On January 8, 2019, the Massachusetts Appeals Court affirmed summary judgment in favor of MAPFRE U.S.A., in a lawsuit suit brought by Gary Cruickshank, the trustee of the bankruptcy estate of a MAPFRE insured, Valerie Troiano. Ms. Troiano had filed for bankruptcy because of a $550 thousand bodily injury judgment against her of which her MAPFRE policy had only covered $100 thousand.
The bankruptcy trustee sued MAPFRE for breach of contract in failing to accept a policy limit demand from Elsa Villanueva; the pedestrian Ms. Troiano had hit with her car and permanently injured.
The Appeals Court ruled against the trustee finding that the doctrine of “virtual representation” applied to block his suit because Ms. Villanueva had previously brought an unsuccessful unfair claim practice suit against MAPFRE for it allegedly having failed to pay its policy limit when liability was reasonably clear.
Round one: the accident, the demand, the offer, and judgment for $450 thousand more than the $100 thousand policy limit
Ms. Villanueva was seriously injured when she was struck while early one morning by a car owned and operated by Valerie Ms. Troiano (“Ms. Troiano”), an insured of Commerce Insurance (now, “MAPFRE, U.S.A” or “MAPFRE”).
A witness to the accident, the cab driver who was waiting for Ms. Villanueva while she dropped off her daughter at daycare testified that Ms. Troiano was driving too fast and had left the scene of the accident. Ms. Troiano who was not cited for the accident testified she did not see what she had hit because it was dark and rainy, so she went around the block to return to the scene of the accident.
Ms. Villanueva suffered permanent impairment resulting from the accident but had no memory of what happened. Initially, she would accept the $100 thousand policy limit, but only if the matter settled before she filed suit. MAPFRE offered $5,000, the estimate of the legal fees, to settle the claim. As a result, Ms. Villanueva filed suit against Ms. Troiano.
After discovery in the lawsuit had finished and a trial date was imminent, MAPFRE offered the policy limit of $100,000, but Ms. Villanueva rejected the offer.
At trial, the jury awarded $414,500 to Ms. Villanueva. However, with the 12% interest allowed by statute, the final judgment totaled $552,352.37. MAPFRE elected not to appeal and made an unconditional payment to Ms. Villanueva of the full policy limit of $100,000. After MAPFRE’s payment, Ms. Troiano remained liable to Ms. Villanueva for more than $450 thousand with post-judgment interest accruing on that amount at 1% per month.
Round two: Ms. Villanueva sues MAPFRE for unfair claim practices seeking multiple damages
Initially, Ms. Villanueva did not seek to collect against Ms. Troiano the uninsured portion of the judgment. Instead, she brought a direct action under the unfair claim practice statutes, G. L. c. 176D, and G. L. c. 93A seeking multiple damages.
Under G. L. c. 176D, an insurer is required “to effectuate a prompt, fair and equitable settlement of claims in which liability has become reasonably clear.”
Ms. Villanueva contended that liability was “reasonably clear” as soon as MAPFRE learned the cab-driver witness faulted Ms. Troiano for the accident, liability was reasonably clear, MAPFRE was thus required to make a reasonable settlement offer, and MAPFRE’s $5,000 offer was unreasonable. Also, Ms. Villanueva further argued that MAPFRE’s subsequent pretrial offer of the $100,000 policy limit demonstrated that MAPFRE knew that liability exceeded the policy limits and that MAPFRE’s prior offer of $5,000 was unreasonable.
However, in proving an unfair claim practice occurred in failing to settle a covered claim, the legal test is “whether no reasonable insurer would have failed to settle the case within the policy limits.” This question often requires expert testimony. Ms. Villanueva did not submit any expert testimony, and the dismissed her case based on this lack of expert evidence, stating, “The claimed violation is not so egregious that an expert would not be necessary.”
Ms. Villanueva appealed, but the Appeals Court in an unpublished 2016 opinion held, “The general rule in this Commonwealth is that an insurer is held to a standard of reasonable conduct in its defense of its insured.”
The Court affirmed the Superior Court dismissal. In upholding the dismissal, the Appeals Court noted that MAPFRE had a reasonable belief liability was not clear because:
- Villanueva had entered into the traffic lane, outside of a crosswalk, on a dark, rainy morning, from between two parked cars, wearing dark clothing.
- The cab-drive witness was “scarce” after his initial statement to MAPFRE’s investigator; failed to appear for two scheduled meetings; and failed to appear for multiple scheduled depositions, leaving doubt as to his appearance at trial.
- Troiano was not cited for any civil or criminal motor vehicle infraction.
- The jury finding that Ms. Villanueva was thirty-five percent negligent in the accident.
Round three: Bankruptcy trustee sues MAPFRE for breach of contract to recover for the benefit of insured’s creditors
While pursuing MAPFRE, Ms. Villanueva also sought to enforce the unpaid judgment. Ms. Troiano a federal bankruptcy petition to discharge the debt. Per the provisions of the federal Bankruptcy Code, a bankruptcy judge appointed a trustee to marshal Ms. Troiano’s assets.
The trustee decided that Ms. Troiano’s major asset was a breach-of-contract claim against MAPFRE based on its failure to accept Ms. Villanueva’s original offer to accept the policy limit instead of suing. The trustee argued that if MAPFRE had accepted the offer, there would have been no trial and no $450,000 unpaid judgment against Ms. Troiano.
The trustee proceeded on the premise that as the assignee of Ms. Troiano’s rights the prior suit by Ms. Villanueva for unfair claim practices did not matter. As trustee, he was suing for a different cause of action, breach of contract, and in the shoes of another person, the original defendant, Ms. Troiano.
Based on this theory of MAPFRE’s liability, the trustee engaged counsel and filed a breach of contract action in Suffolk Superior Court against MAPFRE.
After MAPFRE obtained summary judgment against the trustee based on its claims that there were no issues of material fact that MAPFRE had acted reasonably, the trustee appealed to the Appeals Court.
Appeals Court rules against trustee applying the rarely used “virtual representation doctrine”
In deciding the appeal, the Appeals Court focused on the question whether the unsuccessful suit brought by Ms. Villanueva, the plaintiff in the tort suit, against MAPFRE for unfair claim practices barred the trustee in bankruptcy suing based on the contract rights of Ms. Troiano, the defendant in the tort suit.
MAPFRE argued, and the Court accepted, that under the doctrine of “virtual representation,” the trustee for a bankrupt tortfeasor stands in privity with the victim of an automobile accident who previously pursued, and lost, a claim against the tortfeasor’s MAPFRE based on alleged unfair settlement practices.
The Court observed that although the trustee nominally represents the bankruptcy estate of Ms. Troiano, he also acts for the benefit of the creditors of the bankrupt debtor’s estate. In this case, the major beneficiary of any recovery from the trustee’s suit MAPFRE would flow as a practical matter to Ms. Villanueva rather than to Ms. Troiano.
The Court concluded that in this suit the trustee’s legal action was for the sole benefit of Ms. Villanueva and that neither Ms. Troiano nor any other party had any separate or independent interest in the action.
Thus, the Court ruled, “in consideration of all the circumstances, we conclude that the trustee is in privity with Villanueva, under the theory of virtual representation, and the equities are such that he is barred by issue preclusion from litigating the same factual questions finally adjudicated adversely to Villanueva in her prior c. 176D action against Commerce.”
The Court ended by ruling: “The judgment of dismissal is accordingly affirmed.”