. Rather, it excluded coverage for damages that are "expected or intended from the standpoint of the insured." The court held that Farmers failed to establish that Pring-Wilson subjectively expected or intended any harm to Colono.

The court finally held that the umbrella policy would drop down to cover the loss where the primary policy did not provide coverage.