On June 9, 2017, the Appeals Court decided the case of Heather Chamberland v. Arbella Mutual Insurance Company (“Arbella”) affirming an insurer does not waive its right to arbitrate liability and damages on an underinsurance claim under a Massachusetts auto policy by consenting to a settlement with the underinsured driver and, also, affirming that an insurer not seeking arbitration during the pendency on a lengthy underlying lawsuit was not bound by the jury verdict in that lawsuit
Accident in 2007 has underinsured claim still pending in 2017
On July 16, 2007, Heather Chamberland (“Ms. Chamberland”) was injured in an accident while operating a motor vehicle insured under a policy issued by Arbella. Ms. Chamberland’s underinsurance (part 12) coverage limits under the Arbella policy were $250,000 per person and $500,000 per accident. Mr. Chamberland notified Arbella of the accident on October 3, 2017.
The other driver involved in the accident had his insurance under a policy issued by Liberty Mutual Insurance Company with a $100,000 applicable bodily injury limit.
Ms. Chamberland sued Liberty Mutual’s insured in a case that ultimately involved two jury trials and multiple appeals.
In the first trial, the jury found Ms. Chamberland fifty percent negligent for the accident occurring and found her personal injury damages amounted to $5,280. By law, her damages were reduced by fifty percent and a no-fault exemption from liability applied. The net result was that Ms. Chamberland recovered nothing.
Ms. Chamberland moved for a new trial claiming newly discovered evidence involving a police accident report. The Court hearing her first trial allowed the motion and granted a second trial.
At the second trial, the jury found Liberty Mutual’s driver liable and awarded Ms. Chamberland $231,565 in personal injury damages. With statutory interest, Ms. Chamberland’s judgment totaled $340,557.02. Liberty Mutual’s insured appealed. Arbella was not a party to this action.
Lawsuit settled six years after accident while on appeal
Liberty Mutual appealed claiming the granting of a second trial to Ms. Chamberland was error. While the appeal was pending, Ms. Chamberland, with Arbella’s consent, settled with Liberty Mutual, with Liberty Mutual agreeing to pay her the full $100,000 in bodily injury coverage available under its insured’s policy. In exchange:
- Ms. Chamberland released Liberty Mutual’s insured and Liberty Mutual from all claims arising out of the accident.
- She further acknowledged that Liberty Mutual’s insured, by entering into the settlement, did not admit liability for the accident.
- Ms. Chamberland also acknowledged that Liberty Mutual’s Insured continued to deny liability.
- Ms. Chamberland and Liberty Mutual’s insured stipulated dismissal of their lawsuit with prejudice.
During Ms. Chamberland’s ongoing lawsuit against Liberty Mutual’s insured, Arbella requested that it be kept apprised so it could determine if an underinsurance claim was forthcoming. On December 31, 2013, over six years after Arbella first received notice, Ms. Chamberland’s attorney notified Arbella of the $340,557.02 judgment against Liberty Mutual’s insured..
After settlement, Ms. Chamberland claims Arbella bound by second jury verdict
Ms. Chamberland, through her attorney, claimed that the issues of liability and damages had been resolved by the judgment entered after the second trial and demanded payment of the balance of the judgment, $240,557.02, per the underinsurance coverage provision in the Arbella policy. (Total damages of $340,557.02 minus $100,000 Liberty Mutual limit leaving underinsured amount of $240,557.02 to be applied against Arbella $250,000 underinsured limit).
Arbella refused, stating that it was not bound by the judgment against Liberty Mutual’s insured, and it was entitled to resolve issues of liability and damages regarding Ms. Chamberland’s underinsured motorist claim through arbitration citing the policy provision stating:
The determination as to whether an injured person is legally entitled to recover damages from the legally responsible owner or operator will be by agreement between us and the injured person. The amount of damages, if any, will be determined in the same way. Arbitration will be used if no agreement can be reached.”
Superior Court rules Arbella waived arbitration and was bound by second trial’s judgment
In response to Arbella claiming a right to arbitration, Ms. Chamberland filed a Superior Court suit (1) seeking a declaration she is entitled to the “remaining” underinsurance coverage limits of the Arbella policy, and (2) asserting that Arbella had engaged in unfair settlement practices in violation of G. L. c. 93A and G. L. c. 176D.
Arbella denied her claims and filed a counterclaim asking the Superior Court to appoint an arbitrator.
On summary judgment motions filed by both parties, a Superior Court judge dismissed Arbella’s counterclaim, granted a required offset of $100,000 for the bodily injury coverage that Ms. Chamberland recovered from Liberty Mutual and declared Arbella liable to Ms. Chamberland for $131,565 in underinsurance coverage, the balance (after the offset) of the jury’s damages award in the second trial. The judge made no explicit ruling on Ms. Chamberland’s unfair settlement practices claim under G. L. c. 93A and G. L. c. 176D.
Arbella appealed to the Appeals Court
Appeals Court explains the intricacies of underinsured motorist claims in Massachusetts
In its decision, the Appeals Court noted “This case highlights the intricacies of the framework for underinsured motorist claims in Massachusetts…”
An insured cannot sue an insurer providing underinsured motorist (or uninsured motorist) coverage under a Massachusetts auto policy. An insured may:
- settle the underinsurance claim by agreement with the insurer;
- arbitrate with the underinsured carrier liability and damages claimed caused by the underinsured driver;
- sue the underinsured driver to recover any liability limits available;
- proceed on parallel tracks, suing the underinsured driver while simultaneously pursuing underinsurance coverage from her own carrier by arbitration;
- settle with the underinsured’s insurance carrier.
The standard auto policy provides that if the insured proposes to settle with the underinsured driver’s insurance carrier, to maintain underinsurance coverage the underinsurer must consent per the policy provision providing:
If an injured person settles a claim as a result of an accident covered under this Part, we will pay that person only if the claim was settled with our consent.”
An insurer’s consent to the settlement does not preclude it from contesting the liability of an alleged underinsured driver or the damages claimed. Also, the insured can lose her claim against the alleged underinsured driver and still pursue underinsured motorist coverage from her own insurer because the policy provides for agreement or arbitration rather than judicial determination of coverage.
Appeals Court rules no delay or waiver voids arbitration clause and insurer not bound by jury verdict
In Arbella’s case, it was undisputed that Arbella did not explicitly waive its right to arbitrate Ms. Chamberland’s underinsurance claim.
The Court also found on the facts that Arbella had not “acted inconsistently with the arbitration right” to have in any way implicitly waived its right to arbitration.In Arbella’s case, it was undisputed that Arbella did not explicitly waive its right to arbitrate Ms. Chamberland’s underinsurance claim.
The Court noted that both Arbella and Ms. Chamberland each had the option of demanding arbitration at any time, assuming they could not agree on liability and/or damages, and did not need to wait to do so until Ms. Chamberland had exhausted her rights against Liberty Mutual’s insured.
The Superior Court judge concluded, however, because “both [Arbella] and [Ms. Chamberland] agreeably waited until the passage of two jury trials, [they both] forfeited the arbitration remedy and must by their omissions be deemed to have consented to resolution by the judicial determinations arrived at in the second trial.”
The Appeals Court found this conclusion was reversible error and ruled instead there is nothing in Massachusetts law:
…to suggest that an insurer (or insured) acts untimely by waiting until the conclusion of an insured’s action against the alleged [underinsured driver] to demand arbitration on such a claim. Quite the contrary. Absent other acts inconsistent with its arbitration right, therefore, Arbella did not waive that right merely by waiting to assert it until Ms. Chamberland’s action against Liberty Mutual’s insured came to a conclusion.
The Court stated in finding no waiver that Arbella was not a party to the litigation between Ms. Chamberland and Liberty Mutual’s insured and as non-party to that action,
Arbella cannot fairly be charged with wasting judicial time and effort merely because it waited for Ms. Chamberland’s action against [“Liberty Mutual’s insured”] to conclude.”
Court rules underlying jury verdict does not bind Arbella
In the Superior Court decision, the motion judge also held that Arbella was precluded by the judgment against Liberty Mutual’s insured from contesting issues of liability and damages in connection with Ms. Chamberland’s underinsurance claim. Essentially the Superior Court judge ruled that Arbella was bound by the second jury’s finding of liability and their award of damages.
The Appeals Court judges noted, however, in another Appeals Court case, an insurer had sought to bar an insured from pursuing arbitration of his underinsurance claim because in the insured’s lawsuit a jury had found the other driver not liable for the accident. The Appeals Court rejected the insurer’s argument that the jury verdict decided there was no obligation for the insurer to pay underinsurance benefits. Instead, the Appeals Court ruled the insurer had to arbitrate.
The panel of judges hearing Arbella’s appeal of the Superior Court judgment stated the same reasoning “applies equally to the facts of this case” as when an insurer sought to avoid arbitration.
Appeals Court orders appointment of arbitrator
Based on the lack on any agreement between Ms. Chamberland and Arbella to accept the jury verdict as binding, the Court ruled the Superior Court had committed error in denying Arbella’s motion for summary judgment on its counterclaim seeking appointment of an arbitrator.
The Court reversed the judgment in favor of Ms. Chamberland and ordered the Superior Court to allow Arbella’s cross motion for summary judgment on its counterclaim requesting appointment of an arbitrator.
The Court, however, allowed for further proceedings on Ms. Chamberland’s claim that Arbella engaged in unfair settlement practices in violation of G. L. c. 176D and G. L. c. 93A.