On December 13, 2018, the Appeals Court reversed a Superior Court judgment that awarded the Bunker Hill Insurance Company (“Bunker Hill”) its full subrogation claim of $232,000 from G. A, Williams & Sons, Inc. (“Williams”) home oil dealer that caused an oil spill on the property of Bunker Hill’s insured, Shirly Gilbody (“Ms. Gilbody”). The Superior Court had not credited the $132,000 that Williams’ insurer had paid to Bunker Hill in cleanup costs ruling the payment subject to the collateral source rule.
The Appeals Court ordered an amended judgment enter giving Williams credit for the payment by its insurer explaining the Superior Court had misapplied the collateral source rule.
Oil spill at home leads to six-figure remediation loss for Bunker Hill
Williams is an oil company in the business of delivering oil and servicing oil and heating equipment. On April 4, 2012, Ms. Gilbody, a customer of Williams, requested a service call for her oil tank. On the service call, Williams confirmed Ms. Gilbody’s fear that oil was leaking from the house’s oil tank.
Under Massachusetts law, the owner of the property where a discharge of oil or other hazardous waste occurs is strictly liable to the Commonwealth for the cleanup or “remediation.”s
After Ms. Gilbody reported the oil spill at her property, the Massachusetts Department of Environmental Protection issued a notice of responsibility to Ms. Gilbody. In response, Ms. Gilbody made a claim under her homeowner’s insurance policy with Bunker Hill.
Bunker Hill engaged an environmental engineer to oversee and evaluate the oil release at the insured property and undertook remediation efforts. The remediation costs associated with the cleanup cost Bunker Hill $262,894.05.
Bunker Hill files lawsuits against Williams’ insurer over “super-escape clause” coverage denial
Bunker Hill first looked to Williams’ insurer, the International Insurance Company of Hannover, Ltd. (“Hannover”), a wholly-owned subsidiary of the German reinsurer, Hannover Re.
Hannover issued an insurance policy to Williams that covered property remediation in the event of a fuel release.
While Hannover’s policy provided coverage for remediation of the spill at Ms. Gilbody’s residence, Hannover took the position that its policy had a “super-escape clause” that exonerated it from liability because the Bunker Hill policy was primary to respond to the oil spill.
A “super-escape clause” seeks to make the policy with that clause “null and void” if there is any other insurance that responds to the loss whether on a “primary, excess, contingent or any other basis.”
Bunker Hill claimed that its other insurance clause made Hannover’s policy primary and on July 7, 2012, it filed a lawsuit in the Suffolk Superior Court against Hannover. In that suit, Bunker Hill sought a declaratory judgment that Hannover, and not Bunker Hill, was the responsible party for insuring Ms. Gilbody for the oil release at her property
The Superior Court judge, however, found on summary judgment that both the Bunker Hill and Hannover had other insurance clauses, but the clauses were “mutually repugnant” and, therefore, under Massachusetts law the policies respond equally.
Based on the decision, the judge ruled “[Hannover] is responsible for fifty (50) percent of the remediation cost” and entered judgment entered against Hannover for $131,447.03. Hannover did not file an appeal and paid Bunker Hill the judgment within a few weeks.
Bunker Hill seeks all its remediation costs from Williams without any credit for Hannover’s payment
While Bunker Hill pursued its case against Hannover, it filed a separate lawsuit against Williams on August 12, 2013, as subrogee of Ms. Gilbody, in Norfolk Superior Court. Bunker Hill’s suit alleged against Williams claims for negligence, breach of contract, and violation of Massachusetts General Laws c. 21E, the Massachusetts Oil and Hazardous Material Release Prevention and Response Act.
Bunker Hill sought its full remediation costs in its suit against Williams. The lawsuit continued until May 2016 when the Superior Court called the case for a jury trial.
Before the start of the jury trial, Williams’ counsel alerted the presiding justice that Bunker Hill had already recovered half of its claimed damages in the Suffolk Superior Court action and that Williams would request an offset in that amount from any award against Williams in the case.
The judge deferred her decision on any offset pending the jury determining William’s liability and Bunker Hill’s damages.
After a week of trial, a jury returned a verdict against Williams and in favor of Bunker Hill on May 20, 2016. The jury awarded Bunker Hill its full remediation costs of $262,894.05 paid on behalf of Ms. Gilbody for the oil spill on her property.
Motion for the offset of Hannover payment denied
Several months after the jury verdict, Williams filed a “Motion for offset of the damages awarded by the jury verdict.” The motion requested the trial judge to apply the insurance payment Hannover had made under Williams’ policy as an offset against the jury’s verdict.
Bunker Hill argued against the offset, and the judge denied Williams offset motion on the grounds of the collateral source rule. Ordinarily, the collateral source rule only applies to a “plaintiff who contracts for insurance with his or her funds should receive that benefit” without the other party using it to offset a claim for cost or expenses.” While Bunker Hill was a plaintiff in this case, it was not the person who contracted to pay for the insurance.
After the denial of Williams’ motion for the offset of Hannover’s payment, the Superior Court entered final judgment against Williams for $418,447.57 on April 7, 2017. The final judgment included an award of single damages for Bunker Hill’s cleanup costs of $262, 895.04. Also, the judgment included $21,314.50 in court costs, $18,858.50 in attorneys’ fees, and statutory interest on the jury verdict at twelve percent per annum from the filing of the lawsuit in August 2013 (approximately 43% added to the verdict).
Appeals Court rules collateral source rule misapplied, and orders offset
Williams appealed to the Appeals Court claiming the Superior Court’s denial of an offset for the Hannover payment was a legal error.
On appeal, Bunker Hill argued the Superior Court had correctly ruled against an offset for Hannover’s payment because it had paid the full amount of the remediation, $262,894.05, it was entitled to entitled to subrogation up to that amount in the negligence action. But it further argued no offset was required. To Bunker Hill, the payment from Hannover was for property remediation under a section of the Hannover insurance policy that did not imply fault and, thus, the nature of the payment was collateral to the damages award in the jury verdict that found Williams negligent.
The Appeals Court agreed that Bunker Hill was entitled to subrogate its claim, but they ruled an offset for Williams was required under the facts of the case.
The important fact to the Court was that Williams had purchased an insurance policy from Hannover that provided coverage for Gilbody’s premises as an insured location, and that policy paid to Bunker Hill on behalf of Gilbody the amount of $131,447.03 for remediation of the property after the oil spill.
Based on that fact, the Court held:
…the source of the payment from Hannover for Gilbody’s property remediation under the policy issued to Williams is from the same source as the negligence damages assessed against Williams and is not collateral to Williams. Williams is entitled to an offset in the amount of the payment from Hannover to Bunker Hill for the remediation of Gilbody’s property.”
The Court’s final order was:
The judgment is to be modified by reducing the award of damages by $131,447.03 and by also reducing the award of prejudgment interest to correspond with the modified damage award.”
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, Bunker Hill will have until January 2, 2019, to apply for further appellate review.