On April 21, 2017, the Appeals Court decided the case of James Kelleher, Co-administrator et al vs. Commerce Insurance Company, (“Commerce”) affirming that a garage liability policy having a nominee trust as a named insured did not insure a trustee and beneficiary of the nominee trust as named insured. As a result, the administrators of the estate of John H. Kelleher (“Mr. Kelleher”) a deceased trustee and beneficiary of a nominee trust insured under a garage liability policy could not recover from Commerce for Mr. Kelleher’s death caused by an underinsured motorist because the trustee and beneficiary did not meet the definition of a “named insured” for purposes of underinsurance coverage.
Garage Keepers policy with $250,000 underinsured motorist coverage
In November 2010, Commerce issued a garage policy (“policy”) with two named insureds listed on the policy: “Alby’s Salvage, Inc” (“Alby’s”) and “Zeph 87 Trust” (“Zeph”). Mr. Kelleher was an officer, director, and shareholder of Alby’s. Zeph was a nominee trust that owned the real estate used for Alby’s garage and salvage yard. Mr. Kelleher was a also a trustee and a beneficiary of the trust, holding a fifty percent interest. The policy included underinsured motorist coverage. However, Mr. Kelleher was not listed on the policy as an insured.
Mr. Kelleher dies after being hit by a car and thrown 30 feet into a utility pole
On Monday, July 11, 2011, Mr. Kelleher parked his car on Copeland Street in Quincy across from Callahan’s Pub at about 5:45 p.m. While crossing the street, a car struck and killed Mr. Kelleher. The 56-year old driver of the car said she did not Mr. Kelleher crossing the street. A witness stated Mr. Kelleher the impact of the crash threw Mr. Kelleher 30 feet into a utility pole. The Quincy police cited the driver for motor vehicle homicide by reason of negligent operation and sought a complaint in the Quincy District Court.
The vehicle that struck Mr. Kelleher only carried a body injury liability policy limit of $25,000.
Minimum liability limits paid triggers underinsured claim Commerce denies
After the probate of Mr. Kelleher’s estate, his estate’s s administrators settled for the full policy limit of $25,000 with the insurer of the vehicle that struck Mr. Kelleher. They then made a claim against Commerce for the $225,000 difference between the liability limit paid and the underinsured limit of the policy issued to Alby’s and Zeph by Commerce.
Commerce denied the claim because Mr. Kelleher was not a named insured covered by the policy and because the administrators had not obtained Commerce’s consent to settle the underlying liability claim.
The administrators of Mr. Kelleher’s estate suit Commerce in the Superior Court seeking a declaratory judgment that Commerce had to pay the policy’s underinsured benefits and seeking damages for unfair settlement practices. In its answer, Commerce filed a counterclaim seeking a declaratory judgment that Mr. Kelleher was not an insured under his policy and Mr. Kelleher’s administrators had no right to recover underinsured benefits under the policy.
Commerce and the administrators filed cross motions for summary judgment, the Superior Court judge deciding the cross motions found that Mr. Kelleher was not an insured under the policy and that the plaintiffs breached the policy by not obtaining Commerce’s consent prior to settling with the operator of the car that struck Mr. Kelleher.
Mr. Kelleher’s estate administrators appealed to the Appeal Court.
Unspecified trustee or beneficiary not a named insured
The Appeals Court held that the case resolved itself depending on the proper interpretation of the term “named insured” as used in the policy.
Under a commercial garage policy, a pedestrian, like Mr. Kelleher, could only recover underinsured motorist coverage if he were a named insured.
The administrators’ argument focused on Zeph as a named insured on the policy. Zeph was a so-called nominee trust used to hold the title of real estate in the name of the trustee or trustees. The administrators pointed out that a nominee trust is not, under Massachusetts law, a legal entity. A nominee trust operates only through its trustees and Mr. Kelleher was both a trustee and beneficiary. Given that premise, the administrators urged the appellate court to conclude this required Mr. Kelleher, as a trustee, being treated as an insured. Any other interpretation, claimed the administrators, “renders the inclusion of Zeph in the policy meaningless.” And any other interpretation contradicts the rules for construing an insurance contract that holds, “[e]very word and phrase must be presumed to have been employed with a purpose and must be given meaning and effect whenever practicable.”
The Appeals Court rejected this argument however. The court noted that based on a prior decision of the Supreme Judicial Court in a similar case, the administrators were not asking to have the policy interpreted but the administrators were “essentially asking the court to ‘write a new paragraph into the policy’ which ‘goes beyond merely giving effect to policy provisions.’”
The court went on to state that limiting the interpretation of this policy to its precise wording, even where equitable considerations might favor a broader definition, is consistent with Massachusetts caselaw. In particular, the Appeals Court cited one of its case decisions from 1996 where a policy’s named insured was a nominee trust, and the claimant was both the trustee and beneficiary of the named nominee trust. In that case, the claimant argued that he should be covered as a named insured. This court held that the trust itself was the only named insured and ruled that uninsured motorist benefits were unavailable to a trustee..
The court then held:
In this policy, “named insured” has a clear and explicit meaning. It is the two entities listed in the policy, specifically Alby’s and Zeph. There is no need to consider the trustee’s role or legal capacity to provide “‘a reasonable meaning to’ or explain the provision. The policy is not ambiguous. The named insureds are Alby’s and the trust, and our prior rulings have made it clear that in such circumstances the trustee is not entitled to coverage. The plaintiffs cannot reasonably have had an expectation of coverage here, where the policy clearly lists Zeph as the named insured.”
The Appeals Court affirmed that Mr. Kelleher in his capacity as a trustee was not an insured under the policy and the summary judgment entered by the Superior Court for Commerce was correct.
Strange coincidence: Mr. Kelleher’s death occurred four days before a federal judge was to sentence him for multiple convictions
The deceased claimant , Mr. Kelleher, was a Boston attorney and Certified Public Accountant. When he had his fatal accident on Monday, July 11, 2011, he was 67 years old and facing sentencing in the United States District Court in Boston four days later on Friday, July 15, 2011.
Five months before his death, in February 2011, a federal jury has convicted Mr. Kelleher on 12 counts of mail fraud, 10 counts of tax fraud and three counts of obstruction of the IRS.
During his six-day jury trial the government proved that Mr. Kelleher, using his relationship in preparing his client’s tax returns, repeatedly stole federal tax refund checks from his clients. Mr. Kelleher also submitted false information on his clients’ tax returns reducing their tax liabilities and increasing the tax refunds he stole. Mr. Kelleher later asked clients to lie to federal investigators to conceal his diversion of refund checks from those clients. In addition, the government proved Mr. Kelleher had fraudulently prepared his own tax returns claiming bogus deductions to offset hundreds of thousands of dollars in rental income he had collected.
For each of the mail fraud counts, Mr. Kelleher faced sentencing of up to 20 years’ imprisonment and total fines of up to $6.25 million. For each count of filing false tax returns and obstructing the administration of the internal revenue laws, Mr. Kelleher faced up to three years’ imprisonment and added fines of up to $6.25 million.
After his death was reported to the federal court, the judge who conducted the jury trial and had been scheduled to sentence Mr. Kelleher dismissed the indictments against him in a manner like what recently occurred with the jury conviction against Aaron Hernandez being dismissed in a Massachusetts state court after his suicide.
Agency takeaway on naming trusts or trustees on policies
Here the administrators were correct, in the author’s opinion, that a nominee trust is not a legal entity. However, courts, as this case points out, are reluctant to write in names that do not appear on the policy. To correctly identifying a nominee trust in a lawsuit, the plaintiff or defendant would be identified as “Jane Doe, trustee of the XYZ trust.” Agents preparing applications should consider whether they wish to identify the named insured as a trust without identifying the trustee or whether they wish to identify the trustees as above.
Here, had Mr. Kelleher’s name been added to the policy as “John H. Kelleher, trustee of the Zeph 87 Trust,” rather than just having the policy state the named insured as “Zeph 87 Trust,” the result in this case might well have been different.
Application for further appellate review filed by administrator of Mr. Kelleher’s estate
The Massachusetts Appeals Court is an intermediate appellate court. The ultimate judicial authority resides with the Supreme Judicial Court. Parties dissatisfied with an Appeal Court’s decision may apply for further appellate review. The allowance of the appeal is discretionary with the Supreme Judicial Court.
In this case, the administrators filed on May 11, 2017 an application to the Supreme Judicial Court to allow further appellate review of the Appeal Court’s decision. Agencychecklists will keep you informed if the Supreme Judicial Court allows the application.