History lesson

Here's a really interesting article on the history of insurance.

US District Court holds that due process claims regarding tax lien "arose from" prior litigation regarding the lien

In my last post I wrote about Saugus v. Zurich Am. Ins. Co., __ F.2d __, 2011 WL 2311873 (D. Mass.),in which the town of Saugus sought insurance coverage for claims that it had wrongfully demolished a house after a fire and collected costs associated with the demolition.

In addition to the Zurich policy discussed in the last post, the town had also been issued a claims-based policy by Maryland Casualty. That policy contained an exclusion for claims "arising from all pending or prior litigation as of the policy effective date and all future claims arising from such litigation." Maryland asserted that the exclusion applied because the underlying plaintiffs had sought relief from the Board of Assessors, the Appellate Tax Board and the Massachusetts Appeals Court on matters relating to the costs of demolition.

The town argued that due process claims alleged by the underlying plaintiffs under §1983 were different from and unrelated to the prior litigation involving tax abatement. The underlying plaintiffs alleged that the town demolished the remains of the property without proper notice, imposed an illegal lien on the property, added non-existent debt to the real estate tax bill, forced them to pay an illegal special assessment, and refused to return the special assessment.

The United States District Court held that the § 1983 claims 'arose from" the prior litigation, so that the exclusion applied.

US District Court holds that continuing violation of rights occurred at the time of the original violation

In 2006, a house owned by the underlying plaintiffs was damaged by a fire. They later filed a complaint against the town of Saugus alleging that the town unlawfully demolished the house and in 2007 illegally collected costs associated with the demolition. The town sought coverage for the claim from Zurich Casualty, who denied any duty to defend.

The Zurich policy was an occurrence policy in effect from July 1, 2009 to July 1, 2010. The town argued that there was a claim of an independent due process violation (failure to abate the costs paid by the underlying plaintiffs to the town).

In Saugus v. Zurich Am. Ins. Co., __ F.2d __, 2011 WL 2311873 (D. Mass.), the United States District Court for the District of Massachusetts held that the occurrence was the actions of the town shortly after the fire, and continuing claims arising out of that occurrence did not affect the date of the occurrence. (I would have to give some thought to how that fits into a triggers of coverage analysis.) It also held that the claims were a known loss when the policy period began.

Appeals Court holds that 93A claim can proceed after insurer rectifies failure to pay PIP damages

Marie Chery was injured in a car accident while she was a passenger in a car insured by Metropolitan. She submitted her PIP claim to Met, which failed to pay the medical bills within the time prescribed by Mass. Gen. Laws ch. 90 § 34M. Chery then sued for breach of the statute and Mass. Gen. Laws ch. 93A.

Six months later Met paid the medical bills. It then moved for summary judgment on the ground that an insured cannot prevail on a PIP claim if the disputed amount is paid prior to judgment entering; and that the 93A claim should be dismissed because Chery suffered no damages.

Chery did not dispute the first assertion. (See my post on that issue here.) She argued that Met had not paid a bill she submitted after she filed the complaint. That argument was ineffective because she had never amended the complaint to include reference to that bill.

In Chery v. Metropolitan Prop. & Cas. Ins. Co., 79 Mass. App. Ct. 697 (2011), the Massachusetts Appeals Court held that her 93A claim could survive summary judgment. It held that Metropolitan has caused her injury by failing to settle her claim after its liability was reasonably clear and forcing her to bring suit to receive benefits to which she was entitled.

The court also found support in the record for the claim that Chery had suffered emotional distress from having to prosecute the lawsuit and concern for the effect the unpaid bills would have on her credit.

Risks of car-sharing

Hank Stern at InsureBlog has posted on the risks to car-owners who sign up with car-sharing companies, which coordinate the very short-term rental of private individuals' cars to local people who need to, say, make a grocery run. (These companies should not be confused with Zipcar, which rents out its own cars.)

I strongly agree with Hank's basic point, which is that you should be cautious about insurance issues before signing up with a car-sharing company, because there may be no coverage under your policy if the car is involved in an accident while rented out.

Hank points out that one car-sharing company states that it provides liability coverage to renters, and therefore presumably not to the owners. If he's right then the car-sharing company has demonstrated a shocking lack of judgment, and no one should sign up with it. It is not worth the risk.

Appeals Court holds that advance payments from insurer to insured must be returned if there is no coverage

In my last post I discussed French King Realty Inc. v. Interstate Fire & Cas. Co., 79 Mass. App. Ct. 653 (2011), in which the Massachusetts Appeals Court held that coverage for a fire loss was excluded because the insured knew that its fire suppression system was suspended or impaired and because the system was not maintained in complete working order.

Interstate, the insurer, had made an advance payment to the insured, French King. French King argued that it was not required to return the advance payment because Interstate did not reserve it rights and defenses in connection with the payment.

The court disagreed. It followed other jurisdictions that have reasoned that an insurer is entitled to reimbursement for an erroneous payment when coverage does not exist under the policy and the insured was unjustly enriched and did not change position to its detriment in reliance on the payment.

Appeals Court holds that word maintain in coverage means keep in place, not keep in working order

French King Restaurant, insured by Interstate, had in place had a dry chemical fire suppression system.

The insurance policy contained a "protective safeguards endorsement," or PSE, which required French King "to maintain" the fire suppression system. The policy excluded coverage for loss or damage caused by by or resulting from fire if French King "knew of any suspension or impairment" in the system or failed to maintain the system "in complete working order."

In 2002 Kidde, the manufacturer of the fire suppression system, issued a bulletin advising that it would no longer support dry chemical systems. Kidde had previously recommended that dry chemical systems be upgraded to wet chemical systems. As of 2002, the dry system could no longer be inspected, serviced, recharged, or repaired.

In 2003, the company French King hired to inspect its fire protection system warned it that the system was not in accordance with current requirements.

In 2004 the Executive Office for Public Safety announced that dry systems needed to be upgraded to wet systems.

After the subject insurance policy was issued in 2005, the private fire inspector again informed French King that to be in compliance with current standards a wet fire suppression system was required. That same month, the city's building inspector informed French King that he could not issue a certificate of inspection until the system had been fixed.

In October, 2005 there was a fire at the restaurant. The fire suppression system failed to function. Interstate declined to pay the loss on the grounds that French King had failed to "maintain" the fire suppression system and that exclusions relating to the fire suppression system applied.

In French King Realty Inc. v. Interstate Fire & Cas. Co., 79 Mass. App. Ct. 653 (2011), the Massachusetts Appeals Court held that the word "maintain" was ambiguous and must be interpreted in a manner favorable to French King as meaning merely having a fire suppression system in place.

The court ruled that coverage was excluded by the exclusion for loss or damage if the insured knew of any suspension or impairment in the fire protection system. It held that the record showed clearly that French King knew that the fire suppression system was impaired. It ruled that coverage was also excluded because French King failed to maintain the system "in complete working order."