First Circuit holds that company is entitled to coverage for claim against its directors and officers for unfair stock redistribution

About a year ago I wrote several posts about Genzyme Corp. v. Fed. Ins. Co., 657 F.Supp.2d 282 (D. Mass. 2009) , a case concerning coverage for settlement of a shareholder claim for unfair stock redistribution. Judge Gertner of the U.S. District Court held that there was no coverage.

In Genzyme Corp. v. Fed. Ins. Co., __ F.3d __, 2010 WL 3991739, the First Circuit has reversed in part, and remanded. It disagreed with Judge Gertner's conclusion that coverage for the loss is barred as a matter of public policy. It also held that while the policy's "Bump-Up" clause does not cover the amount paid by the corporation to settle the claims against it, the policy does cover any settlement amounts paid under an indemnification obligation with respect to the directors and officers. Because a portion of the claim may have been paid to settle claims against directors and officers, the First Circuit remanded the case to the District Court to consider the question of allocation.

U.S. District court holds that Automatic Extended Reporting Period requires that claims be reported but not made during extended period

NEET is a small environmental consulting business. It purchased from American Safety consecutive claims-made policies, with the policy periods ending on March 2 of each year.

A claims-made policy provides coverage if a claim is made and reported during the policy period, regardless of when the loss occurred. That's in contrast to the more usual occurrence-based policy, which provides coverage if the loss occurred during the policy period, regardless of when the claim was made.

The policies contained an Automatic Extended Reporting Period which provided that they will cover a claim made and reported to American Safety within 30 days of the end of the policy period, but only if no other similar insurance is in force during that time.

In February, 2008, NEET received a demand that it pay for remediation of an oil spill caused by heating oil tanks NEET allegedly installed improperly. NEET forwarded the demand detter to its insurance agent on March 6, 2008.

In a motion for summary judgment American Safety argued that for the Extended Reporting Period to apply the claim had to be both made and reported to the insurer during the 30 days after the policy expired. In New England Environmental Tech. v. Am. Safety Risk Retention, __ F. Supp. __, 2010 3622250 (D. Mass.) the court disagreed, holding that the policy could reasonably be construed to require only that the claim be reported to the insurer within 30 days after the policy expired. It also held that denying coverage to claims reported within the 30 day period would not assist the goal of claims-made policies of setting future premiums.

American Safety then argued there was no coverage because NEET had "other similar coverage" (the next consecutive American Safety policy) in effect for the policy period beginning on March 3, 2008. In somewhat convoluted logic the court held that the consecutive policy was not "other similar coverage." The heart of its decision is that failure to provide coverage because a consecutive policy was in place "is counterintuitive to a reasonable insured."

The court granted summary judgment to American Safety on NEET's 93A and 176D claims, on the grounds that American Safety's interpretation of the policy was plausible and there was no evidence it had acted in bad faith.

Another decision finding wiggle room for attorney's fees in PIP case after insurer tenders payment of medical bills

I wrote here about a recent Appellate Division case, Metro West Med. Assocs. v. Amica Mut. Ins. Co., which held that payment of outstanding PIP bills by an insurer does not necessarily prevent the award of attorney's fees under the PIP statute. Another Appellate Division decision has come to the same conclusion.

Howard Physical Therapy provided medical services to Joel DaSilva for injuries he suffered in a motor vehicle accident. Howard submitted to DaSilva's insurer, Premier, a request for PIP reimbursement of medical expenses. Premier paid some of the bills and refused to pay the remainder, asserting that the balance was unreasonable "upon review by an outside company."

Howard took no further action for more than four years, when it filed suit. Two weeks after Howard filed suit, Premier offered to pay the balance plus costs incurred by Howard in filing and serving the complaint. Howard rejected the offer. Premier then sent Howard a check for only the unpaid bill amounts, and moved for summary judgment. The District Court allowed the motion for summary judgment.

In Howard Physical Therapy, Inc. v. Premier Ins. Co., 2010 WL 3855302 (Mass. App. Div.) the Appellate Division reversed the summary judgment decision. It cited Metro West for the proposition that "the mere payment of the balance, in and of itself, would not justify summary judgment for Premier." Rather, the insurer must show that it had "a valid reason not to pay, and that it paid an invalid claim for reasons unrelated to its merits."

The court noted that although Premier had based its original decision, not to pay the full bill, on a review of the bill by "an outside company," there was no indication that the bill was reviewed by a registered or licensed practitioner in the same field as the practitioner submitting the bills, as required by statute. For that reason the Appellate Division reversed the District Court's summary judgment decision.

The court held, however, that Howard could not amend the complaint to add a count for breach of G.L. c. 93A, where Howard had not sent a demand letter prior to suit and Premier made a reasonable offer of settlement within 30 days after suit was filed.

Appeals Court addresses exclusion for residential construction work

FSS Automatic Sprinkler Corporation subcontracted with CB Construction Company to install fire protection sprinklers at the Stoneleigh Condominium project. The project converted the former Norfolk County Jail into a building of luxury condominium units. (I find that to be the most interesting thing about this case.)

In April, 2003, a sprinkler pipe leaked and caused water damage. FSS's insurer, Tudor, declined coverage, citing an exclusion for residential construction work.

In FSS Automatic Sprinkler Corp. v. Tudor Ins. Co. 77 Mass. App. Ct. 1122, 2010 WL 3629579 (unpublished), the Massachusetts Appeals Court held that the exclusion was ambiguous and therefore does not exclude coverage.

The decision does not quote the entire exclusion, and its discussion of it is so confusing that I can't figure out what the exclusion actually says. (That appears to be a result of the court's drafting, not the policy's.)

So, I can't provide an analysis. If you're dealing with an exclusion for residential construction work, this case might provide guidance in context.

Appellate Division discusses wiggle room for attorney's fees in PIP cases

Although the PIP statute allows attorney's fees in cases against a PIP insurer, such fees may only be awarded if a judgment is recovered from the insurer on the PIP claim. That rule has been generally understood to mean that an insurer can avoid attorney's fees by paying the disputed amount at any time, even after trial has begun. (Of course, attorney's fees can still be awarded on a 93A claim, but a violation of 93A is much harder to prove.)

In Metro West Medical Assocs., Inc. v. Amica Mut. Ins. Co., 2010 WL 3118636 (Mass. App. Div.), the Appellate Division discussed wiggle room for attorney's fees in a PIP claim.

Metro West alleged that it provided medical services to Cuevos, who was entitled to PIP benefits from Amica. Amica paid some of the bills but rejected the additional bills on the grounds that the services were unreasonable and unnecessary. A few weeks later Amica sent a check for the amount it had originally rejected. Metro West's attorney returned the check and demanded payment for attorney's fees under the PIP statute.

The court stated that it would not be inconsistent with prior case law "to require that the insurer on the § 34M [PIP] claim show more on summary judgment than simply that the bills have all been paid. It should also have to show that there is no genuine issue of fact concerning whether it had a valid reason not to pay, and that it paid an invalid claim for reasons unrelated to its merits, for example, to avoid the cost of litigation or to remove a potential liability off its books."

The court held open the possibility that an insured could reject a tender of late payment from an insurer. "In this light, a check for the balance of bills could be viewed as an offer of settlement, which could be rejected, and not a tender of full payment."

The court granted summary judgment to Amica. Amica had submitted an affidavit in which its claim supervisor averred that the disputed bills were not reasonable and necessary and that Amica paid them as a result of a business decision. "That was sufficient, albeit without a lot to spare" to shift the burden to Metro West to show that there would be a genuine issue at trial concerning the necessity of the services and the reasonableness of the bill." Metro West failed to do so.

Insured really has to send a 93A letter

It is standard practice for insurers and insurance defense counsel to deny that a demand letter met the requirements for a 93A demand letter. 93A suits are dismissed from time to time because the demand letter failed to provide enough information for the insurer to assess liability or damages.

In Robotham v. LaFortaine, 2010 WL 3327826 (Mass. Super.), the Superior Court dismissed a suit against an insurer because a pre-suit letter did not mention at least one of the following six factors:

1) express reference to 93A;

2) express reference to the consumer protection act;

3) assertion that the rights of the claimants as consumers have been violated;

4) assertion that the insurer acted in an unfair or deceptive manner;

5) assertion that the insured anticipated a settlement offer within 30 days; or

6) assertion that the claimant will pursue multiple damages should the claim be denied.

Underinsurance coverage

I've been reviewing my auto coverage policy to make sure that I have the proper coverages for my family's circumstances. I've been looking specifically at underinsured coverage. Underinsurance coverage is when your own insurer pays your loss if you are injured due to the negligence of another driver who has insufficient insurance to cover your damages.

Underinsurance pays only if your underinsurance limit is higher than the limit of the other driver's liability coverage. So if you have $50,000 underinsurance coverage, the other driver has $100,000 liability coverage, and your damages are $120,000, your underinsurance will not kick in.

Even if your underisinsurance limit is higher than the other driver's liability limit, underinsurance will only pay the difference between the two limits. If you have $50,000 in underinsurance coverage, the other driver has a $20,000 liability limit, and your damages are $90,000, you will receive $20,000 from the other driver's policy and $30,000 from your own policy.