Massachusetts Appellate Division holds that third party property damage coverage in auto policy does not cover cost to tow insured's vehicle

David Raposa was operating an SUV that was involved in a single-car collision.  Big Wheel Truck Sales, Inc. towed the SUV. 


Raposa was insured by Safety but did not have coverage for towing.  He did have coverage for "damage to someone else's property."  That coverage provided:

Under this Part, we will pay damages to someone else whose auto or other property 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.  . . .  Damages include any applicable sales tax and the costs resulting from loss of use of the property.

Big Wheel made a demand to Safety for payment of its invoice under Raposa's property damage coverage. 


Safety refused payment, asserting that Big Wheel itself did not sustain any damage as a result of the accident. 


The trial court granted summary judgment to Big Wheel on breach of contract and 93A claims.


In Big Wheel Truck Sales, Inc. v. David Raposa, 2015 WL 5098500 (Mass. App. Div.), the Massachusetts Appellate Division reversed, holding that the property damage coverage was unambiguously inapplicable to Big Wheel.  Its claim was for the cost of its services, not for damage to its own property. 


Congratulations to Pete Bosse and Tanya Austin of my old firm, Boyle, Shaughnessy & Campo, who represented Safety. 

The New Deductibles Under the Insurance Act

The Insurance Act and its regulations have been amended to increase the amount of the deductibles.  As of August 1, 2015, the deductible for non-pecuniary damages is $36,540 (up from $30,000) and for Family Law Act damages it is $18,270 (up from $15,000).  In addition the $100,000 threshold above which the deductible applies has been raised to $121,799 and the $50,000 threshold for Family Law Act damages to $60,899.  The deductibles will be indexed for inflation on January 1st of each year beginning in 2016.

In addition, s. 267.5(9) has been amended to provide that costs are to be determined "with regard" to the effect of the deductible, i.e. costs are now net of the deductible.

First Circuit holds that under Maine law perfection of security interest in insurance proceeds requires fair notice to all other creditors

Wheeling extended to MMA, a railroad company, a $6,000,000 line of credit.  To secure the loan MMA granted Wheeling a security interest in, among other assets, all insurance proceeds. 


Wheeling sought to perfect its security interest by filing a UCC-1 financing statement with the Delaware Department of State.  The financing statement described the collateral as "all of MMA's inventory, accounts, and payment intangibles (as those terms are defined in the Uniform Commercial Code)." 


Travelers issued a commercial property insurance policy to MMA.  The policy had $7,500,000 of total coverage.


An MMA freight train derailed on Quebec, sparking massive explosions, destroying part of a town, and killing 47 people. 


MMA filed a claim with Travelers for lost business income.  Travelers denied the claim, asserting that the policy did not cover business interruption. 


MMA filed a petition for Chapter 11 bankruptcy and a trustee was appointed.


Wheeling was by then owed the entire $6,000,000 under the line of credit.  It instituted an adversary proceeding against MMA, Travelers, and the trustee in which it sought  a declaration regarding the nature, extent, validity, and priority of its asserted security interest in any payments due under the Travelers policy. 


MMA and the trustee entered into negotiations with Travelers that culminated in a settlement agreement requiring Travelers to pay $3,800,000 to MMA in satisfaction of all claims  under the policy.


Wheeling objected to the settlement, arguing that it held a perfected security interest in all payment rights belonging to MMA.


The United States Bankruptcy Court held that MMA was entitled to the settlement proceeds free and clear of Wheeling's asserted interest because under Maine common law Wheeling had failed to perfect its interest.


In In re Montreal, Maine & Atlantic Railway, LTD, __ F.3d __, 2015 WL 4934212 (1st Cir.), the United States Court of Appeals for the First Circuit interpreted the controversy under Maine law. 


Article 9 of the Uniform Commercial Code, as enacted in Maine, applies to the creation of security interests in rights to payment, but the court noted that it excludes certain transactions from its scope; the validity of such transactions is determined by reference to other statutes or to common law.


One subset of excluded transactions is the transfer of an interest in or assignment of a claim under a policy of insurance.  The court held that the exclusion included payment rights under insurance policies. 


The court held that Maine law has not yet determined how an interest in insurance proceeds may be perfected.  The court predicted that the Maine Supreme Judicial Court would adopt a perfection rule requiring more than what Wheeling did; it would require a step that would furnish fair notice to all other creditors. 


Because Wheeling did not perfect its security interest in the insurance proceeds, MMA was entitled to the settlement payment free and clear of Wheeling's security interest. 

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. 

New Catastrophic Impairment Definition To Be Introduced June 2016

The Ontario government has finally amended the SABS definition of catastrophic impairment.

The government's 2010 auto insurance reforms included recommendations most seriously injured accident victims. The government directed FSCO to consult with the medical community to amend the definition of catastrophic impairment as set out in the Statutory Accident Benefits Schedule. 

In 2010 FSCO announced the appointment of Dr. Pierre Côté as Chair of the Catastrophic Impairment Expert Panel.  The Panel submitted it's recommendations to the FSCO Superintendent in the spring of 2011.  In December 2011, the Superintendent submitted his report to the government. 

The new definition is effective for accidents on and after June 1, 2016.  The revised definition also provides for an automatic designation of catastrophic impairment for children with traumatic brain injuries in specified circumstances. 

Below is a chart that compares the current SABS definition, the Superintendent's recommended definition and the new SABS definition that will be introduced next year.

Current SABS	Superintendent’s 2011 Report	2016 SABS
Paraplegia or quadriplegia;	paraplegia or tetraplegia that meets the following criteria i  and either ii or iii: ii. The neurological recovery is such that the permanent ASIA Grade can be determined with reasonable medical certainty according to the ASIA  and iii. The permanent ASIA Grade is A, B, or C or, iv. The permanent ASIA Grade is or will be D provided that the insured has a permanent inability to walk independently as defined by scores 0–5 on the Spinal Cord Independence Measure item 12 and/or requires urological surgical diversion, an implanted device, or intermittent or constant catheterization in order to manage the residual neuro-urological impairment.	Paraplegia or tetraplegia that meets the following criteria: i. The insured person’s neurological recovery is such that the person’s permanent grade on the ASIA Impairment Scale can be determined. ii. The insured person’s permanent grade on the ASIA Impairment Scale is or will be, A. A, B or C, or B. D, and 1. the insured person’s score on the Spinal Cord Independence Measure, Version III, item 12 and applied over a distance of up to 10 metres on an even indoor surface is 0 to 5, 2. the insured person requires urological surgical diversion, an implanted device, or intermittent or constant catheterization in order to manage a residual neuro-urological impairment, or 3. the insured person has impaired voluntary control over anorectal function that requires a bowel routine, a surgical diversion or an implanted device.
The amputation of an arm or leg or another impairment causing the total and permanent loss of use of an arm or a leg;	Severe impairment of ambulatory mobility, as determined in accordance with the following criteria: i. Trans-tibial or higher amputation of one limb, or ii. Severe and permanent alteration of prior structure and function involving one or both lower limbs as a result of which it can be reasonably determined that the Insured Person has or will have a permanent inability to walk independently and instead requires at least bilateral ambulatory assistive devices [mobility impairment equivalent to that defined by scores 0–5 on the Spinal Cord Independence Measure item 12, ability to walk <10 m).	Severe impairment of ambulatory mobility or use of an arm, or amputation that meets the following criteria: i. Trans-tibial or higher amputation of a leg. ii. Amputation of an arm or another impairment causing the total and permanent loss of use of an arm. iii. Severe and permanent alteration of prior structure and function involving one or both legs as a result of which the insured person’s score on the Spinal Cord Independence Measure, Version III, item 12, and applied over a distance of up to 10 metres on an even indoor surface is 0 to 5.
Total loss of vision in both eyes	Legal blindness in both eyes due to structural damage to the visual system. Non-organic visual loss (hysterical blindness) is excluded from this definition.	Loss of vision of both eyes that meets the following criteria: i. Even with the use of corrective lenses or medication, A. visual acuity in both eyes is 20/200 (6/60) or less as measured by the Snellen Chart or an equivalent chart, or B. the greatest diameter of the field of vision in both eyes is 20 degrees or less. ii. The loss of vision is not attributable to non-organic causes.
Brain impairment that results in, (i) a score of 9 or less on the Glasgow Coma Scale, according to a test administered within a reasonable period of time after the accident by a person trained for that purpose, or (ii) a score of 2 (vegetative) or 3 (severe disability) on the Glasgow Outcome Scale, according to a test administered more than six months after the accident by a person trained for that purpose;	Traumatic Brain Injury in Adults (18 years of age or older): ii. Catastrophic impairment, based upon an evaluation that has been in accordance with published guidelines for a structured GOS-E assessment to be: a) Vegetative (VS) after 1 months or b) Severe Disability Upper (SD+) or Severe Disability Lower (SD -) after 6 months, or Moderate Disability Lower (MD-) after one year due to documented brain impairment, provided that the determination has been preceded by a period of in-patient neurological rehabilitation in a recognized rehabilitation center.	If the insured person was 18 years of age or older at the time of the accident, a traumatic brain injury that meets the following criteria: i. The injury shows positive findings on a computerized axial tomography scan, a magnetic resonance imaging or any other medically recognized brain diagnostic technology indicating intracranial pathology that is a result of the accident, including, but not limited to, intracranial contusions or haemorrhages, diffuse axonal injury, cerebral edema, midline shift or pneumocephaly. ii. When assessed in accordance with the Glasgow Outcome Scale and the Extended Glasgow Outcome Scale, the injury results in a rating of, A. Vegetative State (VS or VS*), one month or more after the accident, B. Upper Severe Disability (Upper SD or Upper SD*) or Lower Severe Disability (Lower SD or Lower SD*), six months or more after the accident, or C. Lower Moderate Disability (Lower MD or Lower MD*), one year or more after the accident.
An impairment or combination of impairments that, in accordance with the American Medical Association's Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in 55 per cent or more impairment of the whole person;	A physical impairment or combination of physical impairments that, in accordance with the American Medical Association’s Guides to the Evaluation of Permanent Impairment, 4th edition 1993, (GEPI-4), results in a physical impairment rating of 55 per cent whole person impairment (WPI). i. Unless covered by specific rating guidelines within relevant Sections of Chapters 3-13 of GEPI-4, all impairments relatable to non-psychiatric symptoms and syndromes (e.g. functional somatic syndromes, chronic pain syndromes, chronic fatigue syndromes, fibromyalgia Syndrome, etc.) that arise from the accident are to be understood to have been incorporated into the weighting of the GEPI-4 physical impairment ratings set out in Chapters 3 – 13. ii. With the exception of traumatic brain injury impairments, mental and/or behavioural impairments are excluded from the rating of physical impairments. iii. Definition 2(e), including subsections I and II, cannot be used for a determination of catastrophic impairment until two years after the accident, unless at least three months after the accident, there is a traumatic physical impairment rating of at least 55% WPI and there is no reasonable expectation of improvement to less than 55% WPI.	A physical impairment or combination of physical impairments that, in accordance with the American Medical Association’s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in 55 per cent or more physical impairment of the whole person.
An impairment that, in accordance with the American Medical Association's Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in a class 4 impairment (marked impairment) or class 5 impairment (extreme impairment) due to mental or behavioural disorde	The post-traumatic psychiatric impairment(s) must arise as a direct result of one or more of the following disorders, when diagnosed in accordance with DSM IV TR criteria: (a) Major Depressive Disorder, (b) Post Traumatic Stress Disorder, (c) a Psychotic Disorder, or (d) such other disorder(s) as may be published within a Government Guideline. ii. Impairments due to pain are excluded other than with respect to the extent to which they prolong or contribute to the duration or severity of the psychiatric disorders which may be considered under Criterion (i). iii. Any impairment or impairments arising from traumatic brain injury must be evaluated using Section 2(d) or 2(e) rather than this Section. iv. Severe impairment(s) are consistent with a Global Assessment of Function (GAF) score of 40 or less, after exclusion of all physical and environmental limitations. v. For the purposes of determining whether the impairment is sufficiently severe as to be consistent to Criterion (iv) - a GAF score of 40 or less - at minimum there must be demonstrable and persuasive evidence that the impairment(s) very seriously compromise independence and psychosocial functioning, such that the Insured Person clearly requires substantial mental health care and support services. In determining the demonstrability and persuasiveness of the evidence, the following generally recognized indicia are relevant: a) Institutionalization; Repeated hospitalizations, where the goal and duration are directly related to the provision of treatment of severe psychiatric impairment; c) Appropriate interventions and/or psychopharmacological medications such as: ECT, mood stabilizer medication, neuroleptic medications and/or such other medications that are primarily indicated for the treatment of severe psychiatric disorders; d) Determination of loss of competence to manage finances and property, or Treatment Decisions, or for the care of dependents; e) Monitoring through scheduled in-person psychiatric follow-up reviews at a frequency equivalent to at least once per month. f) Regular and frequent supervision and direction by community-based mental health services, using community funded mental health professionals to ensure proper hygiene, nutrition, compliance with prescribed medication and/or other forms of psychiatric therapeutic interventions, and safety for self or others.	An impairment that, in accordance with the American Medical Association’s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993 results in a class 4 impairment (marked impairment) in three or more areas of function that precludes useful functioning or a class 5 impairment (extreme impairment) in one or more areas of function that precludes useful functioning, due to mental or behavioural disorder. A mental or behavioural impairment, excluding traumatic brain injury, determined in accordance with the rating methodology in Chapter 14, Section 14.6 of the American Medical Association’s Guides to the Evaluation of Permanent Impairment, 6th edition, 2008, that, when the impairment score is combined with a physical impairment described in paragraph 6 in accordance with the combining requirements set out in the Combined Values Table of the American Medical Association’s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in 55 percent or more impairment of the whole person.
if an insured person is under the age of 16 years at the time of the accident and none of the Glasgow Coma Scale, the Glasgow Outcome Scale or the American Medical Association's Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, referred to in clause (2) (d), (e) or (f) can be applied by reason of the age of the insured person.	Paediatric Traumatic Brain Injury (prior to age 18) i. A child who sustains a traumatic brain injury is automatically deemed to have sustained a catastrophic impairment provided that either one of the following criteria (a or b) is met on the basis of traumatic brain injury sustained in the accident in question: a) In-patient admission to a Level I trauma centre with positive findings on CT/MRI scan indicating intracranial pathology that is the result of the accident, including but not limited to intracranial contusions or haemorrhages, diffuse axonal injury, cerebral edema, midline shift, or pneumocephaly; or b) In-patient admission to a publically funded rehabilitation; Paediatric catastrophic impairment on the basis of traumatic brain injury is any one of the following criteria: ii. At any time after the first 1 months, the child’s level of neurological function does not exceed the KOSCHI Category of Vegetative. iii. At any time after the first 6 months, the child’s level of function does not exceed the KOSCHI Category of Severe. (2) May be fully conscious and able to communicate but not yet able to carry out any self care activities such as feeding. (3) Severe Impairment implies a continuing high level of dependency, but the child can assist in daily activities; for example, can feed self or walk with assistance or help to place items of clothing. iv. At any time after the first 9 months, the child’s level of function remains seriously altered such that the child is for the most part not age appropriately independent and requires supervision/actual help for physical, cognitive and/or behavioural impairments for the majority of his/her waking day.	If the insured person was under 18 years of age at the time of the accident, a traumatic brain injury that meets one of the following criteria: i. The insured person is accepted for admission, on an in-patient basis, to a public hospital named in a Guideline with positive findings on a computerized axial tomography scan, a magnetic resonance imaging or any other medically recognized brain diagnostic technology indicating intracranial pathology that is a result of the accident, including, but not limited to, intracranial contusions or haemorrhages, diffuse axonal injury, cerebral edema, midline shift or pneumocephaly. ii. The insured person is accepted for admission, on an in-patient basis, to a program of neurological rehabilitation in a paediatric rehabilitation facility that is a member of the Ontario Association of Children’s Rehabilitation Services. iii. One month or more after the accident, the insured person’s level of neurological function does not exceed category 2 (Vegetative) on the King’s Outcome Scale for Childhood Head Injury. iv. Six months or more after the accident, the insured person’s level of neurological function does not exceed category 3 (Severe disability) on the King’s Outcome Scale for Childhood Head Injury. v. Nine months or more after the accident, the insured person’s level of function remains seriously impaired such that the insured person is not age-appropriately independent and requires in-person supervision or assistance for physical, cognitive or behavioural impairments for the majority of the insured person’s waking day.

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.