Massachusetts Appeals Court holds insured's bankruptcy estate barred by issue preclusion from bringing bad faith settlement claim against insurer after injured plaintiff lost on the same claim

Valerie Troiano injured Elsa Villanueva in a car accident.  After a jury trial a judgment of $414,500 entered for Villanueva.   Commerce, Troiano's insurer,  paid the $100,000 policy limit.  An execution against Troiano entered in the amount of $552,352.37 (which presumably included interest.)

Villanueva sued Commerce, alleging that it had engaged in unfair settlement practices when it initially failed to settle her claim for the $100,000 policy limit.  After trial a verdict entered in favor of Commerce on that claim. 

Troiano filed a petition for bankruptcy.  The bankruptcy trustee retained  the same attorney who had represented Villanueva in her unsuccessful claim against Commerce, to pursue a bad faith settlement claim against Commerce on behalf of the bankruptcy estate.  

In Cruickshank v. Mapfre U.S.A, __ N.E.3d __, 2019 WL 122947 (Mass. App. Ct.), the Massachusetts Appeals Court held that the lawsuit must be dismissed on the ground of issue preclusion. 

The doctrine of issue preclusion prevents relitigation of an issue decided in an earlier action between the same parties or their privies.  The question before the court was whether the the trustee of Troiano's bankruptcy estate was in privity with Villanueva, the plaintiff in the earlier unsuccessful claim against Commerce.


The court agreed with Commerce that the concept of "virtual representation" applied.  Under that theory, issue preclusion applies if the interests of the parties in the two suits are so closely aligned that the party in the first suit is the virtual representative of the party in the second suit.

The court noted that a trustee in bankruptcy is a fiduciary representing not only the bankruptcy estate but the creditors of the estate.  Therefore, the trustee of Troiano's bankruptcy estate was acting on behalf of Villanueva as a creditor of the estate.  Moreover, the benefit of any recovery on a claim of failure to settle would flow to Villanueva rather than Troiano. Thus, although the trustee (and trustee's attorney) nominally represented Troiano, that representation in the action against Commerce was for the sole benefit of Villanueva.   The doctrine of issue preclusion therefore applied.

Because the holding is based in large part on bankruptcy law, specifically the duties of the bankruptcy trustee, it may not have wider applicability to a situation where the defendant tortfeasor has not declared bankruptcy after a verdict in excess of the policy limit.  That circumstance does not arise very often.  Typically, the defendant will assign to the plaintiff her right to bring a bad faith settlement practices lawsuit against the insurer in exchange for the plaintiff releasing her rights against the defendant.  Few plaintiffs' attorneys see the point in forcing a defendant into bankruptcy, where their client's recovery will be minimal. 

US District Court holds that slip and fall in parking lot does not arise out of building tenant's operations or premises

Cummings Properties leased an office suite to the Massachusetts Department of Revenue.  The lease required Cummings to use reasonable efforts to ensure that snow and ice are removed from the parking lot.

A DOR employee sued Cummings, alleging that she slipped and fell on ice in the parking lot of the building in which the DOR office suite was located. Cummings sought coverage under a commercial general liability policy issued to the DOR by Public Service Insurance Company (PSIC).  Cummings was an additional insured on the policy "but only with respect to liability arising out of [DOR's] operations or premises owned by or rented to [DOR]."  The additional insured endorsement identified the DOR's office suite as the location for which Cummings was an additional insured.

In Cummings Properties, LLC v. Public Service Ins. Co., __ F.Supp. 3d __, 2018 WL 6171878 (D. Mass.), the United States District Court for the District of Massachusetts held that the loss was not covered under the policy.

First, the court held that the DOR employee's injuries did not arise out of the DOR's "operations."  "Arriving in the parking lot and walking to work has nothing to do with  DOR's operations."

Second, the court held that the employee's injuries did not arise out of premises rented to the DOR.  The court pointed out that the additional insured endorsement identified the office suite as the insured location.  The DOR did not rent the parking lot or any parking spaces; the lot was a common area maintained by Cummings.  "The mere fact that Barresi was injured in a common area while en route to the rented premises does not automatically make her claim one arising out of the rented premises."

Although not discussed in the decision, it is worth noting that  regardless of whether or not it is an additional insured on the DOR's policy, Cummings almost certainly has coverage for the claim under its own general liability policy.  Indeed, it is likely that Cummings' general liability insurer, not Cummings itself, is pursuing coverage from PSIC.  If both policies provide coverage, then how much of the loss each pay (up to their policy limits) will be determined by their "other insurer" clauses. 

Massachusetts Appeals Court holds that tortfeasor's insurer's payment to homeowner whose house is an insured location under the policy offsets tort judgment against insured

Williams & Son installed and serviced an oil tank in Shirley Gilbody's house.  After an oil spill, Bunker Hill Insurance Company, Gilbody's homeowner's insurer, paid for full remediation of the property.

Bunker Hill then sought reimbursement for the loss twice.  First, it sought reimbursement directly from International Insurance Company of Hannover.  Hannover was Williams' insurer, and its policy listed Gilbody's house as an insured location.  Because Gilbody's house was an insured location, Gilbody was essentially entitled to bring a first party claim for property damage under the policy regardless of whether Williams was negligent.  Since the house was an insured location under both the Bunker Hill policy and the Hannover policy, a court applied an "other insurance" analysis and determined that the loss must be split equally between the two insurers.  Hannover reimbursed Bunker Hill for fifty percent of what Bunker Hill had had paid.

Bunker Hill then sought reimbursement a second time by bringing a subrogation action against Williams.  That means that Bunker Hill exercised its right under the policy it issued to Gilbody to stand in her shoes and sue Williams for damages caused by its negligence, up to the amount Bunker Hill had paid Gilbody.  In other words, it brought a third party claim against Williams.

A jury rendered a verdict in the full amount that Bunker Hill had originally paid Gilbody. Williams moved to offset the amount that Bunker Hill had already been reimbursed by Hannover.  The Massachusetts Superior Court denied the motion, holding that the payment Hannover had made was from a source collateral to the judgment in the negligence action, because the payment had been pursuant to coverage in the Hannover policy under which Gilbody's house was an insured location (first party coverage), not under negligence coverage for Williams (third party coverage).

In Bunker Hill Ins. Co. v. G.A. Williams & Sons, __ N.E.3d __, 2018 WL 6544124 (Mass. App. Ct.), the Massachusetts Appeals Court overturned the Superior Court decision and held that an offset was required.  Although the court used a fairly complicated analysis, the ruling boiled down to the common sense idea that Hannover should not have to pay the same loss twice (or one and one half times), and Bunker Hill should not get a windfall, simply because Williams had had the foresight and business sense to list Gilbody's house as an insured location on the Hannover policy.  In more technical terms, the first payment from Hannover was not a collateral source payment with respect to the tort judgment against Williams; it was from the same source as the tort payment would come from.

See the comments section on this post for a different take on this case.  

Superior Court holds that dispute over coverage for companies related to corporate policyholder does not create conflict between insurer and policyholder

Massachusetts Lawyers Weekly has quoted me in an article about a recent Massachusetts Superior Court case, Crosby Valve, LLC v. OneBeacon America Insurance Co.  The decision is not published on Westlaw, but if you need a copy of it send me an email and I will send it to you.  This case builds on a Massachusetts Appeals Court decision from last year, OneBeacon Ins. Co. v. Celanese Corp., 92 Mass. App. Ct. 382 (2017), which explored when a conflict between an insurer and a policyholder may exist even when the insurer has agreed to defend without a reservation of rights.  The issue matters because if there is a conflict then the policyholder rather than the insurer may control the defense, including selecting its own defense counsel to be paid by the insurer.

In Crosby Valve, the issue was whether a conflict existed when an insurer agreed to defend a policyholder in long-tail asbestos claims without a reservation of rights, but reserved its rights with respect to closely related companies. The policyholder argued that it should be able to control the defense because settlements of individual claims would deplete the coverage limits and would ultimately harm the related companies.

The dispute arose after a series of mergers and acquisitions in which rights under insurance policies were transferred from one corporate entity to another.  The Superior Court held that the dispute over coverage with respect to the related entities did not give rise to a conflict between the insurer and the entity that the insurer had agreed to defend without reserving its rights. 

Superior Court continues to whittle away innocent coinsured doctrine

I wrote here about the case of Shepperson v. Metropolitan Prop. & Cas. Ins. Co., 2018 WL 2324089 (D. Mass.), in which the United States District Court for the District of Massachusetts discussed the innocent coinsured doctrine.  That doctrine applies to property policies that insure more than one person.  If one of them commits an intentional act that causes damage to the insured property, that insured is not covered because damages from intentional acts are excluded.  Under the innocent coinsured doctrine, the other, innocent, insured person also cannot recover under the policy.
 

In Shepperson, the court held that an insured homeowner cannot be denied coverage for a fire loss even if the fire was set by another household member who is an insured on the homeowner’s policy, as long as two conditions are met.  First, the homeowner did not participate in the arson.  Second, the household member was made an insured by the operation of the policy language, such as a definition of insureds that includes any relatives who are household members, rather than by a conscious decision to make them an insured listed by name on the policy.   

The federal judge in Shepperson predicted that even though a 1951 decision of the Massachusetts Supreme Judicial Court held that there was no coverage for the innocent coinsured under similar facts, if the case were before the SJC today it would hold that there is coverage.  

A judge of the Massachusetts Superior Court has now addressed the innocent coinsured doctrine, in the context of a coinsurered who intentionally set the fire who, unlike in Shepperson, is a named insured on the policy. 

In Aquino v. United Property & Cas. Ins.  Co., 2018 WL 5532541 (Mass. Super.), Wenda Aquino sought coverage under a homeowner's policy issued by UPC after a fire in her home.  UPC denied coverage.  It asserted that the fire was intentionally caused by Aquino's fiance, Kelly Pastrana, who was a named coinsured on the policy, and that in those circumstances there was no coverage for any insured.

Both Aquino and Pastrana were listed on the deed and mortgage for the property.  Aquino was innocent of any involvement in Pastrana's intentional setting of the fire.  Pastrana died in the fire.

The Superior Court addressed the policy provision stating that intentional loss means "any loss arising out of any act an 'insured' commits or conspires to commit with the intent to cause a loss.  In the event of such a loss, no 'insured' is entitled to coverage, even 'insureds' who did not commit or conspire to commit the act causing the loss."

Aquino argued that that provision was broader than the provisions allowed by the Massachusetts Standard Form of Fire Policy statute, Mass. Gen. Laws ch. 175 §99.  The statute sets policy language for fire insurance policy.  Under the statute, such language includes a provision that the insured "shall not be liable for loss occurring . . . while the hazard is increased by any means within the control or knowledge of the insured" and that the insurer "shall not be liable for loss by fire . . . caused . . . by . . . neglect of the insured to use all reasonable means to save and preserve the property at and after a loss."

 Aquino argued that the statute used the phrase "the insured," but the UPC policy used the phrase "an insured."  The Superior Court agreed with Aquino that that change had impermissibly broadened the policy exclusion.

UPC argued that Aquino should be allowed to recover only half of the amount due under the policy because of Pastrana's intentional setting of the fire.  The court agreed, holding that Pastrana's intentional act forfeited his share of recovery available under the policy.  The court construed his share to be one half of the damages, noting that he and Aquino were tenants in common.  The judge also held that under the same logic Aquino was entitled to only one half of her additional living expenses (for example, rent while the house is being rebuilt).   

US District Court for District of Massachusetts holds Builder's Risk policy does not provide defense or indemnity for claim by purchaser of defectively constructed property

A builder called 689 Charles River, LLC built a single family home in Needham, Massachusetts.  The purchasers of the house sued, alleging "spectacularly shoddy and stunningly substandard design and construction" and "serious latent defects" caused by "improper design, material and/or workmanship" that combined to make the house "unfit for human habitation."   

Charles River sought coverage under a Builders' Risk policy issued by Zurich, and a declaratory judgment lawsuit followed.  In 689 Charles River, LLC v. Am. Zurich Ins. Co., 2018 WL 4211365 (D. Mass.) (unpublished), the United States District Court for the District of Massachusetts granted summary judgment to Zurich.  It held that the Builder's Risk policy had no defense or indemnity provisions and provided only first-party coverage (coverage for losses to the insured, not to a third party who sues the insured). 

The court also held that even if there were a duty to defend and indemnify under the policy, the allegations in the lawsuits fell squarely within the policy exclusions for dishonesty by the insured and for faulty, inadequate or defective (1) planning, zoning, development, surveying, siting,  (2) design, specifications, workmanship, repair, construction, renovation, remodeling, grading compaction; (3) materials used in repair, construction, renovation or remodeling; or (4) maintenance.

Massachusetts Appeals Court holds that child's father is not related by blood to child's mother's parents

Massachusetts Lawyers Weekly quoted me in an article about a recent Massachusetts Appeals Court case, Oliveira v. Commerce Ins. Co., 94 Mass. App. Ct. 276 (2018), which addressed the meaning of "related by blood" in underinsured motorist coverage.  The injured plaintiff had a child with his partner, and the three of them lived with his partner's mother and stepfather.  He sought coverage under an auto policy issued to his partner's mother and stepfather.  The policy included coverage for household members, which it defined as "anyone living in your household who is related to you by blood, marriage or adoption."

In a split decision, the Appeals Court held that the plaintiff was not related by blood to the policyholders.

As I pointed out to Lawyers Weekly, in other policies the phrase might be considered ambiguous and therefore interpreted in favor of coverage.  However, ambiguous terms in auto policies are not interepreted against the insurer because the language of those policies is set by state law.

Underinsured motorist coverage provides the difference in the value of a claim between the coverage limit of the policy of the driver who caused the accident and the coverage limit of the policy of the person who was injured.  In other words, if you are rearended and seriously injured by a driver who has a $20,000 auto policy, and you have $100,000 in underinsurance coverage, you can receive $20,000 from the other driver's policy and up to $80,000 from your own underinsurance coverage.

The dissent argued that the objective of underinsured motorist coverage is to ensure that victims of automobile accidents are adequately compensated for injuries caused by underinsured drivers.  I believe that overstates the purpose of the coverage.  It is certainly true that one purpose of any third-party insurance coverage – coverage for injuries caused by the insured to someone else – is to ensure that victims of the insured are fairly compensated, whoever they may be.  Underinsured motorist coverage is not third-party coverage, however.  It is first-party coverage.  Its purpose is to make sure that an insured who is injured (not who injures someone else) is fairly compensated.  Expanding the definition of who is an insured does not follow from that purpose. 

This brings me to my last point:  Everyone who has an opportunity to do so should purchase uninsured and underinsured motorist coverage.  I’m a strong believer that we all have a duty to have adequate third-party insurance to compensate those who we may harm by our mistakes.  Uninsured and underinsured motorist coverage serves a different purpose:  it prevents us from having to hope that the drunk or texting driver who just rear-ended us purchased enough insurance to compensate us for our injuries.