U.S. District Court applies continuous trigger, holds that under Boston Gas insured is responsible for proportionate share of defense costs

D.N. Lukens, Inc. was a a defendant in several suits alleging harm from exposure to toxic substances owned, supplied, sold or controlled by Lukens.  

While one of the suits, Mastrogiacomo, was pending, the Boston Gas decision was handed down.  In that decision, the Supreme Judicial Court of Massachusetts surprised everyone by holding that long-tail losses would be allocated on a pro rata time-on-the-risk method, instead of by a joint and several liability method.  The SJC also held that the insured will bear a proportionate share of the loss for any time period during the long-tail loss that no coverage is available. 

Utica Mutual Insurance Company, Lukens' insurer, informed Lukens that under Boston Gas Lukens was responsible for its pro rata share of any settlement or judgment because there were periods of time during the risk exposure that Lukens was uninsured.  Utica informed Lukens that it was conveying settlement authority to counsel in an effort to resolve the case prior to trial.

Lukens informed Utica that it believed it was insured for all relevant periods and asked for time to search for additional insurance coverage.  (Such a situation is not unusual in long-tail losses.  That's why everyone should keep copies of every liability policy ever issued to them, forever, in a place where they can be found.  Otherwise, after staff turnover and changes of location and changes of insurance agents and changes of insurers, how will they know what policy they had fifty years ago?)

Utica nevertheless settled the Mastrogiacomo lawsuit for $145,000, and calculated that $14,964 of that amount was attributable to Lukens.  That amount remains unpaid.

Lukens also sought coverage from Utica for asbestos claims filed against it.  Utica agreed to indemnify Lukens for its time on the risk and reserved the right to seek contribution from Lukens for uninsured periods.  Based on that reservation, Lukens sought to take control over the defense in the asbestos cases. 

In Graphic Arts Mut. Ins. Co. v. D.N. Lukens, Inc., 2013 WL 2384333 (D. Mass.), Utica sought summary judgment. 

The court held, first, unsurprisingly, that the injuries alleged were long-tail losses that came within the Boston Gas analysis. 

The court noted that Boston Gas did not resolve the issue of triggers of coverage.  Triggers of coverage determine which policy periods are triggered by a long-tail loss.  There are four basic theories of triggers of coverage: manifestation, injury-in-fact, exposure, and continuous.  Massachusetts courts have declined to adopt a single theory, holding that which trigger applies depends on the circumstances. 

The court held that the continuous trigger method most accurately reflects the reasonable expectations of the insured.  Under that method a loss occurs from the time of exposure to a hazardous substance to the time when physical harm from such exposure becomes manifest.  It also noted that in the case before it the continuous trigger would provide Lukens with the greatest amount of insurance coverage, and implied that that was one reason to apply  that trigger. 

The court then turned to whether Lukens must contribute its proportionate share to the settlement in the Mastrogiacomo suit.  "What is troublesome .. . is the fact that a settlement was reached without  the input or acceptance from Lukens."  The court held that in such circumstances Lukens was not required to contribute to the settlement.  It noted that Boston Gas contemplates the written consent of all parties to the settlement.  It declined to grant summary judgment to Utica on a 93A count arising its actions with respect to the settlement. 

Lukens argued that in the asbestos cases Utica was barred from disclaiming its duty to indemnify because it refused to relinquish to Lukens control over the litigation even though Lukens would be assigned over 60 percent of the indemnity allocation. The court's analysis of the issue was somewhat murky, but it appears to have held that Lukens was not entitled to control the defense but that it was responsible for its proportionate share of the costs of defense. 

The court denied summary judgment on the issue of the actual allocation of loss, on the ground that there was a material dispute of fact over the underlying claimants' exposure to asbestos. 

Mass. Appeals Court holds that GL policy effectively excludes coverage for negligent supervision of driver

Kimberly Pereira, an employee of R. Squared, provided support services to Dennis Pinto, who had been diagnosed with dementia.  Pereira drove Pinto to a restaurant in a car owned by Pinto's wife.  At the restaurant Pereira consumed alcohol and became intoxicated.  She subsequently crashed the vehicle, and Pinto was seriously injured.

Pinto's family sued Pereira, R. Squared, and R. Squared's principals.  The claims included liability under respondeat superior against R. Squared and its principals, and negligent hiring, training, supervision or retention. 

FSIC provided general liability coverage to R. Squared.  It disclaimed coverage on the basis of an automobile exclusion.   That exclusion provided, "This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, training or monitoring of others by that insured, if the 'occurrence' which caused the 'bodily injury' or 'property damage' involved the ownership, maintenance, use or entrustment to others of any . . . 'auto"  . . . that is owned or operated by or rented or loaned to any insured." 

The FSIC policy also contained a severability clause, under which the policy applied "separately to each insured against who claim is made or suit is brought." 

Pilgrim provided auto coverage to R. Squared.  It settled the suit.  FSIC filed a declaratory judgment action, seeking a declaration that Pilgrim had no right to contribution or subrogation from it. 

In First Specialty Ins. Co. v. Pilgrim Ins. Co., 83 Mass. App. Ct. 812 (2013), the court distinguished the FSIC policy from  policies interpreted in earlier cases.  The earlier cases had similar facts.  The court found coverage in those cases because of the severability clauses of the policies. 

In First Specialty the court distinguished the policies in those earlier cases, because the FSIC policy stated that the auto exclusion applied even if the claims against any insured allege negligence in the supervision or hiring of others by that insured.  That language was sufficient to make the severability clause ineffective with respect to the exclusion.  The court speculated that the clause was added to address the earlier cases which had found coverage. 

U.S. District Court interprets arbitration clause, family member exclusion

A 13 year old died while on a fishing boat owned by his grandparents.  Shortly after the accident the grandparents filed a statement of loss with their yacht insurer, Northern Assurance. 

Northern denied the claim on the basis of an exclusion "for any liability between or among 'family members.'"  The policy defined family members as "persons  related by blood, marriage or adoption (including a ward or foster child)." 

Almost three years after the child's death, his father, who  was the previous husband of the insureds' daughter and executor of the child's estate, filed a wrongful death suit against the insureds.  The insurer filed a complaint for declaratory judgment seeking a declaration that the family member exclusion excluded coverage.

The policy contained an arbitration clause which (supposedly) required the insureds to make a demand for arbitration over "whether the claim is payable or about the amount due under the policy" within one year of the loss or damage.

My first reaction when I read the arbitration clause was:  What????  Without going into the ethics of arbitration clauses in insurance contracts, the tort statute of limitations is three years.  Often insureds will not even be aware that the insurer will dispute coverage until after suit is filed and a claim for coverage subsequently made.  If suit is filed more than a year after accident, the insureds would lose the right to dispute the insurer's coverage position.  Here, although the insureds knew shortly after the accident that the insurer intended to deny coverage, no suit was filed against them until almost three years after the loss.  It would make no sense for them to seek arbitration over policy interpretation when no suit has been filed against them. 

You would typically see such an arbitration clause with respect to first party-claims, such as if the insured's boat was damaged.  They would presumably know immediately of the loss and would be in a position to make a claim.

Indeed, there is indication in the decision that the clause applies only to first party claims.  The decision quotes the arbitration clause as "[I]f [Mr. and Mrs. Wells make a claim under this policy, and [Northern Assurance] disagree[s] about whether the claim is payable or about the amount due to [Mr. and Mrs. Wells] under the policy, the disagreement must be resolved by binding arbitration."

Unless the policy is a rare indemnity policy (in which the insurer reimburses the insureds after they have paid a loss out of pocket), in a third party claim no amount will ever be due to the insureds.  The amount due is to the claimant, in this case the grandson's estate. 

The fact that the insurer filed the declaratory judgment action indicates that it believed the arbitration provision applied only to first party claims.  Otherwise, it would have simply informed the insureds that they had waived their right to dispute its denial of coverage, and forced them to file suit if they wanted to pursue the issue.  Or they would have at least made the waiver argument in their declaratory judgment complaint. 

In Northern Assurance Co. of Am. v. Wells, 2013 WL 2250985 (D. Mass.), the insureds moved to dismiss the insurer's declaratory judgment action, arguing that the insurer was required to bring the coverage issue to arbitration.

The court held that the insureds waived their right to arbitration by failing to file a demand for arbitration within one year.  

The court then turned to the family member exclusion.  The question before it was which individual's family member status is relevant in a wrongful death case, that of the decedent or the estate's representative.  If it is the decedent's status that matters, then the family member exclusion would exclude coverage because the decedent was the grandson of the insureds.  If it is the estate's representative, then the exclusion would not apply because the representative was the insureds' former son-in-law and therefore not within the definition of the exclusion.

The court held that it is the decedent's status that matters for purpose's of the exclusion, not the estate's representative.  While I agree with the court as a matter of common sense, the definition of family member for the exclusion is sorely lacking in specificity.   Pretty much all of us are related by blood or marriage if you go back far enough.  What if the child killed had been a grand-nephew?  A second cousin?  How far does it go? 

The new Federal Insurance Office has issued its first annual report

As an attorney practicing on the ground in insurance coverage issues, I didn't find much of interest.  It is a combination of too specific (wind speed of Hurricane Sandy) and too general ("insurers and reinsurers may try to modify business models to reduce exposure to certain catastrophic risks," but no discussion of what those modifications may be  or if the government should take any position with respect to such modifications) to be of much help.

You can see the report here. 

US District Court stays bad faith claim until after reference proceeding

As I wrote about here, as required by statute Massachusetts homeowners policies require that a dispute about the value of first-party property damages go to an arbitration called a reference procedure.

In Santos v. Preferred Mut. Ins. Co., __ F. Supp. 2d __, 2013 WL 1633107 (D. Mass.), the plaintiff insured filed suit over damages as well as bad faith practices prior to a reference procedure. 

The insurer argued that summary judgment should enter for it on all counts due to the failure to begin with a reference procedure even though the reference procedure would not determine the bad faith counts.  The court took a much more reasonable approach, holding that the case should be stayed until after a reference proceeding. 

Jeff Rose hosts the most recent Cavalcade of Risk

Thanks for featuring my post on the Terrorism Risk Insurance Act. 

Massachusetts Appeals Court admirably untangles interstate PIP web

One of the most annoying issues in insurance coverage is how PIP statutes in various states interact with one another.  If a Massachusetts driver is injured by a Virginia driver in Florida, does PIP apply?  Does the PIP tort limit apply?  Does the PIP offset apply?  Does the intercompany reimbursement scheme apply?  What if a driver from Toronto injures a pedestrian in Massachusetts? (I mention the latter example because I represented a Toronto driver in just such a circumstance.  We won on liability.  The plaintiff's attorney later told me that if he had understood that the PIP offset would apply he would not have taken the case to trial because it would have lowered the potential damages by too much.) 

I frequently receive calls from adjusters wondering if I can answer off the top of my head a question about the application of PIP to an interstate situation.  I never can, because all the details matter and a change in details -- the home state of the other driver, for example -- can change the answer.  It often requires extrajurisdictional research, and even then there is often no clear answer.  If there is an answer, it will take a long time to figure out what it is, because PIP statutes are crazy hard to decipher and typically do not have a lot of case law interpreting their application to interstate accidents.  And with very limited exceptions the most money that could ever be at stake, under the Massachusetts PIP statute, is $8000.00.

The Massachusetts Appeals Court recently applied notable common sense to an interstate PIP dispute.

David Allen was driving a car insured by Commerce under a Massachusetts policy when he was involved in a collision in Holyoke.  Julio and Maria Alvarado were in the other car, which was insured under a New York policy by Peerless.

The Alvarados were injured and received no-fault benefits under the New York PIP scheme, which has a limit of up to $50,000 covering medical bills and lost wages.

Commerce sought a declaratory judgment that the PIP offset would cover the entire amount of PIP coverage the Alvarados received.  The Alvarados argued that the Massachusetts PIP statute creates an exemption only for PIP benefits received from a Massachusetts insurance policy, not a New York insurance policy.

In Commerce Ins. Co. v. Alvarado, 83 Mass. App. Ct. 604 (2013), the court held that the objective of the Massachusetts PIP scheme is to avoid duplicative recovery.  Very sensibly, the court held that Commerce is entitled to an offset for the benefits the Alvarados received from the New York policy.  Even more sensibly, the court ruled apparently sua sponte that Commerce must reimburse Peerless for the PIP benefits the Alvarados received from Peerless.