Massachusetts Appeal Court holds that excess insurer is not required to pay until primary insurer becomes legally obligated to pay primary limit

In 2005 Ridgewood purchased a $15 million primary insurance policy from The Hartford and a $10 million excess insurance policy from Liberty Mutual.


The plaintiffs filed suit against Ridgewood, alleging breach of contractual and fiduciary duties.  The plaintiffs and Ridgewood settled the case for a stipulated judgment of $20.5 million.  The settlement agreement provided that The Hartford and Ridgewood would pay jointly to the plaintiffs $11 million in exchange for the plaintiffs' promise not to sue Ridgewood for the remaining amount.  The Hartford paid $7 million to the settlement and $2.5 million in attorney's fees; Ridgewood paid $4 million to the settlement.


Ridgewood assigned all of its rights, claims and interest in the Liberty Mutual policy to the plaintiffs. 


Liberty Mutual refused to pay any part of the claim, asserting that its policy provides coverage only when the primary insurer has paid the full amount of the underlying limit of liability as loss, and that that condition had not been met. 


Under the Liberty Mutual policy there was coverage "when the underlying limit of liability is exhausted by reason of the insurers of the underlying policies paying or being held liable to pay in legal currency the full amount of the underlying limit of liability as loss."  "Loss" was defined as "sums which the insured parties are legally obligated to pay solely as a result of any claim insured by this policy, including claims expenses, compensatory damages, settlement amounts, and legal fees and costs awarded  pursuant to judgments." 


In Anile v. Liberty Mutual Insurance Company, 2015 WL 4937671 (Mass. App. Ct.) (unpublished), the Massachusetts Appeals Court held that under New Jersey law the language of the Liberty Mutual policy unambiguously provided that excess coverage will be allowed only in the event that The Hartford had actually paid, or was legally obligated to pay, the entirely of the $15 million primary coverage limit. 

Massachusetts Appeals Court holds that attorney who conducted negligent title search may be liable to title insurer for breach of contract but not malpractice

Fidelity National Title Insurance Company of New York appointed George Crowley as its agent to issue title insurance.  The agreement provided that if Crowley were grossly negligent by issuing policies for properties with existing liens and encumbrances he would indemnify Fidelity for its loss, including attorney's fees. 


Fidelity alleged that in five instances Crowley issued title insurance in its name despite the existence of title defects, causing Fidelity to incur a loss. 


In Fidelity Nat'l Title Ins. Co. of N.Y. v. Crowley, 2015 WL 4887598 (Mass. App. Ct.) (unpublished), the Massachusetts Appeals Court  held that the contract statute of limitations of six years applied, rather than the legal malpractice/tort statute of limitations of three years.  Although the mortgage lenders would have malpractice claims against Crowley, there was no attorney-client relationship between Fidelity and Crowley.  The agency agreement did not required the issuing party to be an attorney.  (I need to think this one through.  I'm not a real estate attorney so I'm probably missing some subtleties in the difference between Crowley doing a title search for Fidelity and Crowley doing a title search for a mortgage lender.) 


In this case the word "grossly" was typed above the word "negligent," so that unlike other title insurance agency contracts I have seen Crowley can only be liable if he was grossly negligent.  The effect of the contracts without the word "grossly" inserted is that the cost of indemnifying losses from clouds on a titles is effectively transferred from the title insurer to the real estate attorney's malpractice insurer.  (Although here, where the court has held that the suit is not one for malpractice, perhaps there is no coverage under the malpractice policy.  I  have no idea.) 

SJC seeks amicus briefs on whether innocent coinsured doctrine should be revisited and on definition of insured allowed by Mass. Gen. Laws ch. 175 s. 99

In May, the Massachusetts Superior Court granted summary judgment to Jonathan and Tammy Hall in a declaratory judgment action against Preferred Mutual Insurance Company.  Hall v. Preferred Mut. Ins. Co., 2015 WL 4511760 (Mass. Super.). 




The Halls owned residential property insured by Preferred Mutual.  Their son Bryan intentionally started a fire that caused significant damage to the real and personal property of the residents in the home.  The Halls did not know initially that Bryan had started the fire.




When it learned that Bryan had started the fire Preferred Mutual denied the claim of Jonathan and Tammy. 




The policy defined the term "insured" to include "your relatives if residents of your household."  It was undisputed that Bryan fell within this definition of insured. 




The policy excluded coverage for fire damage where the "loss results from any act committed by or at the direction of any insured."  The plain language of the policy therefore excluded the loss.


However, insurers may not limit coverage for fire damage beyond what is permitted by statute to make up a standard fire insurance policy.  Mass. Gen. Laws ch. 175 §99.    Mass Gen. Laws ch. 175 §99 (Twelfth) allows policies to exclude coverage if the insured neglects to use all reasonable means to save and preserve the property at and after a loss, or if the hazard is increased by any means within the control or knowledge of the insured.  Under the statute a policy shall be void if before or after a loss the insured has willfully concealed or misrepresented any material fact or circumstance concerning the insurance or the subject thereof or the interest of the insured therein, or in a case of any fraud or false swearing by the insured resulting thereto. 




The statutory language thus precluded coverage if Bryan fell within the definition of insured.  The statute does not provide a definition of insured. 




Preferred Mutual argued that under the statute "the insured" refers to all people entitled to coverage.  Its argument relied on its assertion that insurers may deny coverage to an innocent co-insured in cases where the intentional misconduct of an insured causes damage to property covered by an insurance policy. 




The Superior Court held that the innocent coinsured doctrine may not apply unless the guilty coinsured holds a joint, non-severable and co-extensive interest in the insured property.  It also held that the legislature did not intend in Mass. Gen. Laws ch. 175 §99 that Bryan come within the definition of the insured in the relevant policy provisions. 




The SJC has accepted the case for direct appellate review.  It now requests amicus briefs on the issues of whether the policy defined insured beyond what is permitted by the statute, and whether the innocent coinsured doctrine should be revisited.

Massachusetts Appeals Court holds that ch. 93A s. 11 claim can include personal injuries and that insurer did not violate s. 11 when it did not settle verdict that was appealed

Associated Building Wreckers contracted to demolish an abandoned building adjacent to property owned by Gary Silva.  Silva operated an auto body and repair business on his property. 


During the demolition the abandoned building collapsed onto Silva's property


Silva sued Steadfast for damages to his business and property and for personal injuries.  After trial the judge awarded Silva $366,607.36 as damages on a breach of contract claim and $10,000 for personal property damage. 


The trial judge ruled in favor of Associated on Silva's other claims.


Silva appealed the rulings on some of the claims and on the amount of damages awarded.  The appeal was unsuccessful and the judgment was affirmed.


Associated then filed a motion for relief from judgment in the underlying action on the ground that the judgment failed to apply the setoff as provided by the judge in his original findings.  The motion was allowed, with the judge finding that Silva had already received insurance payments in the amount of $186,464 which would offset the award.  Judgment entered in the amount of $342,201.53, which included interest and some costs.  Steadfast paid the judgment three weeks later.


Silva sued Associated's insurer, Steadfast Insurance Company, asserting that it had violated Mass. Gen. Laws chs. 93A and 176D by failing to effectuate a prompt, fair, and equitable settlement after the original judgment in Silva's favor.


A trial court judge granted summary judgment to Steadfast, holding that  Steadfast had not violated ch. 176D because Silva rendered uncertain the amount of total liability by appealing the underlying judgment.


On appeal, in Silva v. Steadfast Ins. Co., __ N.E.3d __, 2015 WL 4661296, the Massachusetts Appeals Court first addressed whether the claim came under §9 or §11 of ch. 93A.  Section 9 claims are filed by consumers against businesses.  In most circumstances a demand letter must be sent 30 days before a §9 claim can be filed.  A violation of ch. 176D is automatically a violation of §9.


Section 11 claims are filed by businesses against businesses.  No demand letter is required.  A violation of ch. 176D is not an automatic violation of §11.


Steadfast argued that the claim came under §9 because it included a claim for both personal and business injuries.  The Massachusetts Appeals Court rejected that argument, holding that current case law does not prevent Silva, as a matter of law, from bringing suit under §11 simply because he pursued damages relating to both personal and business injuries.  Moreover, Silva, Associated, and Steadfast were all engaged in trade or commerce during the claims, incidents and transactions at issue.  Silva's business was damaged by Associated's conduct of business.  Assocaited's business was insured by Steadfast's business insurance.


The court also held that third-party claimants can bring suit under both §9 and §11. 


The court next examined whether Steadfast had failed to effectuate prompt, fair and equitable settlement of claims in which liability had become reasonably clear.  Silva's argument was based solely on Steadfast's failure to settle the claim after the original underlying verdict. 


The court held that when Silva appealed the verdict, he "open[ed] up both the scope of liability and the amount of damages."  However, because Associated did not cross-appeal, some amount of liability and damages had, at that point, been established. 


The court held that Steadfast did not as a matter of law violate ch. 93A §11.  It drew that conclusion because the amount of damages was not reasonably clear once Silva chose to appeal.  In addition, after Silva lost the appeal the amount of damages required multiple adjustments in the trial court. 

First Circuit holds that exclusion for injury to contractors applies only to injury to insured's contractors

Benchmark contracted to renovate a house.  The homeowners had hired an architect named Thomas Huth.  Huth hired Sara Egan to apply decorative painting to one of the walls.  Egan's employee Meghan Bailey worked on that task.  She fell from a ladder positioned on top of scaffolding.


Bailey sued Benchmark, alleging that it negligently erected and maintained the ladder and scaffolding.  Benchmark sought a defense from its insurer, USLIC.


USLIC denied that it had a duty to defend, relying on an exclusion excluding coverage for bodily injury to any employee of any contractor arising out rendering services of any kind for which any insured may become liable in any capacity.


     Sidenote:  The full exclusion is actually much more complicated.  A few months ago I wrote a post about why insurance policies are impossible to understand.  This exclusion is a perfect example of a clause that starts off making sense and then rambles and wanders until you have no idea how the end of it goes with the beginning.  The court (or the attorneys) did an admirable job of distilling it down to relevant clauses. 


"Contractor" was not defined in the policy.


In U.S. Liab. Ins. Co. v. Benchmark Constr., __ F.3d __, 2015 WL 4747164, the United States Court of  Appeals for the First Circuit held that there were two ambiguities in the exclusion.


First, the court held that the phrase "bodily injury to any employee of any contractor arising out of rendering services of any kind for which any insured may become liable" was ambiguous because it is not clear whether the phrase "for which any insured may become liable" modifies "services" or "bodily injury." 


(Anyone who has diagrammed sentences would know that the phrase modifies "services."  As that art has fallen off most schools' curriculums I don't fault the court for holding that the clause is ambiguous.)


Benchmark argued that the phrase modified "services," so that the policy excludes the claims of a contractor's employee only if the contractor's employee is injured while performing services for which the insured has some responsibility.  Under that interpretation, the exclusion is limited to bodily injury to employees of contractors Benchmark hires or has some contractual responsibility to.  Benchmark therefore contended that the exclusion applies only if Benchmark retained the right to exert any control over Bailey's decorative painting services and could be accountable for liabilities arising from or related to her work. 


USLIC argued that the phrase modifies "bodily injury," so that it applies to bodily injury to any contractor, subcontractor or employee of a contractor or subcontractor injured on the job if Benchmark may become liable for that injury.  Although Benchmark had no contractual relationship with Bailey, according to USLIC the exclusion applies because she was employed by a contractor. 


The court held that because reasonably intelligent people could differ as to what the phrase modifies the exclusion is ambiguous.  Because ambiguities are interpreted in favor of the insured, it must be interpreted as Benchmark asserted.  Because Benchmark could not become liable for Bailey's decorative painting, the exclusion does not apply.


The court also held that the meaning of the word "contractor" in the exclusion is ambiguous. 


Benchmark argued that contractor means Benchmark contractors.  USLIC argued that contractor means "anyone with a contract."  Since Egan had a contract to apply decorative paint, she was a contractor under this definition.


The court held that reasonably intelligent people could differ about the meaning of the word "contractor" and therefore the word must be interpreted in favor on Benchmark.  For that additional reason, the exclusion did not apply.


Congratulations to my law school classmate and colleague Mike Sams, incidentally one of the best attorneys I have ever had on the other side of a case, who represented Benchmark. 

Appellate Division holds claimant's failure to attend IME is complete defense to PIP claim

Barron Chiropractic provided treatment to Corey Hinds after Hinds was in a car accident while operating a car owned and insured by ERAC.


Barron sought PIP payments for the treatments.  ERAC argued that it was not obligated to pay the PIP claim because Hinds failed to attend independent medical examinations scheduled by ERAC's third-party administrator.


In Barron Chiropractic & Rehabilitation, P.C. v. Enterprise Rent-A-Car Co. of Boston, Inc., 2015 WL 4619841 (Mass. App. Div.), the Massachusetts Appellate Division affirmed summary judgment for ERAC.  "Where, as here, the insured fails to submit to a request for an IME, that amounts to non-cooperation which is a complete defense.  The insurer is not required to make any payments where that condition precedent was not met." 

Liberty Mutual approved to use drones to assess property damage

The Boston Business Journal reports here. 




My first thought was that the use of drones would allow insurers to make faster initial assessments of property damage after large- or largish-scale disasters.  Although insurers have in place the ability to mobilize adjusters from all over the country to descend on a region that has been hit by a hurricane, severe winter storm, or other event, it can still take weeks to get an adjuster to a particular property to assess damages. Sometimes after one look the adjusters realize they are from the wrong department and they need someone who can approve higher reserves to come out.


Unfortunately, though, the reality appears to be that, if anything, the use of drones will slow down initial assessments because they will require two people per drone -- an observer of the drone and a licensed pilot.  It's not clear whether the drone observer will also be an adjuster who can assess damages, including internal damage to a building; nor does the article say what type of specific training will be required for the drone-observer. 


Unless insurers team up to use a single drone team after a disaster, use of drones is unlikely to add much to efficiency, since in any neighborhood many homeowner's or general liability insurers provide coverage for the various properties located there. 




As the Boston Business Journal points out, however, use of drones will improve safety for adjusters and also allow photographs to be taken of otherwise inaccessible areas such as roofs shortly after the loss. 


As with any technological change, we'll see how it plays out in practice.