Massachusetts, as opposed to many states, allows insurance companies to pursue subrogation in the name of the insured rather than in the name of the insurance company.
This legal rule works to the benefit of the insurance company since verdict statistics show that insurance companies subrogating in their own name recover significantly less frequently than when suing in the name of their insured. The benefit for suing in the name of their insured, rather than in their own name, proves the wisdom of the rule that insurance normally should not be mentioned during a lawsuit to avoid prejudicing the jury.
Judgment against insurer reversed over judge instructing jury on subrogation
In a recent case involving a $4 million claim resulting from a homeowner insured’s home burning down, a judge sought to balance the interest of the parties by allowing information to the jury about the role of the insured as nominal plaintiff, George Antoniadis (“Mr. Antoniadis”), and his insurer, Amica Mutual Insurance Company (“Amica”), to avoid the jury being confused about Mr. Antoniadis’ actual involvement in the case.
After a five-day jury trial, the jury awarded the insurer nothing and returned a verdict for the defendant. However, the insurer appealed the case primarily on the evidence that the trial judge allowed in, permeating the case with information about insurance and the insurance company’s interest in the recovery, to the exclusion of the nominal plaintiff, Mr. Antoniadis.
The Appeals Court, in an instructive decision about the rationale and reasons for not allowing insurance into evidence, reversed the case, ordering a new trial for the insurer. The defendants have filed for further appellate review, asking the Supreme Judicial Court to set aside the Appeals Court ruling and reinstate the defense verdict that will end the case.
The bathroom renovation that became a complete renovation
Mr. Antoniadis owned a house in a well-to-do Boston suburb. In 2011, he decided to renovate a bathroom. Although the project started out small, it eventually morphed into a multi-year overall renovation of the entire house.
To assist in the design of the renovations, Mr. Antoniadis retained Walter Basnight and his company, Basnight, Buckingham & Partners (collectively, as “Basnight”) as his architect.
Basnight suggested various contractors, including a Leandro Machado. Mr. Machado, in turn, recommended Shine Star Painting as a company to use for refinishing the hardwood floors during the renovation.
Oil rags left in a bucket spontaneously combust causing a major fire
The renovation was almost ninety-five percent complete on May 31, 2012, when an employee of Shine Star was on-site by himself finishing up staining on the second floor of the house. Mr. Antoniadis happened to be on-site when the Shine Star employee left for the evening.
Sometime in the early hours of June 1, 2012, oily rags left in a bucket by the Shine Star employee spontaneously ignited and spread quickly. The home suffered substantial damage.
Mr. Antoniadis’ recovery of $4,351,727.46 from Amica’s homeowner’s policy
Mr. Antoniadis reported the claim to Amica and, because of the size and complexity of the claim, hired Basnight to help him with documenting the amount of his loss and negotiating the payment of that loss by Amica.
While negotiating his claim, Mr. Antoniadis argued that Amica owed him the typical mark-up paid to general contractors for construction costs since he had saved himself money by conducting the original project without a contractor. Amica ultimately agreed with Mr. Antoniadis and paid the markup demanded.
After protracted negotiations with Amica, Mr. Antoniadis ultimately received $4,351,727.46 for the fire loss to his home. These loss payments consisted of $3,831,618.94 for property damage to the home, $196,251.48 for the personal property loss, and $323,857.04 for additional living expenses.
The insurer’s subrogation suit against the contractors and the architect
Based upon its insurance agreement, Amica became subrogated to Mr. Antoniadis’ rights against any person who may have caused the loss through their negligence.
Initially, Amica filed a suit in its own name on March 27, 2013, in the Middlesex Superior Court as a subrogating insurer against Shine Star Painting and Mr. Machado’s company. The suit sought to recover the $4.3 million in insurance payments it had made to Mr. Antoniadis because of the fire.
When Amica deposed Mr. Machado about the project and the contractors involved, he testified that he thought the project’s general contractor was either Mr. Antoniadis or Basnight. As a result, Amica amended its complaint to add Basnight as a defendant. Amica alleged that Basnight had assumed a duty to supervise the work on the project and had negligently supervised Shine Painting and its employee.
Two years into the suit, on August 13, 2015, the Court allowed Amica’s request to substitute “Mr. Antoniadis” for Amica as the named plaintiff. The rules of court procedure in Massachusetts, as opposed to other states, provides that an “insurer who has paid all or part of a loss may sue in the name of the insured….”
By the time Amica’s lawsuit reached trial, the defendants other than Basnight had settled. These settlements reduced Amica’s claim against Basnight from $4,351,727.46 to $3,051,727.46.
Amica, in the name of its insured, Mr. Antoniadis, also filed a pretrial “motion in limine” to exclude evidence of insurance. The purpose of the motion was to avoid the jury being advised in any manner about Amica having paid the loss or that it was Amica and not Mr. Antoniadis that was seeking damages against Basnight.
The judge denied Amica’s request and stated instead: “I do not want [Mr. Antoniadis] on the stand with a multi-million-dollar loss and [to] allow the testimony to create the impression that he is out for the entire loss.” Also, after empaneling the jury to hear the case, the judge advised them that Amica had paid the insurance claim and that Amica “stands in the shoes of the homeowner [Mr. Antoniadis]…and can seek recovery from persons that they believe are responsible.”
The trial proceeded on Amica’s claim in the name of Mr. Antoniadis that Basnight had a duty to supervise the other contractors and that they had not provided any instructions to the Shine Star employee regarding the disposal of oil-soaked rags and that that amounted to negligent supervision.
The major issue was whether the defendant had a duty to supervise the other contractors. There was no signed agreement between Mr. Antoniadis and Basnight for supervisory services. However, Amica offered evidence that:
- Mr. Antoniadis expected Basnight to oversee the renovations.
- A building permit authorized Basnight to act on Mr. Antoniadis’s behalf with respect to the project.
- Basnight gave instructions to other contractors, processed invoices, and reported back to Mr. Antoniadis on the status of the project.
- Basnight billed for spending twenty to thirty hours per week on the project, much of that on-site performing an “on-site supervisory role,” according to Amica’s construction expert.
Insurance and subrogation evidence permeates the trial and ends with a defense verdict
The issue of insurance again became paramount during the trial when Amica called Mr. Antoniadis as a witness. When asked on cross-examination, “You do understand you’re the plaintiff here though, right?” he answered, “I was led to understand I wasn’t the plaintiff here.”
That colloquy led the trial judge to again instruct the jury that “After an insurance company pays out a claim, they’re permitted to stand in the shoes of the homeowner; and in this case, Mr. Antoniadis is the plaintiff, but I’ve already explained that’s because Amica stands in his shoes.”
In response to the judge’s clarification, however, Mr. Antoniadis asked in front of the jury: “So I am the plaintiff?” The Court answered: “Yes. And I’ll ask for the next question.”
Also, the trial judge allowed insurance evidence as to the money that Amica had paid Mr. Antoniadis “roughly $4 million,” and the statements made by Mr. Antoniadis to Amica while negotiating his insurance claim.
Basnight’s defense counsel also established that Mr. Antoniadis had taken the position with Amica that he did the work of a general contractor himself, and therefore was entitled to the “typical markup paid to general contractors.” The jury also heard that Amica ultimately paid Mr. Antoniadis the “typical general contractor markup on his claim.”
Finally, Basnight offered evidence that it was Mr. Antoniadis and not Basnight who had hired Shine Star for the job and that he was the last person to see the Shine Star employee working on the evening of the loss, May 31, 2012.
The jury trial spanned five trial days between May 28, 2019, and June 3, 2019. After closing arguments and the judge’s charge, the jury returned a verdict for Basnight and against Amica.
Amica moved for a new trial, and after the Court denied that motion, it filed an appeal to the Appeals Court.
Amica appeals for a new trial because the trial judge improperly allowed evidence of insurance
On appeal, Amica argued that it had been unfairly prejudiced by the introduction of the insurance at trial, including the fact that the judge had instructed the jury regarding subrogation. The defendants claimed it was a matter on which the judge could instruct the jury in his discretion because the defendants had needed to cross-examine him on his prior statements made to Amica that he did the work of a general contractor. Also, a reference to insurance was necessary for the jury to understand the damages being claimed in the name of Mr. Antoniadis.
Appeals Court restates the reasons why insurance evidence is inadmissible
Massachusetts does not allow evidence of insurance in trials as evidence of liability. Rule 411 of the Massachusetts Rules of Evidence states:
Evidence that a person or entity was or was not insured against liability is not admissible to prove whether the person or entity acted negligently or otherwise wrongfully. But the court may admit evidence of insurance for another purpose, such as proving a witness’s bias or prejudice or proving agency, ownership, or control
The Appeals Court noted that the usual case involves a tort action where the defendant is covered by insurance, and this rule prohibits the plaintiff from showing the defendant has insurance because such evidence “is not itself probative of any relevant proposition and is taken to lead to undeserved verdicts for plaintiffs and exaggerated awards, which jurors will readily load on baseless insurance companies supposedly paid for taking the risk.”
While stating this general rule, the Appeals Court noted that this case had a different twist. In this case, the question was how can a rule against introducing evidence of insurance be applied when the real party in interest is an insurance company, like Amica, that is seeking to recover subrogation from negligent third parties that caused it to make a loss payment money to its insured.
The Court noted that the Massachusetts Rules of Civil Procedure take care of this by specifically providing that:
“[A] n insurer who has paid out all or part of a loss may sue in the name of the [insured] to whose rights it is subrogated.”
The purpose of this provision is to avoid the prejudice that a named insurance company might bring to making the merits of the case be unjustly or unnecessarily swayed in favor of the defendant because there is some prejudice that a jury might harbor toward a plaintiff-insurance company.
The Court noted that even under the Rules of Evidence, there are times when information regarding insurance is probative of a specific issue. In that case, the Appeals Court stated a judge should “weigh the information’s probative value against its prejudicial effect.”
The Appeals Court Finds Prejudicial Error in Admitting the Evidence of Insurance
The Court noted that to reverse the jury’s defense verdict, it had to find that the judge made “a clear error of judgment in weighing the factors relevant to the decision to admit insurance,” and the decision they took fell “outside the range of reasonable alternatives.”
In this case, the trial judge had identified two specific issues upon which he had based his decision to admit evidence of insurance. They were:
- It appeared likely that the defendants “will seek to introduce relevant evidence of Mr. Antoniadis’ [s]tatements during negotiations with Amica.”
- Amica suing in the name of Mr. Antoniadis would prove damages through “documentation of its payments.”
The Appeals Court found both these reasons wanting.
In the first instance, the trial judge could have limited the defense counsel’s cross-examination on Mr. Antoniadis’ prior statements to Amica about his role as the general contractor, according to the Appeals Court. On other questions relating to the insurance claim, the trial judge could have restricted the questions to avoid revealing the fact that it was Amica to whom Mr. Antoniadis made these statements.
Secondly, on the claim documentation, the judge could have ordered, as is done in many cases, that the documents be redacted, blacked out in part to avoid references to Amica, as Amica’s counsel had requested during the trial.
Thus, the Appeals Court found that the judge’s statement to the jury at the outset that Amica had paid Mr. Antoniadis for his loss was “antithetical to the reason why a party’s insurance coverage is inadmissible as a general rule.” The general rule, as stated, is that this information is inadmissible to specifically avoid the possibility that the jury was “swayed by the fact that a deep pocket insurance company has paid or will pay for the loss.”
The Appeals Court concluded:
“In these circumstances, where the judge’s decision was not based on a valid evidentiary need but was instead based on a legally irrelevant concern that the jury would think Mr. Antoniadis was out for the entire loss, “we conclude the judge made a clear error of judgment in weighing the factors relevant to the decision, . . . such that the decision” to broadly allow matters of insurance to be introduced in evidence and otherwise referenced at trial fell “outside the range of reasonable alternatives.”
The Court also orders in any retrial the judge instruct the jury on the assumption of responsibility by Basnight.
Although the Court clearly would reverse based upon the insurance information, the appeal also dealt with Amica’s argument that the judge had improperly only allowed the jury to determine if there had been a “contractual meeting of the minds for the jury to find a duty to supervise.” However, the Appeals Court agreed with Amica that Massachusetts law does not require that a meeting of the minds be necessary to prove that someone voluntarily assumed a duty which they failed to discharge properly.
The Appeals Court agreed that the question of whether Basnight had voluntarily assumed a duty was material.
Amica had specifically argued to the jury in its opening statement that although there was no signed contract, Basnight was on the site a significant number of hours every week, giving instructions to other contractors, processing invoices, and reporting back to Mr. Antoniadis. That, per the building permit, Basnight was authorized to act on Mr. Antoniadis’ behalf, and this could have given rise to Mr. Antoniadis’ expectation that Basnight was overseeing the renovations.
The Appeals Court held that, if believed, this evidence could have allowed the jury to find that Basnight had voluntarily assumed the duty of supervising the contractors, and it was error for the judge not to charge the jury on this issue.
As a result, the Court determined Amica had been entitled to the requested instructions to the jury, and that failure, along with the introduction of insurance evidence that permeated the trial, required the reversal of the defense verdict for Basnight.
Court’s final order
The final order from the Appeals Court was:
“We vacate the judgment entered in the defendant’s favor and remand for a new trial.”
Basnight applies 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.
On February 25, 2021, Basnight filed an application for further appellate review. On March 11, 2021, Amica, under the name of its insured, Mr. Antoniadis, filed a response. Unless three of the Supreme Judicial Court’s justices decide that the case warrants further appellate review, that Court will not deny the application, and this case will be remanded to the Superior Court for a new trial.
Agency Checklists will update its readers on the results of this application, which should be decided within 30 to 60 days.
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.
To get in touch with me, email or schedule a call via the links below:
