On August 2, 2018, the Appeals Court again affirmed the rule that an insurance agency has no legal liability for failing to advise an insured as to the completeness or adequacy of the insured’s insurance coverage absent a “special relationship.”
In Kenneth Perreault v. AIS Affinity Insurance Agency of New England, Inc, (“Affinity”) the holder of an assignment of rights from a negligent attorney sued the attorney’s malpractice carrier and that insurer’s program manager because of an alleged failure of the agent to advise the insured attorney about retroactive dates and extended reporting under a claims made policy.
A missed statute of limitations gives rise to a malpractice claim
In September 2008, the Plaintiff, Mr. Perreault, retained Attorney Simon Mann to represent him in a wrongful death action. Mr. Perreault wanted Attorney Mann to advise him regarding legal action against tobacco companies for the death of his wife due to cancer. Mr. Perreault’s wife had died in March 2006.
In May 2009, Attorney Mann obtained a medical opinion that Mr. Perreault’s case had a likelihood of success based upon the evidence. However, the statute of limitations on a wrongful death action in Massachusetts is three years and, thus, when Attorney Mann obtained the favorable opinion the statute had already tolled.
Attorney Mann did not give Mr. Perreault the medical report, and in July 2009, sent a letter to Mr. Perreault stating that there was no likelihood of success on the wrongful death claim and terminated his representation.
Mr. Perreault consulted another attorney who requested the file from Attorney Mann. Based on the medical report, the successor attorney determined Attorney Mann had committed legal malpractice.
Three law firms formed and dissolved in three years leads to lawsuit over insurance policies
Attorney Mann passed the bar in 2006 and took a job with a debt collection law firm, Arnowitz & Goldberg. In August 2007, Attorney Mann, and the firm’s two partners formed Arnowitz, Goldberg, & Mann LLC. Attorney Mann became a partner in the new firm.
Following the formation of the new firm in August 2007, Attorney Mann, as a managing member, took steps to secure a professional malpractice liability policy for the firm. He applied for a lawyer’s liability policy protecting the firm and its partners from malpractice claims. Affinity, part of AON and a program manager for Liberty, issued the policy.
The policy issued to the new firm covered liability for “claims made and reported.” A claim otherwise within the policy insuring agreement and not excluded by the conditions of the policy had to arise from malpractice after any retroactive date specified in the policy or during the policy period. Additionally, for coverage to apply, any claim received during the policy period had to be reported to Liberty within that same policy period. The insured also had the right to purchase an extended reporting period upon the expiration of the policy for a one-year, two-year, three-year, five-year, or unlimited term.
In December 2009, Attorney Mann left the firm and opened the Law Office of Simon Mann. Attorney Mann requested Affinity to cancel the Arnowitz, Goldberg, and Mann firm’s malpractice policy. Affinity responded reminding Attorney Mann to “Please read (all attorneys) the provision for the extended reporting period endorsement.” Attorney Mann reiterated his request to cancel the policy without requesting an extended reporting endorsement.
In January 2010, Attorney Mann applied to Affinity for a malpractice policy for his new firm, the Law Office of Simon Mann. Because Attorney Mann’s new firm did not qualify as a continuation of the predecessor dissolved firm, Arnowitz, Goldberg, & Attorney Mann, Affinity did not issue the new policy with the dissolved firm’s 2007 retroactive date for claims. Instead, Attorney Mann’s new firm’s policy had a January 4, 2010 inception date and retroactive date.
While Attorney Mann was in the process of canceling the Arnowitz, Goldberg, & Attorney Mann firm’s policy and obtaining a malpractice policy for his new firm, Attorneys Arnowitz and Goldberg renewed their policy without Attorney Mann’s involvement. Following Attorney Mann opening his new firm in January 2010, Liberty issued a Specified Attorneys Exclusion endorsement at the request of Attorneys Arnowitz and Goldberg. This endorsement eliminated coverage for Attorney Mann’s prior acts as their associate. No one advised Attorney Mann about the issuance of the endorsement removing him from coverage.
Mr. Perreault sues Attorneys Mann, Arnowitz, and Goldberg for malpractice
A little over two months later, in March 2010, Mr. Perreault sued Attorney Mann and his former partners, Attorneys Arnowitz and Goldberg for malpractice. Attorney Mann attended the suit to Liberty. Liberty denied liability because Attorney Mann’s new policy’s retroactive date was January 4, 2010, and the alleged malpractice occurred in 2008 before this policy had taken effect.
Attorney Mann’s’ malpractice carrier, Liberty Insurance Underwriters, Inc. (“Liberty”) provided Attorney Mann a defense under a reservation of rights. However, Attorney Mann engaged his own personal counsel who quickly negotiated a settlement with Mr. Perreault. The settlement consisted of an agreed judgment of $1,550,000 against Attorney Mann of which she would only be responsible for $50,000, and an assignment of any rights Attorney Mann had against Liberty and Affinity under three malpractice policies placed by Affinity with Liberty.
Suit against Affinity for its alleged errors and omissions
After obtaining the consent judgment and assignment of rights from Attorney Mann, Mr. Perreault made a settlement demand against Liberty and Affinity for $1 million. After Liberty and Affinity rejected his settlement demand, Mr. Perreault, as Attorney Mann’s assignee, filed suit in the Superior Court for breach of contract, negligence, and a violation of G.L. c. 93A against Affinity and Liberty. Subsequently, Liberty and Mr. Perreault agreed to a dismissal of Liberty and the lawsuit proceeded against Affinity.
Mr. Perreault’s claims against Affinity were that that Affinity had not:
(1) procured for Attorney Mann a policy for his new firm that provided coverage for his actions before the creation of the new firm;
(2) told Attorney Mann that he needed to get optional extended reporting coverage for a policy that he voluntarily canceled; and
(3) told Attorney Mann that a firm, which no longer employed him, excluded him from coverage under its policy.
The Superior Court entered summary judgment against Mr. Perrault and in favor of Affinity. Mr. Perrault appealed to the Appeals Court claiming the Superior Court had committed a legal error in granting summary judgment as there were material facts to be tried to a jury.
Appeals Court restates strict standard for insurance agency liability
Mr. Perrault on his appeal acknowledged there was, under Massachusetts law, “no general duty of an insurance agent to ensure that the insurance policies. .. provide coverage that is adequate for the needs of the insured.”
However, the court agreed that Massachusetts law also provided an insurance agent may acquire a greater duty of investigation, advice, and assistance to an insured because of “special circumstances.” A plaintiff showing “special circumstances of assertion, representation and reliance” may establish that an insurance agency had a duty of due care.
The court listed the factors creating special circumstances as including:
(1) a prolonged business relationship;
(2) the complexity and comprehensiveness of the customer’s coverages;
(3) the frequency of contact between a customer and agent to attend to the customer’s insurance needs; and,
(4) the extent to which a customer relies on the advice of the agent because of the complexity of the policies.
The court also noted that enhanced duties could arise “when the agent holds himself out as an insurance specialist, consultant or counselor and is receiving compensation for consultation and advice apart from premiums paid by the insured.”
Appeals Court finds none of the factors of a special relationship between Attorney Mann and Affinity existed
After stating the standards, the Appeals Court agreed with the Superior Court judge that none of the standards required to find that a special relationship existed between the insured and the insurance agency existed.
Rather, the Court stated that in viewing the undisputed facts in a manner most favorable to Mr. Perrault, “…no rational finder of fact could conclude that special circumstances existed such that [Affinity] owed [Attorney] Attorney Mann a duty of care.”
The Court also noted:
- Attorney Mann did not have a prolonged business relationship with Affinity;
- He had no involvement in acquiring or purchasing the Arnowitz and Goldberg pre-2007 professional liability policy;
- He did not communicate personally with Affinity until 2007 when he sought professional liability coverage for the newly-formed Arnowitz, Goldberg, and Attorney Mann firm; and
- His next communication was not until December 2009, to place coverage for his new firm, the law offices of Simon Mann.
In finding against Mr. Perreault, the court contrasted Attorney Mann’s relationship with Affinity that spanned only three years and two policies with an appellate decision finding a special relationship because there was a twenty-eight-year relationship between the insured and the agent involving seven different policies.
The court concluded finding that summary judgment had properly entered against Mr. Perrault on his claims under M.G.L. c. 93A for unfair and deceptive business practices, and for his breach-of-contract claim.
The court found the 93A claim failed because there was no special relationship between Attorney Mann and Affinity and that the contract claim failed because as a matter of law there was no contract based upon the undisputed facts.
Twenty days to apply for further appellate review to the Supreme Judicial Court
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. However, the allowance of any further appeal is discretionary with the Supreme Judicial Court.
Under the Massachusetts Rules of Appellate Procedure, Mr. Perrault will have until August 22, 2018, to apply for further appellate review.