In 2013, a Boston-based law firm brought a class-action suit against AIG Group insurance subsidiaries (“AIG”) based on the Massachusetts workers’ compensation policy. The suit alleged that AIG had consistently improperly reported data concerning subrogation recoveries under the Massachusetts Workers’ Compensation Rating and Inspection Bureau’s statistical Plan for Massachusetts-based risks and the National Council on Compensation Insurance (NCCI) for interstate risks.
Three years later, in April 2016, this suit ended with a court-approved settlement repaying the Massachusetts businesses whose workers’ compensation policies fit the settlement class’ profiles, a total of $6,445,585, minus attorneys’ fees in the amount of $1,720,413.18 and the reimbursement of the attorneys’ $84,350.62 in litigation expenses.
A nationwide class action for the same alleged reporting errors against Liberty Mutual
In October 2019, the same law firm involved in the 2013 class action against AIG, brought, with other firms, a more expansive suit claiming that the misreporting of workers’ compensation subrogation recoveries caused improper experience modification charges to insureds of Liberty Mutual.
The putative class plaintiff, Valley Container Company, Inc., filed its suit in Boston’s Federal Court against the Liberty Mutual Group, Inc. and its associated stock subsidiaries, including the Liberty Mutual Insurance Company, the Wausau companies, and Peerless. (Collectively, “Liberty”).
While the first suit involved Massachusetts risks of AIG, this new suit sought to certify a nationwide class action for insureds of Liberty. The AIG suit lasted three years before being settled. The suit against Liberty only lasted eight months before the United States District Court granted Liberty’s motion to dismiss Valley’s complaint.
Valley’s allegations against Liberty in its suit
Valley’s suit charged that Liberty unlawfully overcharged companies in at least thirty-five states by violating the loss reporting rules, incorporated into these companies’ workers’ compensation insurance contracts, under the National Council on Compensation Insurance (“NCCI”) statistical rating plan.
Valley alleged violations relating to Liberty failing to report subrogation recoveries properly and reporting incorrect net incurred losses on claims to the NCCI. As a result, Valley claimed that it and similarly situated companies insured by Liberty under workers’ compensation policies were denied the timely benefit of subrogation recoveries in the calculation of their experience modifications.
Valley’s class-action suit contained four counts alleging Liberty’s:
- Breach of contract.
- Unjust enrichment.
- Violation of the Federal Racketeering Influenced and Corrupt Organization Act (“RICO”), and
- Violation of Massachusetts General Laws chapter 93A.
Alleged improper report on Valley’s compensation claim’s subrogation recovery
Valley, a Connecticut corporation, had a workers compensation policy with Liberty from October 20, 2012, through October 19, 2013. In September 2013, an employee of Valley had a work-related injury and filed a workers compensation claim. Liberty accepted the claim, paid the benefits, and sought subrogation action against a third-party that had liability for the employee’s injury.
Liberty reported to the NCCI, in the ordinary course of NCCI’s statistical reporting rules, the loss history of Valley for this claim. The reports were in the form of “unit statistical reports. (“USRs”).
Liberty’s reports to the NCCI on Valley’s claim included the incurred medical and indemnity payments as well as future reserve estimates for future payments. As of May 18, 2015, Liberty had last reported the claim’s value as $50,416. On May 18, 2015, Liberty Mutual posted a subrogation recovery of $21,427.82, against the claim’s value. On June 24, 2015, Liberty closed the claim, which by then had an actual net incurred loss of $120. However, two days later, on June 26, 2015, Liberty filed a correction report to correct two previously filed USRs that reported the net incurred loss of the claim as $28,988.00. Valley subsequently alleged that the June 26 correction report should have correctly stated the net incurred loss as $120, and not $28,988.00.
Based on this alleged inaccurate reporting by Liberty, Valley claimed it had paid improper premium charges on its workers’ compensation experience modification totaling $13,030.00.
Valley’s complaint further alleged that Liberty consistently failed to file the NCCI correction reports required to account for subrogation reimbursements and recoveries properly. As a result, numerous Liberty insureds in the thirty-five states that had adopted the NCCI rating rules were charged excessive premiums on their workers’ compensation experience modification. In its complaint, Valley sought to represent these insureds when and if the Court allowed the certification of a nationwide class.
Liberty moved quickly to dismiss Valley’s suit
Approximately four months after Valley filed its lawsuit, Liberty Mutual moved to dismiss all four counts of the complaint. The central claims of the motion were that:
- Valley has failed to plead that Defendants deviated in any way from rules and requirements set by the National Council on Compensation Insurance (“NCCI”) concerning the reporting of data in connection with workers compensation claims, which is the premise of each of its causes of action (Breach of contract).
- Valley failed to plead an unjust enrichment claim because it failed to plead that Liberty obtained any benefit from the conduct alleged. (Unjust enrichment).
- Valley’s RICO claim and 93A claims were not pleaded with “particularity” as required. (RICO and 93A)
- Valley failed to plead a Chapter 93A claim because a simple breach of that policy did not constitute an unfair or deceptive trade practice under Chapter 93A (93A).
Valley opposed the motion, but the judge found Liberty’s positions well-founded.
The judge dismisses Valley’s breach of contract claim
On Liberty’s motion to dismiss Valley’s breach of contract claim, the parties had no dispute as to the applicable law or the elements of the contract involved. The dispute centered on the extent to which the NCCI rules and regulations applied to Valley’s breach of contract claim concerning the allegedly incorrect reporting by Liberty to the NCCI.
To establish the breach by Liberty, Valley pointed the Court to the policy provision stating that:
“[a]ll premiums for this policy will be determined by our manuals of rules, rates, rating plans and classifications . . .. The final premium will be determined . . . by using the actual, not the estimated, premium basis and the proper classifications and rates that lawfully apply to the business and work covered by the policy.”
Valley argued that this language incorporated the NCCI Statistical Plan into its insurance policy with Liberty and that since Liberty had not followed the NCCI reporting rules, Liberty had breached the terms of their worker’s compensation insurance contract.
Liberty agreed that the contract incorporated the rules of the NCCI Statistical Plan. However, it argued that Valley read the policy provision in question too broadly. To Liberty, this provision only meant that it had an obligation to determine the premiums under the NCCI rules for the policy period in question.
The Court agreed with Liberty. The same issue as to whether a workers’ compensation insurance contract incorporated the full reporting requirements of an NCCI-like statistical reporting plan arose in the earlier AIG class action. In that case, the judge had ruled upon identical contract language that this provision’s “language clearly confines the use of the manuals to the computation of rates for the [policy in which the language appears]” and that “[r]eading it to incorporate ongoing reporting and revision requirements as a contractual obligation would be more than simply interpreting the language in plaintiff’s favor; it would be rewriting the contract.”
The judge hearing Liberty motion to dismiss the contract claim adopted the reasoning in the prior AIG case, and found that the term “this policy” in the cited policy provision meant that “the NCCI Statistical Manual is only incorporated into the provision inasmuch as it affects the calculation of premium costs under the Policy Contract between Liberty Mutual and Valley covering the policy period of October 20, 2012, through October 19, 2013.”
Judge finds that if the NCCI reporting rules had applied, Liberty appropriately followed the rules
Although the above ruling was sufficient to sustain the dismissal of Valley’s breach of contract claim, the judge went further and analyzed the NCCI reporting requirements as if they were a part of the contract. In doing so, the judge showed that, in her opinion, Liberty had complied with the NCCI statistical plan.
In its first report on Valley’s workers’ compensation claim, Liberty valued the claim, as of eighteen months after the inception date of the policy, in June 2014, at $34,215, which Valley accepted as accurate for purposes of the motion to dismiss. Under the NCCI regulations, Liberty had to submit a second USR in April 2015. This report now valued the claim at $50,416. Valley also accepted this valuation as accurate for purposes of the motion to dismiss.
In May 2015, after Liberty had successfully subrogated against a third-party claim liable for Valley’s worker’s injury, Liberty posted a recovery of $21,427.82, against the $50,416 of the claim’s reserves. On June 24, 2015, Liberty Mutual closed the claim, after determining that it owed no further indemnity, and recorded the net incurred loss as $120. However, on June 26, 2015, Liberty Mutual filed a correction report that amended the net incurred losses reported on the first and second USRs to reflect the net incurred loss as $28,998, calculated as the $50,416 reserve on the second USR minus the $21,427.82 subrogation recoveries.
As previously stated, Valley’s argument before the Court was that Liberty should have reported on its June 26 report, the $120 ultimate net loss entered on June 24, 2015. As a result of Liberty’s failure to properly correct their unit statistical reports, Valley’s experience modification was set for two years, 0.04 points higher than it should have been, resulting in Valley paying unwarranted excess premium charges of $13,030.
The judge, however, in finding that was no discrepancy, noted that the NCCI Statistical Plan, states that correction reports filed following recovery due to subrogation must report the net incurred loss calculated as “the gross incurred loss minus the amount recovered less recovery expenses.” The Plan also states that correction reports, such as the one Liberty filed on June 26, 2015, “are not permissible” to report “[a]ny change in loss due to development from one report to the next.”
The judge thus found that, even though the subsequent USR’s were not part of the insurance contract, Liberty had properly corrected the prior reports, under the statistical Plan, to reflect the subrogation recovery received and had properly not adjusted the loss development related to its determination to close the case. Under the Plan, Liberty Mutual had to report the change in total loss due to their closing of the case on the next USR, which reflected the April 2016 value. Liberty Mutual’s next required USR complied with this requirement, listing the total loss as $120.
As a result, the judge found that Valley had failed to plead any breach of the policy based on Liberty Mutual’s reporting of the claim. Accordingly, the judge dismissed Valley’s breach of contract claim.
Unjust enrichment required that Liberty received a benefit from the alleged misreporting
In the prior AIG class action, the federal judge hearing the case had dismissed the insured’s breach of contract claim over the workers compensation statistical plan being part of the insurance contract. However, in that case, the judge refused to dismiss the unjust enrichment claim. The issue for that unjust enrichment claim was whether the plaintiff in the action had by paying excessive experience modifications for their workers’ compensation insurance benefited the insurers issuing the policies and that after being unjustly enriched, these insurers had refused to repay the unearned money.
In Valley’s case, however, there was a twist that the judge noted in her decision that invalidated Valley’s claim for unjust enrichment against Liberty.
Her decision pointed out that the policy Valley purchased from Liberty Mutual covered one year, ending in October 2013. It was undisputed that Valley did not renew its workers’ compensation policy with Liberty for the next years, where it paid an allegedly unfairly inflated experience modification premium. Thus, the additional experience modification charges that Valley allegedly paid because of Liberty’s failure to accurately report the incurred losses under the workers’ compensation claim in question did not accrue to Liberty but to another insurer.
Accordingly, the judge found: “Even if Liberty Mutual’s reporting was improper…any inflated premiums resulting from Liberty Mutual’s reporting…would have inured to the benefit of subsequent insurers and not to Liberty Mutual.” Thus, since Valley could not allege that Liberty received any benefit because of its purported improper reporting, Valley’s unjust enrichment claim was unsustainable as a matter of law, and the judge dismissed it.
The RICO civil claim dismissed for lack of specificity
Valley also asserted a claim against Liberty under the RICO act which makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity.”
In its civil RICO action, Valley had to establish that Liberty (1) conducted (2) its enterprise (3) through a pattern of racketeering activity, with “racketeering activity,” including, in this case, Valley’s allegations of wire and mail fraud.
Because of the nature of RICO violation claims, the law requires even at the pleading stage that plaintiffs, such as Valley, must plead “with particularity:”
1) a scheme to defraud by means of false pretenses.
2) the defendant’s knowing and willful participation in the scheme with the intent to defraud and,
3) the use of interstate wire communications or mail in furtherance of a fraudulent scheme.”
The Court found without much discussion that Valley’s allegations did not allege with particularity the claimed RICO violations.
The Court noted that Valley allegations did not satisfy this requirement because they did not state the time, place, or manner of “multiple related acts” that would constitute “racketeering activities.” The judge found that Valley identified only one communication with any particularity, the June 26, 2015 correction report that Valley claimed was erroneous. However, the judge found that this single allegation could sustain the RICO claim, in part, because she had already found that Liberty had not improperly filed this report.
The judge dismissed this third count based on its lack of specificity.
Valley’s unfair business practice claim under Chapter 93A against Liberty also fails
The final arguments on Liberty in its motion to dismiss applied to Valley’s unfair business practice claim under Massachusetts General Laws c. 93A.
Liberty asserted because Valley’s 93A allegations claimed that Liberty had engaged a fraudulent scheme, Valley’ claims required the complaint to detail specific facts. Valley argued that it had no obligation to satisfy this pleading requirement. It asserted that its 93A claim did not assert Liberty’s fraud, but rather, was “grounded in Liberty’s unfair business practices relating to its widespread and systemic reporting failures following its receipt of third-party recoveries.”
The judge, however, sided with Liberty stating Valley’s Chapter 93A claim was “substantially similar to those supporting Valley’s RICO claim, which is framed as a fraud-based claim.” Thus, the judge ruled that for the same reasons that applied to Valley’s RICO claim, “Valley’s Chapter 93A claim fails to meet the particularity standard for a claim based on fraud.”
Finally, the judge found Valley’s remaining contention that Liberty’s 93A violation flowed from its alleged breach of Valley’s workers’ compensation policy also failed.
First, as the judge had found, Valley had failed to adequately plead, much less establish, that Liberty’s reporting violated the NCCI Statistical Plan and, therefore, Valleys’ workers’ compensation policy. Also, under Massachusetts law, the judge noted a breach of contract standing alone “is insufficient in itself to constitute an unfair or deceptive trade practice under Chapter 93A.” Instead, for Valley to raise Liberty’s alleged breach of contract to a Chapter 93A violation, Valley, the judge asserted, had to show the contract breach was knowingly done and “intended to secure ‘unbargained-for benefits’ to the detriment of [Valley].
In this case, the judge reiterated that Valley had not shown a valid breach of contract claim, but, almost more importantly, for 93A purposes, had not pleaded any allegations about unbargained-for benefits received by Liberty Mutual as a result of its method of reporting of the Valley’s workers’ compensation policy claim. Thus, the judge dismissed the 93A count of Valley’s complaint.
Class claim motion to dismiss and final order
Liberty Mutual also filed a motion to dismiss the claims of Valley to represent a class of businesses insured under workers’ compensation policies with Liberty. However, the judge disposed of that motion as moot based upon her prior rulings stating:
Having granted Defendants’ motion to dismiss Valley’s underlying claims, it is unnecessary to address [Liberty’s] motion to dismiss the class claims as they are now moot.
The judge’s final conclusion was:
For the foregoing reasons, the Court ALLOWS Defendants’ motion to dismiss. (Emphasis in original).
Valley had thirty days to appeal the Court’s dismissal
Judge Denise J. Casper’s decision entered on the docket on June 17, 2020. Under the Federal Rules of Civil Appellate Procedure, Valley had thirty days to file a notice of appeal to the First Circuit Court of Appeals of Judge Casper’s allowance of Liberty’s motion to dismiss.
Based on Agency Checklists’ review of the docket in the Federal District Court for Valley’s lawsuit does not show any notice of appeal filed. Unless Valley filed by August 17, 2020, a motion to file a notice of appeal late, this case is over.
Owen Gallagher
Co-Founder/Publisher Agency Checklists
Owen is an experienced insurance litigator as well as a certified mediator and arbitrator who specializes in insurance industry disputes. His interest and affinity for insurance began at a young age working the counter at his father’s assigned risk agency in Roxbury.
Over the course of his career, Owen has argued a number of cases in the Massachusetts Supreme Judicial Court and has helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Interested in contacting Owen? Please use the email link below or leave him a comment.
