Updates on 10 cases covered this year on Agency Checklists
In 2022, Agency Checklists published 34 articles on legal cases involving Massachusetts insurance law.
As we start the year 2023, I thought it would be informative to provide year-end updates on 10 cases that had between 500 and 1,000 readers when they were originally published in our Tuesday newsletter. The final results of these cases are of particular interest to me, and I believe they may be of interest to insurance and legal professionals, or anyone else interested in insurance law, for that matter.
Below is a summary of each of the 10 cases, along with a link to the original article for more details. The current status of each case also has been included as some of them will continue into 2023.
As the new year unfolds, I plan to continue to monitor and provide updates on any open cases as they develop.
1. December 16, 2022 — An Insured’s Underpayment of Loss Lawsuit Over Brookline Building Backfires
Anwar Faisal sued his insurance company, United National, after a building he owned suffered substantial damage in a fire. The insurance company had initially paid Faisal $350,000 out of a claimed $750,000 loss, but Faisal sued for the remaining $417,000 and requested a declaratory judgment to determine the coverage of his policy. United National counterclaimed, seeking reimbursement of the $350,000 it had already paid, alleging that Faisal had breached the policy’s vacancy condition by extensively renovating the building. The Court ruled in favor of United National, finding that Faisal had no coverage under the policy due to the breach of the vacancy condition, and ordered Faisal to return the $351,426.99 he had received in error. The Appeals Court upheld this decision.
Status as of January 1, 2023:
Mr. Faisal had twenty days from November 23, 2022, to file for further appellate review to the Supreme Judicial Court. He did not file any timely application to the Supreme Judicial Court, and on December 21, 2022, the Appeals Court issued its rescript to the Superior Court, affirming the judgment against Mr. Faisal for him to reimburse his insurer.
2. November 22, 2022 — Failed Foray Into Massachusetts Ends In A Lawsuit For New York Agency Over Its Producer’s Understanding of Salary v. Draw
A federal district court case, Matthew Post v. Mark Edward Partners LLC, Mark Freitas, and Andrew Guerin, involved a disagreement between an insurance agency, its officers, and a producer being onboarded. The agency faces the potential of a mandatory treble damage award and attorney fees if it loses certain counts in the lawsuit related to wage claims, and the producer has the possibility of having to repay the agency $50,000 plus if the agency can prove its advancement claim. We suggested the lesson for insurance agencies and producers from this case was to consider hiring a producer like getting married and taking the precaution of getting a good prenuptial agreement before starting the relationship.
Status as of January 1, 2023:
The New York agency has answered and counterclaimed to recover its alleged advance against Mr. Post, and Mr. Post has filed a motion to dismiss, asserting under the applicable case law concerning his wage claim. The agency filed its opposition to the motion to dismiss on December 12, 2022, to its counterclaim. The judge hearing the case had not set a date for the argument as of December 31, 2022.
3. November 15, 2022 — Former Arlington Agency Owner Patrick Quinn, Sentenced For Federal Benefit Fraud
In 2020, the U.S. Attorney’s Office announced that Patrick Quinn, the then-owner of the Quinn Group Insurance Agency, had been indicted for obtaining over $420,000 in veterans’ benefits and Social Security benefits by falsely claiming to the Department of Veterans Affairs and the Social Security Administration that he was unable to work due to a disability, while in reality, he was the owner and operator of The Quinn Group Insurance Agency, Inc.
On April 12, 2022, after a six-day trial, a jury found Mr. Quinn guilty of two counts of stealing public funds and two counts of making false statements.
On November 8, 2022, the Federal District Court sentenced Mr. Quinn to one year and one day in prison, followed by one year of supervised release.
Status as of January 1, 2023:
Mr. Quinn had fourteen days from November 8, 2022, to appeal his conviction to the First Circuit Court of Appeals. He did not file an appeal, and he must surrender himself to the Bureau of Prisons by 2 P.M. on January 23, 2023, to begin serving his sentence.
4. November 15, 2022 — Late Policy Notice to Zurich Leads To Harvard’s Loss of $15 Million in Coverage
Harvard University filed a lawsuit against its excess insurance carrier seeking $15 million in coverage for legal fees incurred while defending against a discrimination complaint and related government investigation. Harvard’s primary insurer’s $25 million liability limit had been exhausted by the legal costs. The $15 million excess policy had a claims-made and reported provision requiring notice within 90 days of the policy expiration to the excess insurer of any claims made during the policy period. Harvard did not report the 2014 discrimination claim until 2017 but argued that the excess carrier had knowledge of the claim and had suffered no prejudice. The Court rejected this argument, noting that Massachusetts law strictly construes claims-made policy notice requirements and that the carrier’s constructive knowledge of the claim did not constitute effective notice sufficient to trigger coverage. The Court dismissed Harvard’s lawsuit.
Status as of January 1, 2023:
On November 30, 2022, Harvard University filed an appeal on the district court judgment in favor of Zurich. The appeal will be to the First Circuit Court of Appeals. The university’s appellate arguments, based on the issues heard in the lower Court, have to overcome the adverse Massachusetts legal decisions strictly construing claims-made policy notice conditions.
5. October 4, 2022 — Phony Pumpkin Assault Claim Gets 3 Years For Insurance Fraud
Thomas Lucey, an MBTA trolley operator, paid a friend to wear a slasher costume and assault him on his trolley nightshift the day before Halloween in order to claim post-traumatic stress and collect workers’ compensation from his employer and payments from his personal disability insurance policies. Lucey’s plan was an attempt at insurance fraud that got him a three-year sentence in the state prison in Cedar Junction. He appealed his June 7, 2019, conviction, but he did not have bail pending his appeal. In September 2022, the Appeals Court affirmed his conviction.
Status as of January 1, 2023:
Mr. Lucey filed an application for further appellate review with the Supreme Judicial Court on October 3, 2022. The Court denied the application on November 10, 2022. By the time Mr. Lucey’s appeal was finally decided, he had served his three-year sentence.
6. August 16, 2022—Court Rules Liability Insurer Can Recover Defense Costs & $1.5 Million Settlement from Insured
The United States District Court allowed an insurance company to recover costs of defense and a settlement for an uncovered claim from an insured who was defended under a reservation of rights. The case involved a claim for bodily injury due to a sewage backup on the insured’s property. The insurer initially denied the claim based on a pollution exclusion but later issued a reservation of rights citing an additional exclusion. While the underlying claim was pending, the insurer sued for a declaratory judgment on coverage and for reimbursement of its defense costs. The underlying lawsuit went to mediation, and the insured demanded the insurer pay the settlement. The insurer paid the settlement but added the cost to its declaratory judgment as a claim for restitution. The Court found the insured’s behavior in forcing the insurer to defend the lawsuit was “unfair” and ruled the insured was liable to pay the insurer restitution for the defense and indemnity costs.
Status as of January 1, 2023:
On November 22, 2022, an amended judgment was entered against the insured, Granite Telecommunications, and its landlord, Atlantic-Newport Realty, finding them jointly and severally liable to pay back the defense costs ($247,284.06) and the settlement costs ($1.5 million) that Berkley National had paid to defend and settle the underlying bodily injury claim. On December 7, they filed their appeal of the amended judgment to the First Circuit Court of Appeals.
7. May 3, 2022—5 Points On New Ruling: Unreasonable Storage Reduces ACV Payment
The Appeals Court ruled that a vehicle insurer may reduce the first-party total loss payout made to an insured if a non-preferred independent body shop chosen by the insured charges excessive total loss storage fees, e.g., $95.00 per day. In the case at hand, the insurer, Commerce, argued that a fee of $35 per day was reasonable for total loss storage, citing a statute on involuntary storage charges and the rates offered by its 800 preferred body shops. The Court agreed with Commerce’s position that it could pay the non-preferred body shop the higher storage rates to have the total loss released but then recover any overpayment that was deemed unreasonable from the insured’s total loss payment.
Status as of January 1, 2023:
On May 16, 2022, the plaintiffs in the Puopolo case filed an application for further appellate review. Commerce Insurance opposed the application on May 26, 2022. The Supreme Judicial Court considered the application for five weeks before denying further appellate review on June 30, 2022.
This decision is now final, and insurers may set off excess storage charges consistent with the Puopolo decision against an insured’s total loss payments.
8. June 28, 2022—$10 Endorsement Ends with Insured Paid $50,000 For Condo Loss Assessment
An insured with a condo policy increased her loss assessment limit, for an additional premium of $10 dollars, from $1,000 to $50,000 after a fire in 2017. Two years later, she received an assessment for $84,000 for a common area loss related to the fire. Her insurer initially refused to pay but ultimately paid the $50,000 limit in her policy after an examination under oath. The following year, the insured received another loss assessment for $75,000 and made a claim for the $50,000 limit in her renewed policy’s loss assessment coverage, which covered “loss assessments charged during the policy period.” The insurer refused payment, arguing that the policy provision did not apply because it only had liability for the $50,000 limit as “the most [the insurer] will pay with respect to any one loss,” and that limit had already been paid for the 2017 loss during the prior policy period. The Court ruled in favor of the insurer, stating that allowing each policy period to provide coverage for loss assessments dating back to losses occurring in prior policy periods would make the limitation in the standard policy’s loss assessment clause meaningless.
Status as of January 1, 2023:
The unfair claim practice portion of this case is scheduled for resolution in the first quarter of 2023. The final pretrial conference has a date of on or after March 20, 2023.
In the Court’s original decision, the Court left open the unfair claim case noting: “a reasonable factfinder could conclude [Ms. Brennan’s] examination under oath was not based on concerns over her knowledge of a likely assessment but rather reflected a last-ditch effort by Metropolitan to avoid paying [Ms.] Brennan’s claim after its legal department concluded Metropolitan was otherwise obligated to pay [Ms.] Brennan $50,000. A factfinder reaching such a conclusion could determine that the department had engaged in unfair claim practices.”
9. June 14, 2022 — New Rule Would Make Insurers Pay Insured For Preventing An Insured Loss
Ken’s Foods filed a lawsuit against Steadfast Insurance seeking common law damages outside the terms of the policy. In both the Federal District Court, where it lost, and the First Circuit, where it appealed, Ken’s Foods acknowledged that it had no coverage under the terms of Steadfast’s policy to recover for its loss prevention costs. Instead, Ken’s Foods argued that Steadfast had a common law duty to cover the expenses it incurred to prevent an imminent covered loss. While there is no specific Massachusetts case recognizing such a duty, Ken’s Foods predicted that the Supreme Judicial Court of Massachusetts would recognize the existence of such a duty based on the criteria the Court has used to recognize similar common law duties. Ken’s Foods also noted that while Massachusetts has not yet ruled on the existence of such a duty, several other states have recognized that insurers owe a common law duty of this nature.
Although the United States District Court ruled against Ken’s Foods, the First Circuit Court of Appeals decided to certify the question of whether Massachusetts law allows for a common law duty requiring insurers to pay for covered loss prevention costs. The Court disagreed with Steadfast Insurance’s claim that such a duty does not exist, noting that the Supreme Judicial Court of Massachusetts has imposed common law duties on insurers in the past, such as the “in for one, in for all” rule, which requires insurers to defend their insured on all counts of a multi-count complaint, even if some counts are not covered by the policy.
Status as of January 1, 2023:
The Supreme Judicial Court accepted the certification and heard oral arguments on November 8, 2022. The case is now under advisement. One hundred and twenty days is the usual period in which appellate decisions are expected to be rendered.
10. February 15, 2022— MA Appeals Court Reverses $7 Million Telephone Consumer Protection Act Judgment Against Peerless Insurance’s Subsidiaries
Precision Electronic Glass, a New Jersey company that manufactures custom glass and quartz components, was sued by Addison Automatics, an Illinois company, in 2010 in a class action alleging that Precision’s fax marketing program violated the Telephone Consumer Protection Act (TCPA). The TCPA prohibits the sending of faxes without permission or a prior business relationship and imposes strict liability on the sender. Precision solicited 31,000 different companies by fax without permission and faced a potential liability of $15.5 million for its statutory violations. When Precision notified its insurance companies, Netherlands Insurance Company and Excelsior Insurance Company, subsidiaries of Peerless Insurance, they denied liability, citing an exclusion that had been sent to Precision in 2007. Precision eventually settled with Addison for $15 million, which was approved by an Illinois federal court and allowed collection against Precision’s insurers. Addison pursued Netherlands and Excelsior as a judgment creditor in the Massachusetts Superior Court. After seven years of litigation, the Superior Court ruled the change of coverage notices invalid under New Jersey law and issued a judgment against the insurers for $7,373,000. The insurers appealed, and the Appeals Court reversed the judgment for Addison.
Status as of January 1, 2023:
Addison had filed an application for further appellate review to the Supreme Judicial Court on January 31, 2022, to reinstate the Superior Court decision. The Netherlands and Excelsior moved, and the Court allowed them until February 28, 2022, to file their objections to the allowance of the petition, which they did on February 28, 2022. On March 17, 2022, the Supreme Judicial Court denied further appellate review, and Addison’s loss of its $7 million judgment became final.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Connect with me directly, by calling me at 617-598-3801.
