On March 15, 2019, the United States District Court for Massachusetts allowing summary judgment for the Seneca Specialty Insurance Company (“Seneca”) ruling the insurer did not have to indemnify its insured or the judgment creditor suing on default judgment presently totaling over $350 thousand because of the insured’s late notice of the lawsuit.
In Massachusetts, by case decision and statute a liability insurer cannot deny liability for lack of notice, as required by the policy, of a claim or lawsuit unless the insurer can prove “both that the notice provision was in fact breached and that the breach resulted in prejudice to its position.’” In practice, the insurer must prove that is suffered “actual prejudice” with actual prejudice meaning as one court put it if coverage applied then there is “nothing left for the insurer to do but issue a check” because it would be “too late for the insurer to act to protect its interests.”
In this decision, Mark Tiede v. Seneca Specialty Insurance Company, the federal judge ruled that based on the undisputed facts Mr. Tiede as the judgment creditor of James Joyce, Inc. d/b/a Kitty O’Shea’s (“Kitty O’Shea’s”) could not reach and apply Kitty O’Shea’s liability policy because of a prejudicial lack of notice of the lawsuit
Kitty O’Shea’s insurance policy with Seneca and the policy’s suit notice clause
Kitty O’Shea’s is part of a group of Irish pubs that includes locations around the world including Paris, Barcelona, Glasgow, Brussels, and Chicago; the first location of Kitty O’Shea opened in Dublin in the early 1980’s. In Boston, the group opened a Kitty O’Shea’s Irish Pub around 1998 at 131 State Street.
Seneca issued a commercial general liability policy to Kitty O’Shea’s that was effective from February 11, 2010, to February 11, 2011. The policy covered among other things sums that Kitty O’Shea’s became obligated to pay for “bodily injury.” The general aggregate limit for the policy was $2 million with, however, a $1 million liquor liability limit per claim and in the aggregate.
If a claim is made or ‘suit’ is brought against any insured, you must:
- Immediately record the specifics of the claim or ‘suit’ and the date received; and;
- Notify us as soon as practicable.
…You and any other involved insured must:
- Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or ‘suit.’”
The policy defined “you” and “your” as “the Named Insured shown in the policy declarations [James Joyce, Inc. d/b/a Kitty O’Shea’s], and any other person or organization qualifying as a Named Insured under this policy.”
An alleged assault by Kitty O’Shea’s bouncers and a claim for bodily injury
On the evening of March 20, 2010, Mark Tiede was present at Kitty O’Shea’s, when according to Mr. Tiede, for no apparent reason, two bouncers employed by Kitty O’Shea’s dragged him out of the tavern and repeatedly punched him in the face and head.
On December 29, 2010, Mr. Tiede’s attorney, advised that Mr. Tiede was making a claim that because Kitty O’Shea’s negligence Mr. Tiede “was physically assaulted and beaten without justification by employees of Kitty O’Shea’s, which resulted in severe and permanent injuries personal injuries.” Mr. Tiede’s lawyer also advised Kitty O’Shea’s to put its insurance carrier on notice of Mr. Tiede’s claim. Kitty O’Shea’s had its insurance broker notify Seneca about the incident involving Mr. Tiede.
On February 8, 2011, Seneca acknowledged the claim and informed Kitty O’Shea’s that it was investigating under a reservation of rights. On February 17, 2011, Seneca also wrote to Attorney Pappas and informed him that Seneca had received his December 29, 2010 letter of representation and was investigating the claim. Seneca hired an outside adjuster to conduct an investigation. The adjuster interviewed witnesses, spoke to Mr. Tiede’s attorneys about his version of events, interviewed Mr. Tiede, and then produced a 12-page initial report.
The adjuster’s report advised Seneca that Kitty O’Shea’s management denied that any of their employees had assaulted Mr. Tiede and questioned the statements of a friend of Mr. Tiede’s who was at Kitty O’Shea’s with Mr. Tiede the night the two bouncers allegedly assaulted him. The report concluded that a lawsuit “may be the only way the true facts will come out.”
Based on the report, Seneca denied Mr. Tiede’s claim, and in February 2011, Mr. Tiede filed a lawsuit against Kitty O’Shea’s in Worcester Superior Court.
Kitty O’Shea’s foreign owner’s registered agent served with suit ‘in hand,’ but no one notified
Every corporation in Massachusetts has to have a registered agent in the commonwealth upon whom parties suing the corporation can serve legal process. Many times, domestic corporations have the officers, directors, or stockholders residing in Massachusetts listed as a resident agent. Other times, corporations identify as the agent for service of process, commercial companies that specialize in acting as registered agents.
Occasionally, as occurred in this case, a company appoints someone who is neither an officer, director, stockholder, or a registered agent company with unfortunate consequences.
The two officers of Katie O’Shea’s lived outside the United States in Paris and Dublin, respectively. They appointed their accountant who worked out of his home as their registered agent.
After Mr. Tiede filed his lawsuit, a sheriff served the accountant at his home as the registered agent of Kitty O’Shea’s “in hand.” The accountant did not give the complaint and summons along to Kitty O’Shea’s management or Seneca. Also, Mr. Tiede’s attorney did not inform Seneca that it had served Kitty O’Shea’s or send Seneca a copy of the complaint.
After Kitty O’Shea’s did not answer Mr. Tiede’s complaint, the Superior Court entered a default against Kitty O’Shea’s. In October 2011, Mr. Tiede filed a motion for the Superior Court to assess the damages for his injuries and to enter a final judgment against Kitty O’Shea’s.
On the hearing notice for the assessment of damages after a default, Mr. Tiede again served Kitty O’Shea’s registered agent at his home. However, he also served Kitty O’Shea’s officers at the business’ location on State Street with papers informing them of an assessment of damages hearing scheduled for November 29, 2011, before the Worcester Superior Court. Mr. Tiede did not though notify Seneca of the hearing.
Three days after the assessment of damage hearing, on Friday, December 2, 2011, Seneca received notice of the assessment of damages hearing from Kitty O’Shea’s insurance agent. Seneca immediately retained counsel “to attempt to vacate the default judgment and the assessment.” On December 6, 2011, the Superior Court assessed damages against Kitty O’Shea’s for $160 thousand and entered a final judgment.
Under a reservation of rights, Seneca seeks unsuccessfully to vacate the default judgment
On April 13, 2012, an attorney for Seneca, proceeding under a reservation of rights, filed a motion to vacate the default judgment on behalf of Kitty O’Shea’s. Mr. Tiede successfully opposed the motion to vacate, and an execution issued on July 11, 2012, allowing Mr. Tiede to try to collect on his judgment.
A subsequent motion to the Superior Court in August 2012, for reconsideration, was denied in October. Seneca appealed the denial to the Appeals Court. However, the Appeals Court found that the Superior Court judge had not abused her discretion in declining to vacate the default. Seneca made a last-ditch effort to vacate the default by requesting further appellate review of the Appeals Court decision by the Supreme Judicial Court (“SJC”).
The day after the SJC denied further review, Seneca notified Kitty O’Shea’s and Mr. Tiede that it was denying coverage.
Although Mr. Tiede had a valid execution from the Superior Court allowing him to proceed against Kitty O’Shea’s assets while Seneca was appealing the default judgment against Kitty O’Shea’s he took no actions to levy on the execution. The owners of Kitty O’Shea’s, however, did take action to protect their interests. While Seneca’s appeal attempts were pending, they sold Kitty O’Shea’s assets to a third-party and closed out the corporation.
Although Mr. Tiede’s attorneys attested that, if Seneca had advised it intended to deny coverage earlier, they would have pursued attachment of Kitty O’Shea’s assets. However, the fact remained that the sale of Kitty O’Shea’s assets left the Seneca policy as the only asset of Kitty O’Shea’s available to Mr. Tiede. Seneca offered $20,000 to Mr. Tiede to settle his claims including his $350 thousand default judgment.
Mr. Tiede sues Seneca for unfair claim practices and to reach and apply its policy to pay his judgment
Mr. Tiede rejected Seneca’s $20 thousand offer and sued Seneca in Suffolk Superior Court alleging three claims or counts:
- A statutory right to reach and apply in satisfaction of the default judgment Seneca’s liability policy with Kitty O’Shea’s.
- A contractual duty for Seneca to pay Mr. Tiede as a third-party beneficiary under Seneca’s policy with Kitty O’Shea based on the default judgment against Seneca’s insured.
- Unfair claim practices under M.G.L. c. 93A and c. 176D for Seneca’s failure to pay the default judgment equaling with interest $350 thousand.
Seneca, a Delaware corporation, removed Mr. Tiede’s suit from the Massachusetts Superior Court to the United States District Court in Boston under that court’s diversity jurisdiction (suits between persons residing or domiciled in different states). In federal court, Seneca answered Mr. Tiede’s suit and counterclaimed. Seneca denied liability and asked the court to declare that Seneca had no indemnity obligation under its insurance policy to Kitty O’Shea’s and, therefore, to Mr. Tiede as a judgment creditor of Kitty O’Shea’s.
The court finds actual prejudice to Seneca from lack of notice
Mr. Tiede made three arguments that Seneca has not shown it was prejudiced. In each case, the court found the failure of either Kitty O’Shea’s or Mr. Tiede to properly notify Seneca as required by the policy of the filing and to furnish Seneca with copies of the complaint and summons was not prejudicial.
First, Mr. Tiede argued that because his attorney alleged he had informed Seneca informally that Mr. Tiede had filed his complaint (which Seneca denied), all Seneca had to do was settle or answer. The court found that since Seneca never received the complaint neither from Mr. Tiede’s attorneys nor from Kitty O’Shea’s in a timely manner, it could not have been expected to answer.
Second, Mr. Tiede argued that when Seneca received notice of the assessment of damages hearing after it occurred on November 29, 2011, two business days elapsed before final judgment entered and if Seneca had proceeded immediately to court it might have, according to Mr. Tiede, prevented the default judgment from entering. The judge agreed that, in hindsight, Seneca perhaps should have proceeded directly to court, rather than investigating, preparing a litigation strategy, trying to obtain Mr. Tiede’s consent to vacate the default, and then finally proceeding to court five months after the default judgment had entered. However, under the circumstances of the sudden notice of an assessment of damages having already occurred, the court thought it not unreasonable for Seneca to take more than two days to assess the situation. In the court’s opinion, if Seneca had received more adequate notice, it clearly would have arranged for a lawyer to appear for Kitty O’Shea’s before the court assessed damages.
Lastly, Mr. Tiede claimed that a 2015 SJC decision holding that held that an insurer was obligated to attempt to defend a lawsuit where it received notice of the assessment of damages hearing from the plaintiff’s attorney more than a month before it occurred applied to Seneca.—See Agency Checklists’ article of October 15, 2015, “Closed Claim Costs Insurer over $4 Million on a $50K Liability Limit.”—However, the court disagreed pointing out that:
- The SJC held that the insurer was obligated to attempt to defend the lawsuit where it received notice of the assessment of damages hearing from the plaintiff’s attorney more than a month before it occurred.
- In Mr. Tiede’s case, Seneca did not have notice of the assessment of damages hearing before it occurred. As opposed to the SJC decision Mr. Tiede cited, his lawyers did not provide any notice to Seneca of the pending assessment of damage much less a month’s notice.
The court concluded that the investigation report prepared by the retained adjuster in March 2011 suggested that Seneca had strong grounds on which it could have defended Mr. Tiede’s lawsuit. Because it did not receive the information necessary to appear and defend until after the default had entered and the assessment of damages hearing had occurred, the court found Seneca had suffered actual prejudice in losing its right to present those arguments in defense of Mr. Tiede’s claim.
In each case, the court found against Mr. Tiede because Kitty O’Shea’s had breached the insurance policy and Seneca has shown that it suffered actual prejudice from its lack of notice of Mr. Tiede’s suit.
On the claim of unfair claim practices, the court found that Seneca had adequately informed Mr. Tiede of its reasons for denying the claim and that its claim handling did not violate M.G.L. c. 93A or c. 176D.
Mr. Tiede files an appeal to the First Circuit Court of Appeal from the district court’s decision
Following the denial of his lawsuit by the district court, on April 5, 2019, Mr. Tiede filed a notice of appeal appealing the denial to the First Circuit Court of Appeals.
Under the federal court system appeals from a federal district court decision, go to one of eleven federal court appellate courts depending on the location of the court or the type of case. In Massachusetts, federal appeals, except for some specific types of cases, are heard by the First Circuit Court of Appeals sitting in Boston.
Agency Checklists will keep its readers posted on the appeal court’s decision.