Massachusetts Appeals Court discusses rule that only referees of reference proceeding can seek court order compelling witnesses to testify

A few years ago I wrote a series of posts about a decision of the United States District Court for the District of Massachusetts on a case in which a restaurant called Bearbones alleged bad faith by an insurer with respect to a reference proceeding. 

(A reference proceeding is the proceeding required by Massachusetts statute, and incorporated into property insurance policies,  in which a panel of three referees determines a dispute over the amount of loss in a property damage claim.)

One of the issues at the reference proceeding was the value of damaged kitchen equipment.  The plaintiffs had wanted Blake Purry and Jim Clary, employees of B & G Restaurant, to testify about an estimate that B & G provided for the removal and replacement of the damaged equipment. 

During the reference proceeding the plaintiffs summoned Purry to appear and testify.  When it became apparent that he did not plan to do so, they filed an emergency motion for a capias (which would have forced him to attend) in Superior Court.  A judge denied the motion because the plaintiffs had not followed the proper procedure.  The proper procedure required the referees, rather than a party, to seek the capias. 

The referees asked plaintiffs' counsel if he knew of any authority by which they could enforce the summons.  Plaintiffs' counsel responded that he know of no such authority -- even though the Superior Court judge had informed the attorney of the proper procedure.

The plaintiffs subsequently summoned Clary to appear and testify at the reference proceeding, but he did not appear.  

The plaintiffs filed a lawsuit in which they sought a preliminary injunction requiring Perry and Clary to appear at the reference proceeding, and damages under Mass. Gen. Laws ch. 233 §4, a statute that provides tort damages for failure to comply with a summons. 

In Bearbones, Inc. v. B & G Restaurant Supply, Inc., 2019 WL 4898481 (Mass. App. Ct.) (unpublished), the Massachusetts Appeals Court noted that a witness summoned to testify at a reference proceeding is not always required to do so, as a judge has discretion to compel (or not compel) such testimony.  The plaintiffs did not follow the proper procedure for compelling the testimony of the witnesses, which was to have the referees submit the motion to compel their attendance.  The court affirmed summary judgment for the defendants. 

US District Court for District of Massachusetts holds that where insurer pays for repairs to damaged vehicle it is not responsible for post-repair diminishment in market value

There are a category of insurance issues that I classify as "cocktail party issues."  If it comes out in a social setting that I'm an insurance coverage geek, there a few questions that come up over and over again from people who are making conversation/seeking free advice.

One of those questions is about damages to a car after an accident.  Specifically, can the owner recover from the insurer for the diminished value of the car after it is repaired?  Everyone who has ever negotiated to trade in their car at a dealership knows that the dealership will use the fact that the car was in an accident -- even if it was (more or less) fully repaired -- as an excuse to offer less for it.
 In Martins v. Vermont Mutual Ins. Co., __ F.Supp.3d __, 2019 WL 3818293 (D. Mass.), the United States District Court for the District of Massachusetts has held that under the standard Massachusetts Automobile policy, a vehicle owner cannot recover from the other driver's insurer for both the cost of repairs and the diminution of market value. 

Part 4 of the 2008 Standard Massachusetts Auto Policy (the version still in effect) provides that an insurer will "pay damages to someone else whose auto . . . is damaged in an accident.  The damages we will pay are the amounts that person is legally entitled to collect for property damage through a court judgment or settlement." 

The United States District Court is bound to follow the rulings of the Massachusetts Supreme Judicial Court in interpreting Massachusetts insurance policies.  In Given v. Commerce Insurance Co., 440 Mass. 207 (2003), the SJC held that collision coverage (Part 7 of the standard policy, which insures the policyholder's own vehicle) does not require insurer to pay for diminished value.  Part 7 states that the insurer will pay for cost of repair or diminution in value, but not both. 

The US District Court noted that Part 4 of the policy is not identical to Part 7 and therefore requires its own analysis.  Under Part 4 the precise issue was whether a plaintiff would be "legally entitled to collect" diminished value from the at-fault drive.  The court turned to cases discussing damages to real property, which hold that the measure of damages is either the cost of repairs or the diminished market value, whichever is less.  The court held that the same measure of damages applies to property damage to vehicles. 

The plaintiff has filed an appeal.  Stay tuned. 

US District Court holds that insurer with $20,000 limit cannot intervene in case in federal court because of diversity jurisdiction

A vehicle driven by Susan Ingham and owned by William Ingham struck a vehicle driven by Ansley Dunbar.  Dunbar's vehicle was insured by Patriot Insurance Company.  The Inghams' vehicle was insured by Progressive Direct Insurance Company. 

Patriot made payments to Dunbar for her injuries pursuant to her underinsured motorist coverage. 

A digression:  Underinsured motorist coverage provides coverage to the injured insured above the policy limit of the person responsible for the accident. In other words, if you have $300,000 of underinsured motorist coverage on your own car insurance, and you get hit by some idiot texting while driving with a $20,000 policy limit, your own insurance will cover your proven damages up to $300,000. 

Underinsured motorist coverage and its sibling uninsured motorist coverage (which covers you if you are injured by someone with no insurance or in a hit and run) are the most important coverages you can buy.  While most insurance will pay other people injured by your negligence, underinsured and uninsured motorist coverage protects you from other people's negligence. 

If you don't have underinsured and uninsured motorist coverage, call your agent right now and add it to your policy.  If you do have it, call your agent right now to discuss raising your coverage limits.

Back to the case:  After paying Dunbar for her injuries caused (allegedly) by the negligence of the Inghams, Patriot  brought a subrogation action against the Inghams.  (In a subrogation action an insurer who has paid a claim seeks reimbursement from the people responsible for the damages.) 

Progressive moved to intervene in the subrogation action, for the purpose of securing a coverage determination as to the limits available under Progressive's policy. 

In Patriot Ins. Co. v. Ingham, 2019 WL 5394503 (unpublished), the United States District Court for the District of Massachusetts held that Progressive could not intervene as of right because the question of the applicable limit would not arise unless and until the Inghams were found to be liable for the accident.

The court also held that Progressive could not intervene under the permissive intervention rule.  The Patriot claim was in federal court under diversity jurisdiction, which requires the claim to exceed $75,000.  In order to permissively intervene, Progressive's claim would also have to exceed $75,000.  Since its policy had a $20,000 limit (begging the question of why it was asking the court to determine the applicable limit), it did not meet the jurisdictional amount. 

The court held that the denial of intervention would not cause Progressive significant prejudice, as it could bring a separate action for declaratory judgment.  However, the court denied Progressive's motion to stay the lawsuit until Progressive filed its declaratory judgment action.

Insurance experts weigh in on Thanksgiving mishaps

Master of the obvious:  be careful when you deep-fry your turkey. 

More on Szafarowicz

In my last post I discussed Commerce Ins. Co. v. Szafarowicz, __ N.E.3d __, 2019 WL 4774348 (Mass.), a case in which the SJC upheld the legitimacy of settlement/assignment agreements, but only to the extent that the settlement is reasonable including in light of the available insurance coverage.

A settlement/assignment agreement generally consists of three parts:

1.  The plaintiff and insured defendant agree to a settlement amount.
2.  The plaintiff agrees not to enforce the agreement against the defendant but only against the defendant's insurer.
3.  The defendant assigns his or her own rights against the insurer to the plaintiff.

Unsurprisingly, this case has received a lot of attention. Dennis Wall, a Florida attorney who writes the Claims and Bad Faith Law Blog, posted about it here.    

In his post Dennis asked me, if I understand him correctly, to comment on the courage of the insurer, Commerce, and its attorneys in holding fast in fighting what could have been a multi-million dollar loss far exceeding the policy limit.

In reading the case the first thing that jumped out at me was that the attorneys for all the parties seem to have done a stellar job of protecting and advocating for their client’s interests -- and the trial court and SJC made decisions that showed a broad understanding of the competing interests.  I wrote about how the parties' interests overlapped and diverged in my last post.

As far as the positions that Commerce took, Dennis seems to be implying that there may have been a lot of pressure on Commerce to settle the claim because of the settlement in the underlying case in which both sides agreed that the insured driver had been negligent, and that the damages vastly exceeded the policy limit.

To understand why Commerce resisted the settlement, we need to acknowledge that the primary purpose of the settlement agreement was to get insurance coverage for the loss.  If the insured driver, Matthew Padavano, intentionally struck David Szafarowicz with his vehicle, resulting in David's death, there was no coverage under the policy.  There seemed to be plenty of evidence that Matthew did act intentionally and eventually the trial court so found in the declaratory judgment action.  The settlement agreement providing that  Matthew had acted negligently was an effort to protect the assets of Matthew and his family and to provide insurance funds to David's survivors.  It was not proof, or even evidence, of negligence as opposed to an intentional action.  

The only reason that the case was complicated was because of the weird quirk of the insurance policy that required Commerce to pay interest on the entire amount of the underlying multimillion dollar judgment.  That clause exists to encourage settlements -- but there are times when an insurer is justified in holding firm even in the face of the high risk of a big price tag when it does so.  The policy exclusion for intentional acts -- insurance doesn't pay damages when a policyholder murders someone, for example, which the declaratory judgment trial court found is what happened here -- exists for very good reasons.  I'm terribly sorry for David's family, who have suffered an unimaginable loss.  But insurance simply cannot cover murder, and I applaud Commerce for holding firm on that, despite the fact that ultimately the company would have saved money if it had simply settled the case. 

SJC upholds settlement/assignment agreement between plaintiff and insured tortfeasor, but holds that a settlement amount that exceeds the policy limit is per se unreasonable

In Commerce Ins. Co. v. Szafarowicz, __ N.E.3d __, 2019 WL 4774348 (Mass.), after  David Szafarowicz and Matthew Padovano argued at a bar,  Matthew drove a vehicle that struck and killed David.  Matthew's father Stephen owned the vehicle.   Commerce insured it. The policy limits were $20,000 in compulsory coverage and $480,000 in optional coverage.

Matthew pleaded guilty to voluntary manslaughter.  David’s mother brought a wrongful death action against the Padovanos in Superior Court, claiming that David’s death was caused by Matthew’s gross negligence in operating a motor vehicle that was negligently entrusted to him by Stephen. 

Commerce acknowledged its duty to defend.  It acknowledged its duty to indemnify up to the $20,000 compulsory limit.  It reserved its rights to deny a duty to indemnify under the  $480,000 optional coverage if it was determined that David’s death was caused by Matthew’s intentional act and was therefore not an “accident” that was covered by the optional portion of the policy.  It then filed a declaratory judgment action on that issue. 

Thus, the stage was set.

To understand this case you have to understand how the interests of the three parties (the Padovanos, David's estate, and Commerce Insurance) were in conflict and how they overlapped.

The conflict arose because the optional portion of the Commerce auto policy does not cover intentional injuries.  Commerce’s theory was that Matthew had intentionally hit David, so that there was no optional coverage for the loss.  It appropriately agreed to defend  the Padovanos while reserving its right to deny a duty to indemnify (in other words, to refuse to pay a judgment or settlement because of a determination that the loss is not covered under the policy).

The Padovanos and David’s estate would both benefit from a finding that the accident had been a result of negligence and was not intentional.   That way David's estate would recover, but Commerce rather than the Padovanos would pay the judgment.   Commerce’s interest was in a finding that Matthew had acted intentionally, so that it would not have to pay the judgment.

Commerce filed motions to intervene in the wrongful death trial and to stay the trial until after the dispute over insurance coverage was resolved.  Although it lost those motions, the trial court ruled that after the wrongful death trial Commerce could seek a determination about whether the issue in the wrongful death trial that related to coverage – whether Matthew’s actions had been negligent or intentional – had been fairly litigated and, if not, to relitigate it. 

The Padovanos and David’s estate countered by entering into an three-part agreement.  First, the parties stipulated that Matthew’s actions had been negligent (rather than intentional).  Second, in what was perhaps a move to prevent a ruling that the settlement was unreasonable, they agreed that the wrongful death damages would be determined by a judge.  Third, David’s estate agreed to release the Padovanos and that it would collect damages only from Commerce.   

The judge found damages in the millions of dollars, many times the $500,000 policy limit.

Now Commerce was in a particularly difficult situation, because of a policy term (as required by Massachusetts law) that provided that Commerce was liable for post-judgment interest on the entire judgment, not just the policy limit.  The verdict was so high that the annual interest would exceed the policy limit.  The only way Commerce could avoid the interest would be to pay the policy limit, but that would mean that it was giving up its argument that there was no coverage under the policy because Matthew had acted intentionally.

The court noted that the interest policy provision, which is set by state law, has been revised so that under current auto policies the insurer is only required to pay post-judgment interest on an amount of a judgment up to the policy limit. But that revision did not apply to Commerce in this case. 

Commerce tried to limit interest by offering to put the policy limit in a separate fund, but the court denied that motion. 

In the meantime, the trial court ruled that for the purposes of the coverage dispute, Matthew’s actions had been intentional.  But that still did not get Commerce out of the interest payments on the entire amount of the damages found by the court in the wrongful death action. 

The SJC revisited the reasonableness of the settlement agreement for the purposes of insurance coverage.  The first part of the agreement, in which the parties stipulated that Matthew’s actions had been negligent and not intentional, had already been held by the trial court not to apply to Commerce.  The SJC examined the second part of the agreement – that the damages would be determined by a trial court judge.  The SJC held that that part of the agreement was per se unreasonable, because the trial court’s damages assessment exceeded the insurer’s liability limit.  It remanded the case for a reasonableness hearing to determine what would have been reasonable under the circumstances (with a strong implication that the only reasonable amount would be the policy limit).  The court held that Commerce would have to pay retroactive interest only on that amount. 

Finally, the court held that in future cases, a judge who finds that a settlement/assignment agreement is not reasonable should “invite” the parties to renegotiate an agreement to an amount that “might’ prove reasonable. 

One takeaway from this case is that while Massachusetts courts will continue to uphold settlement/assignment agreements, the settlement amounts in those agreements had better be within the applicable insurance policy limit.  Of course, that does not limit the ability of the parties to a tort case to request that the court determine the amount of damages – as long as the settlement agreement provides that the upper limit of damages is the policy limit.

But it is worth noting that there will be times when it is not in the interests of the parties to settle within the policy limits.  In this case it seems quite clear that Commerce's reservation of rights and refusal to settle was reasonable, given the strong evidence that Matthew's actions had been intentional.   But there are times when the plaintiff wants to preserve the possibility of an excess judgment -- a judgment over the policy limit.  That could happen when a policyholder has sufficient assets to pay an excess judgment.  It can also happen when an insurer has arguably acted in bad faith in not protecting its policyholder from an excess judgment by settling the case.  In that situationion the insurer can be liable to the policyholder under Mass. Gen. Laws ch. 93A for the excess amount, and for treble damages.  In the past, a policyholder has been able to settle the claim for the excess judgment amount in exchange for a release against the policyholder and an assignment of rights against the insurer.  In Szafarowicz the court does not address what a reasonable settlement would be in that situation. 

US District Court denies summary judgment to first insurer sued by second insurer for violating ch. 93A by seeking defense and indemnity from second insurer's policyholder

Joyce Richards sued MacDougalls' Cape Code Marine Services to recover for personal injuries she alleged she suffered while working as an employee of Boston Yacht Service (BYS) at MacDougalls' boatyard, where BYS leased an office. 

MacDougalls was insured by Atlantic Specialty Insurance Company.  BYS was insured by Quincy Mutual Fire Insurance Company. 

At Atlantic's direction, MacDougalls requested that BYS and Quincy defend and indemnify it against Richards' claims.  Quincy refused, in part on the ground that the indemnity provision of the lease between MacDougalls and BYS was void and unenforceable. 

At Atlantic's direction, MacDougalls filed a third-party complaint against BYS and Quincy.  Quincy filed a counterclaim, alleging that McDougalls violated Mass. Gen. Laws ch. 93A by asserting groundless indemnification and defense claims that relied on the unenforceable and void indemnity provision of the lease.  The Massachusetts Superior Court entered summary judgment in favor of Quincy on MacDougalls' claims. 

Quincy subsequently filed a new lawsuit against Atlantic, in which it sought to recover under Mass. Gen. Laws ch. 93A s. 11 litigation costs that it had incurred in the Richards litigation.  (It filed a new lawsuit because Atlantic was not a party to the Richards litigation.)  Quincy served discovery requests.  Rather than engaging in the discovery process, Atlantic told Quincy that it intended to move for summary judgment.  Quincy moved to compel discovery, and Atlantic moved for summary judgment. 

In Quincy Mutual Fire Ins. Co. v. Atlantic Specialty Ins. Co., 2019 WL 3409980 (D. Mass.), the United States District Court for the District of Massachusetts denied Atlantic's motion for summary judgment.

Atlantic argued that the parties were insurers who never had a business relationship necessary for a claim under ch. 93A §11.  The court rejected that argument, noting that ch. 93A allows actions where an individual or company is injured a a result of an insurer's unfair or deceptive behavior, regardless of whether the plaintiff is the named insured on the policy at issue. 

Atlantic argued that no commercial relationship between two parties exists where the only contact between the parties occurs in the context of litigation.  The court noted that there is an exception to that rule; "an insurance company may be liable for litigation expenses that flow from its failure to conduct a reasonable investigation and effectuate a prompt, fair, and equitable settlement once its liability has become clear."  The court noted that Quincy's complaint was principally based on Atlantic's failure to comply with its statutory obligations before it filed the third-party complaint in the Richards litigation. 

Atlantic argued that statements and conduct of attorneys are immune to ch. 93A liability.  The court held that the immunity doctrine may not apply to Atlantic's failure to carry out a proper investigation before directing its insured to file the third-party complaint. 

In the discovery dispute, Atlantic argued that Quincy's discovery requests sought information subject to the attorney-client and work product privileges.  The court held that those privileges did not apply to the extent that Atlantic was defending itself on the basis that it had reasonably relied on the advice of counsel when it instructed MacDougalls to seek defense and indemnity from BYS.

Practice note:  the judge drafting the decision made clear that she was annoyed by Atlantic's failure to answer discovery, and that the decision could have come out differently on some of the issues if the full facts had been before her.  In short: refuse to answer discovery at your own risk.