Massachusetts Appeals Court holds that statute of limitations on breach of duty to defend begins to run on date of denial or at some point after reservation of rights letter

Predecessors to Narragansett Electric Company (NEC) had used sites for manufactured gas plants, electric operations, and waste disposal from the mid-1800's to the 1980's.  Soil and groundwater contamination were eventually discovered at the sites, prompting governmental and private actions against NEC.  Most of the sites were located in Rhode Island. 




NEC sought defense and indemnity from a number of insurers that had issued primary and excess policies to it between 1945 and 1986.




In OneBeacon Am. Ins. Co. v. Narragansett Elec. Co., 2014 WL 9865738 (Mass. App. Ct. 2015)*, the Massachusetts Appeals Court addressed statute of limitations issues with respect to the claims.



* As I remarked in my last post about a different case, although the Westlaw cite indicates the decision was issued in 2014, it was actually issued on June 3, 2015. 




The court first held that the six year statute of limitations for contracts of the forum state, Massachusetts,  rather than the ten year statute of limitations of Rhode Island, where most of the sites were located, would apply unless exceptional circumstances make the result unreasonable.  The court held that there were no such exceptional circumstances.  NEC could have filed suit in Rhode Island.  (That's an interesting and somewhat controversial point, considering that NEC's claims against the insurers were filed as counterclaims to a suit one of the insurers filed in Massachusetts.)


NEC also argued that its claims were timely because they accrued within the six-year limitation period. 




As with any contract action, the statute of limitations for a claim for breach of an insurance policy begins to run on the date of the breach.  The court held that under this rule, NEC's claims accrued when the insurers failed or refused to pay defense and indemnity costs.




However, the court noted, such an action may be tolled until the insured discovers the facts giving rise to its claim.  "When . . . the parties press different events as triggering accrual, the factual inquiry focuses on which was the first event reasonably likely to put the plaintiff on notice that the defendant's conduct had caused him injury."  Citing Massachusetts law, the court held that NEC's claims for breach of the duty to defend accrued when its demand to the insurers for costs associated with defending the claim was refused and NEC began to incur such costs.  (It's interesting that the court seems to hold that the two dates are the same.  An insured can incur defense costs either before or after an insurer refuses to defend.)   




The court rejected NEC's argument that it should adopt the majority rule in other states, which requires resolution of the underlying litigation against the insured before a claim for breach of the duty to defend accrues.  Massachusetts does not follow that rule. 




NEC also argued that the accrual should be tolled because the duty to defend is a continuing obligation which the insurer might cure by the conclusion of the underlying litigation.  The court again rejected that argument because it is not the law of Massachusetts. 




In a footnote the court rejected what, in my opinion, was a stronger argument of NEC:  Some of the policies included a "no action" provision stating that "[n]o action shall lie against the [insurer] . . . until the amount of the Insured's obligation to pay shall have been finally determined either by judgment  . . . or by written agreement."  The court held that that provision does not apply where an insurer has without right refused to defend an action against its insured. 




The court held that with respect to Century, which had issued reservation of rights letter and then failed to make a coverage decision for several years while NEC incurred costs, the failure to make a decision itself constituted a breach that triggered the statute of limitations.  The court held that the delay after the reservations of rights letters "constituted a breach that triggered the statue of limitations at some point well before 2003 [six years before NEC filed claims against the insurers]."




Even if that is the case, the court's ruling is too vague.  The main purpose of a statute of limitations is to have a clear point after which no case can be filed.  (With the discovery rule, among other doctrines, it does not always work that way -- which is why in some cases we have statutes of repose, which are statutes of limitation with no discovery rules and very few exceptions.)  At what point after insurer has stated, "we're thinking about it and we'll get back to you" is an insured to understand that the statute of limitations has started to run?  Thirty days?   Six months?  A year?  What if the insurer continues to let the insured know that it's still looking into the matter?  What if the insurer requests additional factual material from the insured and it takes the insured some time to gather it? 


While the court stated that an insurer can make a decision with respect to the duty to defend by comparing the letter of responsibility issued to it by the governmental agency with the terms of the policy (a/k/a the eight corners test), that doesn't address the issue.  It is the insurer which delays too long in coming to a decision but the insured which must guess how long is too long -- and if it guesses wrong it waives coverage. 




I'll be discussing this case again in my next post. 




Thanks to Mike Tracy of the Law Office of Michael G. Tracy for bringing this case to my attention. 

Appeals Court holds that towing cars comes within automobile business exclusion

Eduardo Silva worked for company that transported cars to and from auto dealerships.  While driving a tow truck to pick up a car for a dealership Silva struck a vehicle in which plaintiff Rita Borden was a passenger.  Borden's medical bills exceeded the amount of primary insurance available through the tow truck's insurer.  She turned to the insurer of Silva's personal car, which was covered under a Progressive Insurance policy issued in Rhode Island. 




Progressive denied the claim for excess coverage under Silva's personal automobile policy on the basis of its automobile business exclusion.  The exclusion provided that coverage did not apply to "bodily injury . . . arising out of an accident involving any vehicles while being maintained or used by a person while employed or engaged in any auto business."  The policy defined auto business as "the business of selling, leasing, repairing, parking, storing, servicing, delivering or testing vehicles."
 


In Borden v. Progressive Ins. Co.,  __ N.E.3d __, 2014 WL 8850495 (Mass. App. Ct. 2015*), the Massachusetts Appeals Court held that the loss was excluded.  It noted that the automobile business exclusion has been used to apply to cases involving the insured's use of a nonowned vehicle in the course of employment.  While an insurer of a personal automobile is expected to provide coverage for an insured's occasional or infrequent use of other vehicles, the court held that the risk of Silva's use of the tow truck in the course of his employment falls outside the range of ordinary risks contemplated by insurer of personal automobiles.


The court also held that towing vehicles unambiguously falls within the definition of "the business of . . . delivering  . . .vehicles." 


This decision once again underscores the importance of purchasing underinsurance and uninsurance coverage.  Those coverages protect you if you are injured by someone with inadequate auto insurance.  They cover the difference between the negligent driver's insurance and the coverage that you purchase. (So if the negligent driver has $100,000 in coverage and you have $300,000 in underinsurance coverage, the negligent driver's policy covers the first $100,000 and your policy covers the next $200,000.)  That way you do not have to depend on insurance decisions made by the person who injures you to have a reasonable amount of coverage after an accident. 














*  Although the Westlaw citation indicates a 2014 decision, the case was decided on May 21, 2015.

First Circuit holds that in fraud sentencing, sentence is based on amount of fraudulent claim not fraudulent plus legitimate claim

John Alphas owned a wholesale produce distributor.  He routinely obtained insurance for produce shipments.


Starting in March, 2007, Alphas submitted at least ten fraudulent claims to his insurers for lost, stolen or damaged produce.  Some of the claims were partially legitimate and partially fraudulent.


The federal government prosecuted Alphas.  Alphas pleaded guilty.  However, Alphas and the government did not agree on the amount of loss, a necessary step for determining sentencing. 


Alphas argued that the loss figure should exclude legitimate claims embedded in the fraudulent claims. 


The government asserted that the amount should be based on the total amount Alphas claimed, not how much he received.  It argued that the under the terms of the policies the insurer would have voided an entire claim if it had known that any part of it was fraudulent.


In United States v. Alphas, __ F.3d __, 2015 WL 2124771 (1st Cir. 2015), the United States Court of Appeals held that the loss-computation should distinguish between a fraudster who wholly fabricates a non-existent claim and a fraudster who artificially inflates s a legitimate claim.  "A fraudster who has suffered no loss at all but invents a $100,000 claim out of thin air is not the same as a fraudster who has suffered a legitimate $50,000 loss but artificially inflates his claim to $100,000." 


The court noted that the void-for-fraud clause in an insurance policy imposes on the fraudster a penalty for acting corruptly: "if the insurer discovers the fraud, the insured forfeits everything."


But the concept of loss under the criminal sentencing guidelines serves a different purpose.  The guidelines are "designed to ensure that the sentence imposed on the defendant 'reflect[s] the nature and magnitude of the loss caused or intended by [his] crimes.'"  It would make no sense to impose a more severe penalty on a fraudster whose policy has a void-for-fraud clause than on a fraudster whose policy does not contain that clause. 


The court held that, contrary to the government's position, the correct inquiry is what the fraudster reasonably expected to "euchre" (to outwit or cheat, not to play a card game in which jacks are high) out of his victim, not what would have slipped through is fingers had he not been caught.  That amount excludes sums that the fraudster would have been paid absent the fraud. 


The court also held that the restitution amount is the fraudulent amount only, not the legitimate claim, regardless of a void-for-fraud clause. 

Massachusetts Appeals Court defines risk of loss from misrepresentations in insurance application

Kevin Fitzgerald was injured in a car accident and brought suit against the car's owner, Marcio De Oliveira.  De Oliveira was insured by Commerce.  Commerce denied coverage over the $20,000 compulsory limit. 


Commerce asserted that when he purchased the policy, De Oliveira, who is Brazilian, had supplied materially false information in the form of an altered Brazilian driver's license.  The alterations were to the license's expiration date and to the Brazilian government identification number (equivalent to a social security number in the United States.)


Fitzgerald argued that the alterations to the license were not "material."  He cited Mass. Gen. Laws ch. 175 §186(a), which  provides that insurers may deny coverage based on a misrepresentation in insurance applications only when the misrepresentation was made "with actual intent to deceive" or when "the matter misrepresented . . . increased the risk of loss." 


The trial judge found, after a bench trial, that both criteria were met.  On appeal Fitzgerald argued that the alterations did not increase the risk of loss because De Oliveira had a valid Brazilian driver's license at the time of the application, the license remained valid during the policy period, and his separate license number appeared on the license so that the insurer could gain access to his driving history in Brazil.  Fitzgerald also argued that based on those facts the alterations could not have been made with the intent to deceive. 


In Commerce Ins. Co. v. De Oliveira, 73 Mass. App. Ct. 1001, 2015 WL 1880299 (unpublished), the court held that Fitzgerald's argument was based on too narrow a conception of what it means for an insurance applicant to increase the insurer's risk of loss.  The alterations "were of the sort that would have raised obvious red flags to one considering whether to take on the risks that the applicant presented."  "The concept of 'risk of loss' is not limited to an increase in the actual risk loss, but rather embraces an insurer's generally increase risk of economic loss or exposure." 

U.S. District Court holds insurer's removal to federal court untimely based on information in underlying complaint

Addison Automatics filed a lawsuit in Suffolk Superior Court seeking a declaration that defendant Netherland Insurance Company had a duty to defend and indemnify Precision Electronic Glass Company in a class action lawsuit.  In the underlying action Addison alleged that Precision violated the law by sending junk faxes. 




Netherlands removed the case to the United States District Court for the District of Massachusetts.  Addison filed a motion to remand the case to state court, contending that the removal was untimely because it was not done within 30 days of service of the complaint.  Netherlands asserted that it was not until a decision of the Superior Court on a motion to dismiss that it knew that the suit was a class action suit that could be removed.


In Addison Automatics, Inc. v. Netherlands Ins. Co., 2015 WL 461958 (D. Mass.), the court held that there was enough information in the initial complaint for the defendants to ascertain that it was a class action suit.  Among other things, it referred to the complaint in the underlying litigation, which was a class action.  The defendants could have determined from that that Addison was seeking relief not just for itself but as a representative of the class. 

SJC holds that under PIP statute any licensed health care practitioner can conduct IME

I posted a few months ago, here, about a Massachusetts Appeals Court decision in Ortiz v. Examworks, Inc. in which plaintiff Flor Ortiz sued his insurer for having an IME for a PIP claim conducted by a physical therapist.  The Appeals Court dismissed the claim on the basis that Ortiz suffered no damages, and did not address whether the insurer had acted in bad faith. 




In Ortiz v. Examworks, Inc., 2014 WL 7930423 (Mass.), the SJC has now taken up that question. 


The SJC quoted the PIP statute, Mass. Gen. Laws ch. 90 §34M, which provides that an injured person claiming PIP benefits "shall submit to physical examinations by physicians."  The SJC held that the word "physicians" in the statute refers not only to medical doctors, but also to "additional types of licensed health care practitioners."  The court stated, "We interpret the statute to intend the broader definition of the word because it is the one most consonant with the statutory purpose." 

Appeals Court affirms trial decision on commissions due to insurance agent

Marguerite Cocco owned an insurance agency.  In 2002 she contracted with another insurance agency, LJM, to refer customers to it in exchange for fifty percent of commissions received from her referrals.


After a number of years LJM reduced the percentage of commissions paid and then abruptly ceased paying all commissions.  Cocco sued.


The trial judge allowed LJM's motion to preclude any evidence of unpaid commissions owed prior to August 13, 2004, based on the six year statute of limitations for breach of contract. 


After the jury-waived trial the judge found in favor of Cocco and awarded her damages for commissions due from and after August, 2004.  The judge offset the amount due by $2,000 on the ground that LJM had paid that amount in 2008. The total amount awarded was $23,058.57 plus interest. 


Cocco appealed the preclusion of evidence and the offset. 


In Cocco v. LJM Ins. Agency, Inc., 87 Mass. App. Ct. 1106, 2015 WL 709623 (unpublished), the Massachusetts Appeals Court affirmed the rulings of the trial court.


The Appeals Court held that, contrary to Cocco's argument, nothing in LJM's 2008 payment was intended to renew its promise to her so that the statute of limitations would be reset. 


The court also held that the judge properly offset the 2008 payment from the judgment.  Cocco argued that the payment should have been applied to payments due prior to 2004.  The court held, "as the judge excluded all evidence of debts prior to 2004 on statute of limitations grounds, there was no evidence properly before the court of debts prior to August, 2004."  This ruling only makes sense if Cocco made no proffer of evidence of the pre-2004 debt for the purpose of showing that the 2008 payment was for the older debts.  The exclusion of evidence of debts prior to 2004 for the purpose of recovering those debts does not equal the exclusion of debts prior to 2004 for the purpose of showing that certain payments were to offset those debts.


It is worth noting that the court also held that both of  Cocco's arguments were deemed waived as not properly preserved for appeal.   


One of the hats I wear is as an appellate lawyer.  This case serves as a reminder that the time to start thinking about an appeal is at the beginning of the case.