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MHM Correctional Services, Inc., et al. v. Darwin Select Insurance Company, et al. (Lawyers Weekly No. 09-008-18)

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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss SUPERIOR COURT
CIVIL ACTION
NO. 2017-01825-BLS2
MHM CORRECTIONAL SERVICES, INC.,
CENTURION OF MINNESOTA, LLC, CENTURION OF MISSISSIPPI, LLC &
MASSACHUSETTS PARTNERSHIP FOR CORRECTIONAL HEALTHCARE, LLC,
Plaintiffs
vs.
DARWIN SELECT INSURANCE COMPANY N/K/A
ALLIED WORLD SURPLUS LINES INSURANCE COMPANY &
ALLIED WORLD ASSURANCE COMPANY,
Defendants
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANTS’ MOTION TO DISMISS
This case concerns six separate claims for coverage brought by insureds against their insurers. The plaintiffs are MHM Correctional Services, Inc. (MHM), Centurion of Mississippi, LLC (Centurion-MS), Centurion of Minnesota, LLC (Centurion-MN), and Massachusetts Partnership for Correctional Healthcare, LLC (MPCH), each of which provides healthcare services to inmates housed in state prison facilities. Plaintiffs have been sued or are the subjects of indemnification demands in connection with six class action lawsuits alleging that the health care rendered to inmates in those facilities is so inadequate as to violate their constitutional rights. In the instant case, plaintiffs seek declaratory and injunctive relief as to the coverage obligations of the defendants Darwin Select Insurance Company n/k/a Allied World Surplus Lines Insurance Company (Darwin) and Allied World Assurance Company (Allied World) in relation to these six lawsuits. Defendants now move to dismiss, relying on the language of the underlying policies, all of which are before the Court. In the event that this Court does not
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dismiss certain counts, the defendants ask this Court to stay the proceedings. For the reasons that follow, the Motion to Dismiss is Denied.
BACKGROUND
Plaintiffs have contracts with various Departments of Corrections (DOCs) throughout the United States to provide medical and mental healthcare services to their prisoner populations. MHM provides mental healthcare services for the Alabama DOC (ADOC). Centurion-MS provides medical and mental healthcare services for the Mississippi DOC (MSDOC). Centurion-MN provides medical and mental healthcare services for the Minnesota DOC (MNDOC). MPCH provides medical and mental healthcare services for the Massachusetts DOC (MADOC).
These DOCs are currently defendants in six federal class action lawsuits filed between 2010 and 2015 on behalf of incarcerated individuals. Those lawsuits are: Dunn v. Thomas (Dunn), No. 2:14-cv-00601-MHT-TFM; DePriest v. Walnut Grove Correctional Authority (DePriest), No. 3:10-cv-663 DPJ-FKB; Dockery v. Epps (Dockery), No. 3:13-cv-326-TSL-JMR; Ligons v. Minnesota Department of Corrections (Ligons), No. 15-cv-2210, PJT/BT; Paszko v. O’Brien (Paszko), No. 1:15-cv-12298-NMG; and Briggs v. Massachusetts Department of Corrections (Briggs), No. 1:15-cv-40162-GAO. Each of these lawsuits seeks injunctive and declaratory relief as well as attorney’s fees.
Both the MNDOC and Centurion-MN are defendants in Ligons. Both the MADOC and MPCH are defendants in Paszko and Briggs. The ADOC is a defendant in Dunn and the MSDOC is a defendant in DePriest and Dockery. MHM and Centurion-MS are not named defendants in Dunn, DePriest, or Dockery. However, pursuant to indemnification provisions in their service contracts with these DOCs, MHM and Centurion-MS have agreed to defend and indemnify them for losses arising from the lawsuits.
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The language of these indemnification provisions is relevant to the issues before the Court. The indemnification provision in the ADOC’s agreement with MHM (the ADOC Contract) provides that:
MHM will indemnify and hold harmless . . . the ADOC . . . from and against all claims, losses, or costs arising out of MHM’s negligence, gross negligence, wantonness, deliberate indifference, or criminal negligence, or from willful disregard of proper or lawful written instructions from the Commissioner of the ADOC and Associate Commissioner of Health Services. . . .
MHM will indemnify and hold harmless . . . the ADOC . . . from and against any and all loss or damage, including court costs and attorney fees, for liability claimed against or imposed upon the ADOC because of bodily injury, death, or property damage, real or personal, including the loss or the use thereof, arising out of or as a consequence of the breach of any duty or obligation of MHM included in this Agreement, negligent acts, errors or omissions, including engineering and/or professional error, fault or mistake, or negligence of MHM . . . . MHM’s obligation, under this Section, will not extend to any liability caused by the negligence of ADOC. . . .
ADOC Contract at § 10.3. In other words, the indemnification obligation extends only to those losses that arise out of MHM’s negligence or breach of its duties. The indemnification provision in the MSDOC’s agreement with Centurion-MS (MSDOC Contract) provides that:
To the fullest extent allowed by law, Centurion shall indemnify, defend, save and hold harmless, protect, and exonerate the [MSDOC] . . . from and against all claims, demands, liabilities, suits, actions, damages, losses, and costs of every kind and nature whatsoever, including without limitation, judgments, court costs, investigative fees and expenses, and attorney’s fees, arising out of or caused by Centurion . . . in the performance of or failure to perform this Agreement. . . . Centurion’s obligations, duties, and responsibilities under this section include, but are not limited to, the duty to defend and indemnify [MSDOC] . . . in [DePriest and Dockery].
MSDOC Contract at § 10.1. Centurion-MS entered the MSDOC Contract on July 1, 2015, several years after DePriest and Dockery were initiated, and the MSDOC tendered DePriest and Dockery pursuant to Section 10.1 on the same day. However, Centurion-MS specifically
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disclaimed any obligations to defend and indemnify the MSDOC for any actions that occurred prior to July 1, 2015, when there was no contractual relationship between the two. Section 10.1 also arguably limits liability to Centurion-MS’s failure to perform its own obligations and duties. Thus, like the indemnification provision in the ADOC Contract, the indemnification provision in the MSDOC Contract would appear to be limited to those losses arising out of acts and omissions of Centurion-MS and not for those acts or omissions of a third party.
From 2013 through 2016, plaintiffs were insured by primary Locum Tenens and Contract Staffing Professional Liability Insurance Policies issued by Evanston Insurance Company (Evanston). Evanston has declined to provide coverage in connection with Dunn, DePriest, Dockery, and Briggs. It has provided a partial defense in connection with Ligons under a reservation of rights. Plaintiffs have filed a separate coverage action in Illinois state court against Evanston regarding coverage for the class action lawsuits. The Illinois action remains pending.
In addition to the coverage provided by Evanston, plaintiffs were also insured for the years 2013 through 2016 by several Healthcare Excess and Umbrella Liability Insurance Policies issued by Darwin and Allied World to MHM Health Professionals, Inc. and MHM Services, Inc., two entities affiliated with plaintiffs but not themselves parties to this action. For each policy year, MHM Health Professionals and MHM Services were issued separate and identical policies. Plaintiff MHM is an insured under 2013 and 2014 Darwin Policies and a 2015 Allied World Policy issued to MHM Services. Plaintiffs MPCH and Centurion-MN are insureds under a 2014 Darwin Policy and a 2015 Allied World Policy issued to MHM Health Professionals. Plaintiff Centurion-MS is insured under the 2015 Allied World MHM Health Professionals Policy. After
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Evanston largely denied coverage in connection with the six class action lawsuits, plaintiffs sought coverage under these Policies. Defendants, however, declined to provide it.
Each of the Policies at issue in this case contains two “Insuring Agreements,” described as “Insuring Agreement I.A” and “Insuring Agreement I.B.” Insurance Agreement I.A provides Umbrella “Claims Made” Professional Liability coverage; Insuring Agreement I.B provides Umbrella “Occurrence Based” General Liability coverage. With regard to Insuring Agreement I.A, the Policies provide, in relevant part, that:
The Insurer will pay on behalf of the Insured . . . Loss and Defense Expenses. . . which the Insured becomes legally obligated to pay as a result of a Claim alleging a Medical Professional Incident, provided always that: 1. such a Claim is first made against the Insured during the Policy Period . . . ; and 2. notice of such Claim is given to the Insurer in accordance with . . . this Policy….
(Boldface in original). With regard to Insurance Agreement I.B, the Policies provide, in relevant part, that:
The Insurer will pay on behalf of the Insured . . . Loss and Defense Expenses. . . which the Insured becomes legally obligated to pay as a result of a Claim alleging Bodily Injury, Property Damage, or Personal or Advertising Injury caused by an Occurrence, provided always that: 1. such Bodily Injury, Property Damage, or Personal or Advertising Injury occurs during the Policy Period . . . ; and 2. notice of such Claim is given to the Insurer in accordance with . . . this Policy….
(Boldface in original). The relevant terms and conditions of the Policies are in most respects the same. To the extent there are differences, those differences will be discussed below.
DISCUSSION
The claims for which plaintiffs seek coverage fall into two categories. First, MHM and Centurion-MS seek coverage from defendants for the contractual indemnification demands made by the ADOC and MSDOC in connection with Dunn, DePriest, and Dockery. As noted above, neither MHM nor Centurion-MS are named as defendants in those actions. Second, Centurion-MN and MPCH seek a declaration that the defendants have both a duty to defend and indemnify
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them in connection with Ligons, Paszko and Briggs. Centurion-MN and MPCH are named defendants in the underlying complaints in those three cases. As to both categories, plaintiffs maintain they are entitled to coverage under both Insuring Agreement I.A and Insuring Agreement I.B. This Court concludes the Complaint survives the defendants’ Motion to Dismiss under Insuring Agreement I.A. It concludes that there is no coverage for any of the class actions under Insuring Agreement I.B.
A. Insuring Agreement I.A
1. ADOC and MSDOC Indemnification Demands for Dunn, DePriest, and Dockery
MHM seeks coverage under Insuring Agreement I.A of the 2013 Darwin MHM Services Policy (the 2013 Darwin Policy) for its contractual obligation to indemnify ADOC in the Dunn lawsuit. Centurion-MS seeks coverage under Insuring Agreement I.A of the 2015 Allied World MHM Health Professionals Policy (the Allied World Policy) for its contractual indemnification obligations to MSDOC, named as a defendant in DePriest and Dockery. The Court concludes that, based on the documents before me now, MHM and Centurion-MS would appear to be entitled to coverage under Insuring Agreement I.A of these Policies, provided that MHM and Centurion-MS indemnify the DOCs (and seek coverage for that indemnification) only as to losses that arose from their own conduct.1
In support of their motion to dismiss, defendants argue that they are entitled to deny coverage as to the underlying class action complaints because neither MHM nor Centurion-MS has been named as a defendant in those actions and therefore no “Claim” has been made against an insured so as to trigger coverage for those lawsuits. That does not dispose of the issue,
1 It is important to note that these issues are raised by way of a motion to dismiss. The underlying lawsuits remain pending and the indemnification obligations have not been finally decided. This Court therefore makes no final determination in favor of plaintiffs as to coverage. Rather, the only question before the Court at this point is whether the plaintiffs have stated a claim upon which relief may be granted.
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however. The question is rather whether the indemnification demands made against MHM and Centurion-MS as a result of those lawsuits constitute a “Claim” within the meaning of the policies and whether such a claim is covered.
The indemnification demands seek to recoup from MHM and Centurion-MS costs and expenses the DOCs incur as a result of any finding of liability against them in the class action lawsuits and that can be shifted to MHM and Centurion under their service contracts. As to whether that is covered, the applicable policies require the insurer to pay, on behalf of the insured, any “Losses or Defense Expenses” which the insured becomes legally obligated to pay “as a result of a Claim alleging a Medical Professional Incident….” A “Medical Professional Incident” means, among other things, “an actual or alleged act, error, or omission in the Insured’s rendering of or failure to render Medical Professional Services.” (Boldface in original). Dunn, DePriest and Dockery all allege a failure to render adequate medical care to inmates – medical care which MHM and Centurion-MS agreed to provide pursuant to their contracts with the DOCs. In demanding indemnification, the DOCs are seeking to shift liability to MHM and Centurion-MS for costs and expenses incurred by any determination in those lawsuits that inmate medical care was inadequate. As the Court construes the contractual indemnification provisions that form the basis for that demand, the DOCs will be able to shift those costs (and Centurion-MS and MHM are seeking coverage for) only those losses that arose from MHM’s or Centurion-MS’s acts or omissions in rendering inadequate medical services. In other words, it will be for losses incurred as a result of an “act, error or omission in the Insured’s rendering of or failure to render Medical Professional Services.” Accordingly, the indemnification demand would be a “Claim” that triggers coverage.
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Defendants argue that the indemnification provisions are broader than that, however, and allow the DOCs to shift costs for acts or omissions in which the plaintiff insureds played no part. This Court disagrees. As to the ADOC Contract, MHM’s indemnity obligation extends only to losses incurred by the ADOC “arising out of or as a consequence of the breach of any duty or obligation of MHM … including negligent acts, errors or omissions” on MHM’s part. Similarly, the MSDOC Contract permits the MSDOC to seek reimbursement from Centurion-MS for any costs or expenses “arising out of or caused by Centurion . . . in the performance of or failure to perform this Agreement.” Although that contract was entered into after the DePriest and Dockery lawsuits began, Centurion-MS has specifically disclaimed any obligation to defend and indemnify the MSDOC for any actions that occurred prior to July 1, 2015, when there was no contractual relationship between Centurion-MS and MSDOC. In any event, the question before the Court at this juncture in the case is whether the plaintiffs have stated a claim for coverage. If it turns out that the DOCs seek to be indemnified for costs that arise out of acts and omissions by other entities (and a court determines that the DOC is entitled to do that), then the defendants might well be correct to deny coverage. To assume that would occur, however, would be premature, particularly where the contractual indemnification provisions at issue could be more narrowly construed, and (as this Court understands it) plaintiffs are not seeking coverage for costs and expenses which are attributable to the acts or omissions of others.
Defendants next contend that coverage for the indemnification demands are excluded under the Policies’ contractual liability exclusion. The contractual liability exclusion provides that:
This Policy shall not apply to any Claim based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving . . . any Bodily Injury, Property Damage, Personal or Advertising Injury, or a Medical Professional Incident for which the Insured is legally obligated to pay damages
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by reason of the assumption of liability of another in any Express Contract or Agreement.
(Boldface in original). There are two exceptions to the exclusion. First, it does not apply to liability for damages “that the Insured would have in the absence of the contract or agreement.” (Boldface in original) (Exception A). Second, the contractual liability exclusion does not apply to liabilities “assumed in a contract or agreement that is an Insured Contract, provided the Bodily Injury or Property Damage occurs subsequent to the execution of such contract or agreement.” (Boldface in original) (Exception B). This Court concludes that the indemnification demands arguably fall within Exception A, so that the contract exclusion provision would not apply.
The allegations in the underlying complaints suggest that, as the entities that carried out the DOCs’ healthcare-related policies, MHM and Centurion-MS played a role in the alleged failures to deliver adequate care. Moreover (as already noted above) the contractual indemnification provisions can be construed to permit a shifting of costs and expenses only as to MHM’s and Centurion-MS’s own failure to provide the medical care that they promised to the DOCs pursuant to their contracts. Thus, the demands concern conduct for which MHM and Centurion-MS could be liable even absent the indemnification provisions, and therefore fall within Exception A. In short, these claims for coverage are not so clearly outside the scope of the relevant policies as to be subject to dismissal at this stage of the case.
2. Ligons, Paszko, and Briggs
In connection with these three cases, plaintiffs seek coverage not based on an indemnification demand but because they are themselves named as defendants in the underlying complaints. Specifically, Centurion-MN seeks coverage for Ligons under the 2014 Darwin MHM Health Professionals Policy (the 2014 Darwin Policy). MPCH seeks coverage for Paszko
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under that same policy and as to Briggs, under the 2015 Allied World MHM Health Professionals Policy (the Allied World Policy). Defendants make three arguments as to why plaintiffs’ coverage claims have no merit and must be dismissed. First, they contend that MPCH and Centurion-MN did not provide them with timely notice in connection with either the Paszko or Ligons litigation. Under the 2014 Darwin Policy, “prompt” notice is required. Second, the defendants argue that MPCH cannot make a claim for coverage under the Allied World Policy as to the Briggs lawsuit because the claim was not “first made” under that policy. Third, the defendants assert that they are not required to provide coverage to MPCH or Centurion-MN under either the 2014 Darwin Policy or under the Allied World Policy because the underlying complaints in Paszko and Briggs request only declaratory and injunctive relief, which is not a covered “Loss.” This Court will discuss each of these arguments in turn.
As to the notice issue, this Court must decide as an initial matter whether to apply Massachusetts or Virginia law, since there is a material difference between those two states on this issue. Under Massachusetts law, an insurer can prevail on a defense of late notice only if it proves both that the late notice was in breach of the policy’s notice provision and that the breach resulted in actual prejudice. Johnson Controls, Inc. v. Bowes, 381 Mass. 278, 282 (1980); Darcy v. Hartford Ins. Co., 407 Mass. 481, 485 (1990). Under Virginia law, however prejudice to the insurer is only a factor that a court should consider; it is not in and of itself determinative. State Farm Fire and Cas. Co. v. Wallace, 997 F. Supp. 2d 439, 446-447 (W.D. Va. 2014).2 That is, an insurer may deny coverage even in the absence of actual prejudice.
2 Plaintiffs suggest that there is potentially no conflict between Massachusetts and Virginia law because Virginia law has yet to determine whether this rule applies to excess carriers. Plaintiffs emphasize that the Virginia cases on this issue all involve primary insurance policies. However, this Court fails to see why defendants should be treated any differently than the primary insurer, especially since plaintiffs are seeking coverage under the applicable policies under a theory that they should “drop down” to provide a defense of these actions. In other words, plaintiffs are asking that the defendants effectively assume the primary insurer’s obligations.
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In determining which law is applicable, the Court looks to the conflict-of-law rules of the forum state – here, Massachusetts. OneBeacon America Ins. Co. v. Narragansett Elec. Co. (OneBeacon), 90 Mass. App. Ct. 123, 125 (2016). Massachusetts applies a functional choice-of-law analysis, guided by the Restatement (Second) of Conflict of Laws (Restatement). Id. In insurance cases, the first step is to ascertain whether Section 193 of the Restatement will resolve the matter. Clarendon Nat’l Ins. Co. v. Arbella Mut. Ins. Co. (Clarendon), 60 Mass. App. Ct. 492, 496 (2004). Under Section 193, “the rights created by a contract of casualty insurance are to be determined by the local law of the State that the parties to the insurance contract understood would be the principal location of the insured risk during the term of the policy, unless some other State has a more significant relationship under the principles of § 6.” Id. The insured risk will typically be located in the state where the policyholder is domiciled. OneBeacon, 90 Mass. App. Ct. at 125. Where the principal location of the risk cannot be ascertained, the next step is to apply Section 188 of the Restatement. Clarendon, 60 Mass. App. Ct. at 496. Under Section 188, “the rights and duties of the parties, with respect to a contract issue, [are to] be determined by the local law of the State which, as to that issue, has the most significant relationship to the transaction and to the parties under the principles of § 6.” Id. at 497.3 In applying Sections 193 and 188, the Court looks to the circumstances surrounding the procurement and issuance of the policy, not the circumstances that prompted the claim for which coverage is sought. See OneBeacon, 90 Mass. App. Ct. at 126-127.
3 Section 6(2) of the Restatement provides seven factors relevant to the choice of applicable law: “(a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested [S]tates and the relative interests of those [S]tates in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied.”
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In the present case, the Court cannot locate the principal location of the insured risk in one state because the relevant policies cover multiple insureds that provide services to prisons in multiple states. See Restatement §193, Comment b, para. Third (noting that the location of the insured risk cannot be determined “where the policy covers a group of risks that are scattered throughout two or more states.”). Accordingly, this Court looks to the law of that state which has the most significant relationship to the notice issue, which is Virginia. The policyholders (MHM Services and MHM Health Professionals) have their principal place of business in that state and the policies were delivered there. See W.R. Grace Co. v. Hartford Accident & Indem. Co., 407 Mass. 572, 585-586 (1990) (holding that New York law governed coverage of nationwide asbestos claims, where most of the policies were negotiated in New York and the insured, which had multistate operations, was incorporated and domiciled in New York); General Elec. Co. v. Lines, 2008 Mass. Super. LEXIS 284 (Mass. Super. July 10, 2008) (Gants, J.) at *6-*13 (applying law of insured’s domicile to late notice issue arising out of more than a hundred different environmental claims nationwide in scope). The Court is also mindful of the fact that in the Evanston coverage litigation, plaintiffs have taken the position that, if a conflict of law arose, Virginia law would control. See MHM Insureds’ Memorandum of Law in Support of Their Re-Filed Motion for Summary Judgment on the Duty to Defend and Indemnify at 9, n.4.
Under Virginia law, untimely notice constitutes a breach of the policy only if the failure to notify is substantial and material. Wallace, 997 F. Supp. 2d at 446. “Three factors bear upon the materiality of a breach of the notice provision of a policy: (1) the reasonableness of the delayed notice, (2) the amount of prejudice suffered by the insurer as a result of the delay, and (3) the length of time that elapsed before notice was given.” Id. at 447 (internal quotes omitted). In evaluating the reasonableness of the delayed notice, the Court applies “an objective standard,
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requiring that an insurer be notified whenever it should reasonably appear to the insured that the policy may be implicated.” Penn-America Ins. Co. v. Mapp, 461 F. Supp. 2d 442, 453 (E.D. Va. 2006). In most cases, the reasonableness of the delay is an issue to be resolved by a fact finder. Wallace, 997 F. Supp. 2d at 447.
Defendants contend that the failure to notify was substantial and material because Paszko was reported to the defendants approximately ten months after the action was filed and Ligons was reported almost twelve months after the action was filed. However, defendants do not assert that they suffered any prejudice as a result of the delay and plaintiffs may be able to show that any delay was reasonable. In particular, plaintiffs maintain that the delay can be explained because they reasonably believed that Evanston would provide a complete defense for these actions and that Evanston would notify the defendants of the lawsuits. This argument could have merit. See Munchenbach v. Nationwide Mut. Fire Ins. Co., 2007 WL 6002108 at *5 (Va. Cir. Feb. 13, 2007) (“If there is a reasonable explanation for the insured’s delay in notifying the insurance company, the insured is not barred from a recovery because of the delay.”); Mount Vernon Realty, Inc. v. St. Paul Ins. Co., 1990 WL 10039273 at *1 (Va. Cir. Mar. 26, 1990) (“Prompt notice under an insurance contract means notice within a reasonable time, and compliance is measured by reference to the facts and circumstances.”). At the very least, this fact-specific determination requires the development of an evidentiary record and cannot be decided on a motion to dismiss.
The defendants’ second argument relates only to Briggs and raises the question of when the claim was “first made.” The Briggs lawsuit was filed on November 24, 2015 and MPCH provided notice of that action to the defendants on April 20, 2016. Both dates are within the period covered by the Allied World policy, which runs from July 1, 2015 to July 1, 2016.
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Defendants, however, argue that the claim was first made on March 20, 2015 – before the Allied World Policy took effect. On that date, the MPCH and the MADOC received a letter from Prisoners’ Legal Services (PLS) accusing them of mistreating or inadequately treating deaf and hard of hearing prisoners in violation of their constitutional and statutory rights. This Court concludes that the PLS letter cannot constitute a “Claim” within the meaning of the Policy.
A Claim is defined under the Allied World Policy as “a written notice received by an Insured that a person or entity intends to hold an Insured responsible for a Medical Professional Incident.” (Boldface in original). The PLS letter came from a prisoners’ advocacy group, which on its own has no standing to bring a lawsuit against MPCH. Without standing, there was no legal mechanism for PLS to hold MPCH “responsible for a Medical Professional Incident.” Moreover, the letter did not state that any prisoners intended to file a lawsuit. Rather, it urged the MADOC and MPCH to take remedial measures and to contact PLS to “discuss a resolution to this matter.” In short, that MPCH received this letter and did not notify defendants of it does not bar its claim for coverage under Allied World Policy.4
Turning to the defendants’ final argument that the complaints in Paszko and Briggs do not involve a “Loss” within the meaning of the Policies, this Court looks to the policy language. Neither one of these lawsuits seeks compensatory damages. They do, however, seek injunctive and equitable relief that will likely require the expenditure of funds if a court determines that the medical care provided to inmates was indeed deficient. They also seek an award of attorney’s fees. Both the 2014 Darwin Policy and the 2015 Allied World Policy define Loss as “any monetary amount paid on account of an award, judgment or settlement which the Insured is
4 Plaintiffs argue in the alternative that if the letter were a “Claim,” then MPCH can seek coverage under the 2014 Darwin Policy. Because this Court agrees with the plaintiffs that the PLS letter is not a Claim, this alternative avenue of coverage is not available to MPCH in connection with the Briggs litigation.
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legally obligated to pay as a result of a Claim.” (Boldface in original). Each of the Policies expressly states that certain things are excluded from this definition and therefore do not constitute a “Loss.” The Policies differ, however, as to what is excluded.
Under the 2014 Darwin Policy, “non-monetary relief or redress in any form other than monetary compensation or damages, including, but not limited to, injunctive, declaratory and administrative relief” does not constitute a “Loss” and therefore is not covered. In other words, non-monetary relief is not a covered Loss. Although that is stated to include injunctive relief, this Policy language does not expressly exclude monetary costs associated with such relief. Keeping in mind that exclusions from coverage must be strictly construed, this Court concludes that this exclusion would not prevent coverage for expenditures that plaintiffs would be required to make to comply with any equitable relief that is ordered. Both Ligons and Paszko seek an injunction ordering defendants to implement and adhere to a comprehensive treatment protocol with regard to prisoners who are infected with the Hepatitis C virus. Because this will likely require the expenditure of money, this Court concludes that Centurion-MN and MPCH’s claims for coverage under the 2014 Darwin Policy in connection with these two lawsuits state a claim upon which relief may be granted.
The exclusion in the 2015 Allied World Policy is broader and makes clear what the 2014 Darwin Policy did not. That is, it does not provide coverage for “non-monetary relief or redress in any form other than monetary compensation or damages, including but not limited to the costs to comply with an order granting injunctive, declaratory, or administrative relief.” (Emphasis added). 5 Thus, there is no coverage obligation with respect to any out-of-pocket expenditures in
5 That this language was included in the Allied World Policy supports this Court’s conclusion that the 2014 Darwin Policy does cover costs associated with injunctive relief. That is, had the parties intended to exclude those costs, they clearly knew how to do that.
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the Briggs litigation that are incurred by MPCH as a result of its compliance with any equitable order. However, the Briggs lawsuit also seeks attorney’s fees, and those costs are arguably covered.
In contending that such costs are not covered, defendants rely on a policy provision which excludes “Defense Expenses” from the definition of Loss so that these expenses are not covered. The Allied World Policy defines Defense Expenses, however, as “reasonable fees, costs and expenses incurred by or on behalf of the Insured in connection with the defense of a Claim.” (Boldface in original, underline added). An award of attorney fees whereby the insured (here MPCH) is required to pay the inmate plaintiffs’ attorney’s fees is therefore not a “Defense Expense.” As to whether attorney’s fees are covered, the Allied World Policy (like the other policies) provide coverage if it is for “Losses or Defense Expenses” which the insured becomes legally obligated to pay “as a result of a Claim alleging a Medical Professional Incident.” Plaintiffs in the Briggs litigation ask the court to require MPCH to pay their attorney’s fees (as required by statute for constitutional violations). This is therefore a claim that seeks monetary compensation. If the Court then ordered MPCH to pay those fees as a result of its failure to provide adequate medical care, then that would fall within the definition of a Loss as defined by the Policy. See UnitedHealth Group Inc. v. Hiscox Dedicated Corp. Member Ltd., 2010 WL 550991 at *10-*11 (D. Minn. Feb. 9, 2010) (applying similar policy language, court concluded that attorney’s fees awarded against the insured in underlying litigation come within insurer’s coverage obligations).
B. Insuring Agreement I.B
Plaintiffs alternatively maintain that they are entitled to coverage under Insuring Agreement I.B because the indemnification demands and the complaints in Paszko, Ligons, and
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Briggs allege “Bodily Injury.” This Court disagrees. Under the Policies, Bodily Injury means “physical injury, sickness or disease sustained by a person other than a Patient, including mental anguish, emotional distress or death resulting therefrom.” (Boldface in original, underline added). Patient, in turn, means “any persons or human bodies admitted or registered to receive Medical Professional Services from an Insured, whether on an inpatient, outpatient or emergency basis.” (Boldface in original). In each of the underlying actions, the prisoner plaintiffs allege that they did not receive adequate medical and/or mental health services. The complaints also allege – either explicitly or implicitly – that plaintiffs were complicit in that failure. The services the prisoner-plaintiffs claimed they should have received were those that plaintiffs were contractually obligated to provide them. Thus, the prisoners-plaintiffs are properly viewed as plaintiffs’ Patients. Accordingly, there is no coverage under Insuring Agreement I.B.
That there is no coverage is made clearer when Insuring Agreements I.A and I.B are read together. Insuring Agreement I.A provides coverage for a Medical Professional Incident, which is defined as, “an actual or alleged act, error, or omission” connected to the “rendering of or failure to render” Medical Professional Services. (Emphasis added). Thus, it envisions coverage for situations where individuals do not receive any medical care. Insuring Agreement I.B is intended to provide coverage for conduct that lies entirely outside the provision of medical care. The underlying lawsuits (and the indemnification demands that arise from them) stem from the failure to render proper medical care. Any coverage obligations would therefore fall under Insuring Agreement I.A.
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CONCLUSION AND ORDER
For the forgoing reasons, Defendants’ Motion to Dismiss is DENIED in that plaintiffs have stated a claim for coverage under Insuring Agreement I.A, at least with respect to some portion of the monetary losses they could incur as a result of the six class action lawsuits. This matter is scheduled for a Rule 16 conference on January ___, 2018 at 2:00 p.m. at which time the defendants can (if they choose) raise the issue of whether this litigation should be stayed pending resolution of the Evanston action.
________________________
Janet L. Sanders
Justice of the Superior Court
Dated: January 8, 2018 read more

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The Hanover Insurance Group Inc. v. Raw Seafoods, Inc. (Lawyers Weekly No. 09-011-18)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss SUPERIOR COURT
CIVIL ACTION
NO. 12-03503-BLS2
THE HANOVER INSURANCE GROUP INC.,
Plaintiff
vs.
RAW SEAFOODS, INC.,
Defendant
MEMORANDUM OF DECISION AND ORDER
ON DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT
This case concerns a dispute over coverage between an insured and its insurer. Defendant Raw Seafoods, Inc. (RSI) is a seafood processor. In 2012, an RSI customer, Atlantic Capes Fisheries, Inc. (Atlantic), filed an action in federal court alleging that RSI’s negligent processing of its scallops resulted in their premature spoilage. RSI’s insurer, plaintiff Hanover Insurance Group, Inc. (Hanover), agreed to defend RSI under a reservation of rights and then filed the present action, seeking a declaration that it had no duty to indemnify RSI for any judgment Atlantic obtained. After the federal court judge granted summary judgment in favor of Atlantic and entered judgment against RSI, the parties filed cross motions for partial summary judgment in the instant action. This Court (Roach, J.) granted summary judgment in favor of Hanover but the Appeals Court reversed. 91 Mass.App.Ct. 401 (2017). RSI now renews it Motion for Partial Summary Judgment. For the reasons that follow, the Motion is Allowed.
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BACKGROUND
RSI is a seafood processing facility in Fall River. Atlantic, a seafood company that sells scallops and other seafood, regularly uses RSI to apportion, pack, and freeze the fresh scallops that it purchases from fishing vessels. Upon delivery of Atlantic’s scallops, RSI staff inspects the scallops for quality, reports the results to Atlantic, and receives processing instructions. After processing, the scallops are transported to a third-party cold storage facility, Arctic Cold Storage (Arctic), from which Atlantic ships its customers’ orders.
In July 2011, a batch of scallops that RSI had processed made their way through customs in Denmark where it was observed that the scallops were decomposed and emitting a strong smell of ammonia. They were deemed unacceptable for human consumption and sent back to the United States. Once in the United States, the Food and Drug Administration tested the batch and confirmed that it was spoiled. The batch of scallops was then returned to Arctic’s facility, where representatives from Atlantic and RSI jointly inspected the shipment and again confirmed the damage. They also inspected another batch of scallops processed by RSI around the same time as the rejected batch, and discovered more damaged scallops.
At the time, Hanover insured RSI through a Commercial General Liability (CGL) Policy. The Policy provides in relevant part that Hanover “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The Policy applies to “property damage” that is caused by an “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Policy contains several exclusions as well as a “special broadening endorsement,” which modifies the scope of certain exclusions.
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In June 2012, Atlantic sued RSI in the United States District Court for the District of Massachusetts, alleging that the damage to the scallops was caused by RSI’s negligence. Hanover agreed to defend RSI under a reservation of rights. Shortly thereafter, Hanover filed the present lawsuit, seeking a declaratory judgment that either the damage to the scallops was not caused by an “occurrence” within the meaning of the Policy, or that certain Policy exclusions applied, such that it had no duty to indemnify RSI for any judgment Atlantic obtained. RSI asserted counterclaims for breach of contract and violations of G.L. cc. 93A and 176D, and further alleged that it was entitled to a declaration that the damage was covered. Upon motion by RSI, the Court stayed discovery pending resolution of the federal litigation.
While the stay was in place, discovery proceeded in the federal action. In deposition testimony, the president of RSI, Jason Hutchens, conceded that the scallops were delivered to RSI in good condition, but that “somewhere in [RSI’s] system, the product got messed up.” Hutchens testified: “[I]n almost the seventeen years we’ve been doing this, we’ve never seen anything like this before . . . we beat our heads against the wall for, it seemed like months, trying to figure this out. We have never seen anything like it and have not seen anything after this problem. But we can’t put our hands around it, how it happened and why it happened . . . we don’t know.” Hutchens agreed, however, that the damage occurred while the scallops were in RSI’s custody and was “the result of some, as yet, unknown failure on the part of [RSI’s] processing people or handling people within [RSI’s] plant.” The precise cause of the damage remains unknown.
In June 2014, Atlantic moved for summary judgment in the federal action, relying on the doctrine of res ipsa loquitur. Atlantic argued that the undisputed facts showed that it had delivered the scallops to RSI in good condition, that RSI had exclusive control over the scallops
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until they were delivered to Arctic in a frozen state, and that nothing occurred after that delivery that would have caused the damage. Agreeing with this reasoning, the federal court allowed Atlantic’s motion.
After judgment entered against RSI, the parties in the instant case filed cross motions for partial summary judgment on the issue of coverage. Judge Roach granted summary judgment in favor of Hanover, concluding that RSI could not meet its burden of proving that the loss was caused by an “occurrence” because “there was no demonstrated accident distinct from [RSI’s] performance of its work.” In reaching that conclusion, Judge Roach relied on Pacific Indemnity Co. v. Lampro (Lampro), 86 Mass. App. Ct. 60, 65 (2014), reasoning that the possibility that raw seafood could be spoiled or damaged during handling is a “normal, foreseeable and expected incident” of the seafood processing business and is therefore not an accident.
RSI appealed and in April 2017, the Appeals Court set aside the judgment in Hanover’s favor and remanded the case. In doing so, the Court made several observations relevant to the renewed motion presently before this Court. First, the Appeals Court noted that, in allowing Atlantic’s motion for summary judgment in the federal action, the court had necessarily determined that the only explanation for the damage to the scallops was that RSI was negligent in handling the product. Hanover could not relitigate this factual issue. In other words, Hanover could not take the position in this litigation that the damage could have been the result of intentional conduct. 91 Mass.App.Ct. at 407. Second, the Appeals Court concluded that Lampro was distinguishable, and that the instant case was instead similar to Beacon Textiles Corp., v. Employers Mut.Liab. Ins. Co., 355 Mass. 643 (1969), which supported RSI’s position. 91 Mass.App.Ct. at 409-410. The Court remanded the case “for further proceedings consistent with this opinion regarding (1) the applicability of the exclusions, (2) Hanover’s duty
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to defend and (3) RSI’s counterclaims for breach of contract and violations of G. L. cc. 93A and 176D.” Id. at 411.
DISCUSSION
As the insured, RSI bears the initial burden of proving that its claim falls within the scope of coverage provided by the Policy. See Boazova v. Safety Ins. Co., 462 Mass. 346, 351 (2012). That means that RSI must demonstrate that the claimed loss (here the damage to Atlantic’s scallops) was caused by an “occurrence.” In moving for summary judgment, RSI argues that the undisputed facts and the legal principles set forth in the Appeals Court’s decision in this case establish that RSI’s liability to Atlantic arose out of an “occurrence” within the meaning of the Policy. This Court agrees, in large part based on the reasoning of the Appeals Court.
Hanover argues, however, that the Appeals Court did not hold that RSI was entitled to judgment as a matter of law and that there may be facts which would show this was not an accident. Because discovery has been stayed, Hanover has had little opportunity to determine if such facts exist. Hanover contends that it needs more information regarding the procedures that RSI followed in processing the scallops, the materials it used, the purpose of processing and any communications regarding this issue. But the Appeals Court made it quite clear that Hanover was bound by the federal court’s decision that the damage to the scallops was due to RSI’s negligence, not as part of the ordinary work process and not the result of any intentional conduct. Hanover cannot relitigate this factual determination. Accordingly, there is no basis to seek this additional discovery.
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It is also clear from the Appeals Court’s decision that that the damages for which RSI seeks coverage arose out of an “occurrence.”1 Hanover relied (and continues to rely) on Lampro in support of its position that this was not an occurrence, but the Appeals Court made it clear that Lampro was different. In that case, the insured was hired to cut down trees. The harm for which it sought coverage arose because it cut down too many trees, not because it cut down the trees in an improper manner. The harm thus did not arise because of a fortuitous or unexpected event but because of an intentional decision that occurred in the course of the insured’s ordinary work process, which was cutting down trees. In contrast, damaging scallops was not part of RSI’s ordinary work process; rather, it was an “unexpected happening without intention or design” and thus an “accident.” See Liberty Mut. Ins. Co. v. Tabor, 407 Mass. 354, 358 (1990) (construing that term in an auto policy to find that there was coverage for an auto accident caused by the insured’s negligence). The Appeals Court reasoned that the instant case was controlled not by Lampro but by Beacon Textiles, 355 Mass. at 646, where it was held that a loss sustained by the insured as a result of yarn changing color was an “accident” and therefore covered by the insurance policy. Although the precise cause for the change in color was never determined, it took place while in the insured’s possession and therefore was an “accident.” The same conclusion is compelled here.
In remanding the case, the Appeals Court did leave open the question of whether any exclusions to coverage apply.2 On this issue, Hanover bears the burden of proof. Hanover relies on three exclusions: Exclusion (j) (“Damage to Property”), Exclusion (k) (“Your
1 Indeed, in remanding the case, the Appeals Court did not suggest that there continued to be an issue regarding whether this was an “occurrence,” instead instructing this Court to determine whether any exclusions to the policy applied.
2 In doing so, however, the Appeals Court acknowledged that this was a question of law.
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Product”), and Exclusion (n) (“Recall of Products, Work or Impaired Property”). This Court concludes that, as a matter of contract interpretation, these exclusions do not apply.
Exclusion (j) precludes coverage for certain types of property damage, including personal property in the care, custody or control of the insured. The Broadening Endorsement, however, alters the scope of the exclusion and expressly provides that the exclusion does “not apply to ‘property damage’ to ‘customer goods’ while on your premises . . . .” It defines “customer goods” as “property of your customer on your premises for purposes of being a) worked on; or b) used in your manufacturing process.” Reading Exclusion (j) and the Broadening Endorsement together, this Court concludes that this exclusion cannot apply because the damaged scallops were the property of Atlantic and they were damaged while they were in RSI’s facility “for the purpose of being . . . worked on.”
Exclusion (k) precludes coverage for property damage to “Your Product arising out of it or any part of it.” The Policy defines “Your Product” as “Any goods or products, other than real property, manufactured sold, handled, distributed or disposed of by . . . You.” “The purpose of the exclusion is to prevent the insured from using its product liability coverage as a form of property insurance to cover the cost of repairing or replacing its own defective products or work.” Commerce Ins. Co. v. Betty Caplette Builders, Inc., 420 Mass. 87, 92 (1995), quoting 2 R. Long, Liability Insurance Section 11.09(2) (1993). It does not apply when the insured’s liability results from the provision of services. See Todd Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401, 420 (5th Cir. 1982). Here, the exclusion does not apply because the undisputed facts demonstrate that RSI was hired to perform a service for Atlantic and the damage occurred when it processed the scallops as part of that service. The scallops themselves were not RSI’s product.
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Hanover contends that it would be unfair to draw that conclusion without knowing more about RSI”s processing procedures. This assumes that this processing necessarily turns the raw scallops that it received from Atlantic into something else entirely. Regardless of the processing procedures utilized by RSI, it is undisputed that Atlantic harvested and delivered the scallops to RSI and that after processing, those same scallops went to Arctic’s facility. RSI did not turn the scallops into a fundamentally different product — for example, by incorporating them into a scallop chowder. Contrast Holsum Food Div. of Harvest States Cooperatives v. Home Ins. Co., 162 Wis. 2d 563, 566-567 (1991) (insured hired to mix ingredients supplied by customer to make customer’s barbeque sauce); Nu-Pak, Inc. v. Wine Specialties Int’l, Ltd., 253 Wis. 2d 825, 828 (Wis. Ct. App. 2002) (insured hired to blend ingredients supplied by customer to make customer’s alcoholic beverage).
Finally, Exclusion (n), commonly referred to as the “sistership exclusion,” provides that the Policy does not apply to: “Damages claimed for any loss, cost, or expense incurred by you or others for the loss or use, withdrawal, recall, inspection, repair, replacement, adjustment or disposal of: (1) Your product; (2) Your work; or (3) Impaired Property; If such product, work or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it. . .” The exclusion “only applies ‘in cases where, because of the actual failure of the insured’s product, similar products are withdrawn from use to prevent the failure of these other products, which have not yet failed but are suspected of containing the same defect.’ It does not apply when the product has already failed and caused property damage.” Amtrol, Inc. v. Tudor Ins. Co., 2002 WL 31194863, at *10 (D. Mass. Sept. 10, 2002), quoting United States Fidelity & Guar. Co. v. Wilkin Insulation Co., 144 Ill.2d 64, 81–82 (1991). Here RSI is not seeking
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coverage for costs associated with the removal of non-damaged products but rather for costs connected to the recall of products that were actually damaged. Accordingly, this exclusion does not apply.
Hanover asserts that there is a material dispute of fact as to whether all of the scallops were actually spoiled. In the federal action, however, the evidence presented to the court on the summary judgment motion was that the weight of the damaged scallops was 58,824 pounds and that the value of those scallops was $ 463,735.86. The federal court entered judgment in favor of Atlantic for that amount, thus implicitly determining that 58,824 pounds of scallops were actually damaged. Hanover is bound by those figures.
CONCLUSION AND ORDER
For the forgoing reasons, Raw Seafoods, Inc.’s Renewed Motion for Partial Summary Judgment is ALLOWED with regard to the question of coverage. This matter is scheduled for a status conference on February ____, 2018 at 2:00 to set a schedule for resolution of what remains of the case.
________________________
Janet L. Sanders
Justice of the Superior Court
Dated: January 22, 2018 read more

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Posted by Stephen Sandberg - February 1, 2018 at 10:45 pm

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Kantzelis v. The Commerce Insurance Company (Lawyers Weekly No. 09-045-17)

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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CA No. 16-3144-BLS1
ALEX KANTZELIS, on behalf of himself and all others similarly situated,
vs.
THE COMMERCE INSURANCE COMPANY
MEMORANDUM OF DECISION AND ORDER ON
DEFENDANT’S MOTION TO STRIKE CLASS ALLEGATIONS
In this action, the plaintiff, Alex Kantzelis, asserts claims arising out of the defendant, The Commerce Insurance Company’s (Commerce), failure to make payments directly to a secured lender that financed the plaintiff’s purchase of his automobile after Commerce denied coverage for the plaintiff’s collision claim because of misrepresentations in the plaintiff’s application for insurance. He brings this action on his own behalf as well as on behalf of a putative class of similarly situated Commerce insureds.
The operative complaint governing the plaintiff’s claims is his Third Amended Class Action Complaint (the Complaint). The original complaint was filed on October 13, 2016. It was amended once as a matter of right and once with Commerce’s assent. Commerce answered this second amended complaint, and also moved to dismiss on the grounds that the plaintiff lacked standing to bring the claims he asserted because he had suffered no damages. At a hearing on that motion, the court noted that the plaintiff’s contention that his debt to the finance firm that financed his purchase of the car would have been extinguished if Commerce had paid
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the secured lender, as it was allegedly required to do under the insurance policy, was not supported by the policy language—if Commerce paid the loss to the lender it would be substituted as the creditor for the amount of the loss so paid.1 The court went on to comment that it was conceivable that a person in the plaintiff’s position might have suffered some other loss because Commerce did not pay the lender, for example if the car was repossessed and this caused consequential damages to the insured. Plaintiff’s counsel suggested that he could allege these kinds of special damages. The court gave the plaintiff an opportunity to file the third amended complaint, which, as noted above, is now the operative complaint in this case.
The case is now before the court on Commerce’s “Motion to Strike Class Allegations.” Commerce contends that because the plaintiff’s claims rest on his allegations of special consequential damages unique to him, they cannot be the predicate for class-based claims. Whether such a motion to strike may be brought under Massachusetts jurisprudence is a question of first impression and discussed below. Of course, a denial of this motion would not be tantamount to the certification of a class, the plaintiff would still have to move for class certification under Mass.R.Civ.P. 23 and provide evidentiary support for class treatment. Rather, the practical issue raised by this motion is whether there are sufficient facts pled in the Complaint to permit the class claims to proceed and the plaintiff to take class discovery from Commerce.
FACTS
The following facts are taken from the allegations in the Complaint and the several exhibits attached to it. They are assumed to be true for the purposes of this motion.
1 This point is further discussed infra.
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Additionally, in prior proceedings the plaintiff, through counsel, conceded that he could not challenge Commerce’s decision to deny his claim based on a false statement in his insurance application and prosecute claims on behalf of a class. He explained that he was not contesting the denial of coverage of his claim. In consequence, the court also assumes that, for the purposes of this motion, the facts underlying Commerce’s denial of coverage are true.
In 2013, the plaintiff purchased a 2010 BMW 535XI Sedan (the BMW). The purchase was financed by BMW Bank of North America (BMW Bank) which obtained a lien on the car. On November 12, 2013, the plaintiff applied to Commerce for an auto insurance policy (the Policy). The Policy issued for the period November 14, 2013 to November 14, 2014. The coverage page reflected that the plaintiff resided in Massachusetts. The BMW was involved in an accident on September 5, 2014 in Fort Lauderdale, Florida, and the plaintiff submitted a damages claim to Commerce for collision/comprehensive coverage.
Commerce assigned an appraisal service to inspect the car. By letter dated September15, 2014, Commerce notified the plaintiff that the BMW had been inspected and found to be a total loss. It recommended that it be moved from the BMW dealership where it was then being stored to a salvage facility. It also stated: “if you have a loan on your vehicle, please contact the bank or lien holder to give them permission to speak with Commerce.” There is no allegation that the plaintiff did this.
The appraisal service that inspected the BMW notified Commerce that this was the third time that the BMW had been appraised and it believed that the plaintiff lived in Florida. This prompted an investigation by Commerce which confirmed that the plaintiff did live in Florida. By letter dated, October 7, 2014, Commerce informed the plaintiff of the results of its investigation and that it was denying the claim. The letter noted that the BMW was still being
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stored at the BMW dealership in Fort Lauderdale and recommended that the plaintiff contact the dealership to have the car returned to him.
At the time of the accident, the plaintiff owed BMW Bank $ 25,390 on the loan secured by the BMW. “Commerce determined that [the BMW] suffered a loss less than the full amount of the loan.”2 Commerce did not advise the plaintiff that Commerce would not pay the secured lender, unless the lender made a demand on Commerce. Commerce also did not notify BMW Bank when it cancelled the plaintiff’s auto insurance Policy. There is no allegation that the plaintiff notified BMW Bank of the accident or the denial of coverage, or that BMW Bank made a demand on Commerce for payment under the policy.
The plaintiff made payments to BMW of $ 4,359 after his claim was denied, including $ 60 in late payment charges. He was also assessed an $ 850 repossession fee.3
The Complaint alleges that the plaintiff suffered various losses because Commerce did not tender payment in the amount of the lien to Commerce.4 They can be summarized as follows:
 The plaintiff’s defense against BMW Bank for non-payment of the loan was weaker.
 The plaintiff was deprived of multiple defenses and counterclaims which he would have had against Commerce, but not against BMW Bank.
 The plaintiff was dunned by creditors for failure to make payment of the BMW Bank loan.
 The BMW was repossessed and he was assessed a fee.
2 The Complaint does not allege the actual amount at which Commerce valued the plaintiff’s loss, which was presumably the value of the BMW at the time of the accident. Obviously, the BMW itself could not suffer a loss.
3 The Complaint does not allege that this fee was paid.
4 The Complaint does not explain why Commerce would pay BMW Bank the outstanding balance on the loan as opposed to the amount of the loss.
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 The plaintiff suffered negative credit consequences.
 The amount of plaintiff’s liability to BMW increased.
 The plaintiff suffered a loss of time and money.
 The plaintiff has an outstanding debt to BMW Bank, or its assignee.
 The plaintiff’s credit rating has been adversely affected.
 Commerce has been unjustly enriched.
The Definition of the Putative Class
The plaintiff defines the proposed class as follows:
All persons insured under a Massachusetts policy of auto insurance issued by Commerce:
A. Who reported to Commerce a first-party Collision, Limited Collision and/or Comprehensive claim; and
B. Who had said first-party claim(s) for coverage denied, and said denial was not based upon any allegation of conversion, embezzlement, or secretion by the insured or any household member of the insured, nor was the denial based upon any allegation of loss of or damage to the insured’s auto resulting from arson, theft, or any other means of disposal committed by you or at your direction; and
C. On whose behalf Commerce failed/refused to make a claim settlement payment to the secured lender identified on the insureds’ application and/or coverage selections page.
The Policy Provision
The relevant provision of the Policy is entitled “Secured Lenders” and states as follows:
When your Coverage Selections Page shows that a lender has a secured interest in your auto, we will make payments under Collision and Comprehensive according to the legal interests of each party.
The secured lender’s right of payment will not be invalidated by your acts or neglect except that we will not pay if the loss of or damage to your auto is the result of conversion, embezzlement, or secretion by you or any household member. Also, we will
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not pay the secured lender if the loss of or damage to your auto is the result of arson, theft, or any other means of disposal committed by you or at your direction.
When we pay any secured lender we shall, to the extent of our payment have the right to exercise any of the secured lender’s legal rights of recovery. If you do not file a proof of loss as provided in this policy, the secured lender must do so within 30 days after the loss or damage becomes known to the secured lender.
DISCUSSION
A. The Court May Entertain Motions to Strike Class Allegations
There are no Massachusetts cases addressing motions to strike class action allegations from a complaint. Federal courts have, however, addressed motions to dismiss allegations that a case should proceed as a class action on a number of occasions. In a fairly recent case, Manning v. Boston Medical Center Corp.. 725 F.3d 34 (1st. Cir. 2013), the First Circuit Court of Appeals addressed the issue as follows:
The dispositive question for purposes of this appeal is whether the complaint pleads the existence of a group of putative class members whose claims are susceptible of resolution on a classwide basis. See Wal-Mart Stores, Inc., v. Dukes, ___ U.S. ___, 131 S.Ct. 2541, 2551, 180 L.Ed.2d 374 (2011) (holding that common issue of fact “must be of such a nature that it is capable of classwide resolution — which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke”). The Supreme Court has recognized that “[s]ometimes the issues are plain enough from the pleadings to determine whether the interests of the absent parties are fairly encompassed within the named plaintiff’s claim.” Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982). If it is obvious from the pleadings that the proceeding cannot possibly move forward on a classwide basis, district courts use their authority under Federal Rule of Civil Procedure 12(f) to delete the complaint’s class allegations.16 See, e.g., Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 949 (6th Cir.2011) (upholding striking of class allegations prior to close of discovery and motion to certify class).
Nonetheless, courts should exercise caution when striking class action allegations based solely on the pleadings, for two reasons. First, while ruling on a motion to strike is committed to the district court’s sound judgment, “such motions are narrow in scope, disfavored in practice, and not calculated readily to invoke the court’s discretion.” Boreri v. Fiat S.p.a., 763 F.2d 17, 23 (1st Cir.1985). This is so because “striking a portion of a
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pleading is a drastic remedy and … it is often sought by the movant simply as a dilatory or harassing tactic.” 5C Charles Alan Wright, et. al., Federal Practice & Procedure § 1380 (3d ed.2011). Second, courts have repeatedly emphasized that striking class allegations under Rule 12(f) is even more disfavored because it requires a reviewing court to preemptively terminate the class aspects of … litigation, solely on the basis of what is alleged in the complaint, and before plaintiffs are permitted to complete the discovery to which they would otherwise be entitled on questions relevant to class certification.
Mazzola v. Roomster Corp., 849 F.Supp.2d 395, 410 (S.D.N.Y.2012) (citations omitted) (internal quotation marks omitted); see also Cholakyan v. Mercedes-Benz USA, LLC, 796 F.Supp.2d 1220, 1245 (C.D.Cal. 2011) (noting that “it is in fact rare to [strike class allegations] in advance of a motion for class certification” and collecting cases). Accordingly, a court should typically await the development of a factual record before determining whether the case should move forward on a representative basis.
. . .
Accepting the complaint’s allegations as true, as we must, these facts support the plausible inference that this combination of policies affected BMC’s employees across the board, notwithstanding their different roles within the company. Even if the court had concerns about plaintiffs’ ability to represent such a diverse group of employees, those concerns do not justify the drastic measure of striking the class allegations in their entirety. Cf. Twombly, 550 U.S. at 563 n. 8, 127 S.Ct. 1955 (“[W]hen a complaint adequately states a claim, it may not be dismissed based on a district court’s assessment that the plaintiff will fail to find evidentiary support for his allegations or prove his claim to the satisfaction of the factfinder.”). Moreover, the district court has many tools at its disposal to address concerns regarding the appropriate contours of the putative class, including redefining the class during the certification process or creating subclasses. Cf. Fengler v. Crouse Health Found., Inc., 595 F.Supp.2d 189, 197 (N.D.N.Y.2009) (granting class certification in hospital compensation case, but excluding “non-patient care workers,” such as cafeteria workers and security staff, because plaintiffs failed to show that these employees worked without pay with hospital administrators’ knowledge). Therefore, plaintiffs should have the chance to prove their assertions through discovery and a properly-brought motion for class certification.
In reliance of the federal court decisions interpreting Rules 23 and 12(f), this court concludes that, in appropriate circumstances, a Massachusetts trial court can dismiss class allegations under Mass.R.Civ.P. 12(f). The standard to be applied in determining whether to grant such a motion is, however, the standard to be applied for motions to dismiss brought under Mass.R.Civ.P. 12(b)(6), i.e., the court must “take as true the allegations of the complaint, as well as the reasonable inferences as may be drawn therefrom in plaintiff’s favor. . . . What is required
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at the pleading stage are factual allegations plausibly suggesting (not merely consistent with) an entitlement to relief. . . . Factual allegations must be enough to raise a right to relief above the speculative level . . . based on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Golchin v. Liberty Mutual Ins. Co., 460 Mass. 222, 223 (2011) (Internal citations and quotations omitted). In the context of a motion to dismiss claims that a case proceed as a potential class action, this means that, accepting as true all factual allegations (as opposed to legal conclusions), the court concludes that it is nonetheless “obvious from the pleadings that the proceeding cannot possibly move forward on a classwide basis” because one of the requirements for class certification defined in Mass.R.Civ.P. 23(a) and (b) cannot be established.5
B. Do the Class Allegations Support A Plausible Claim for Class Treatment?
1. Claims that are not consistent with the Policy or the plaintiff cannot assert.
The plaintiff’s second amended complaint, which Commerce moved to dismiss for lack of standing, was predicated on plaintiff’s apparent contention that if Commerce paid BMW Bank, he would be relieved of his obligations under the loan he had obtained to purchase the BMW. That contention is unsupported by the language of the Policy. The “Secured Lender” provision in the Policy makes clear that while BMW Bank’s right to payment of the amount of the loss is not “invalidated” by an insured’s false statements in an insurance application, Commerce steps into the position of the secured lender when it pays the lender under this provision: “to the extent of
5 The motion now before the court should be distinguished from motions brought by defendants to deny class certification after the plaintiff has had an adequate time to undertake class discovery. Federal Courts have held that Fed.R.Civ.P. 23 should not be read to permit only a plaintiff to file a motion for class certification, thereby requiring defendants to wait until the plaintiffs act before requesting a court to address the issue of whether the case can proceed as a class action. See Vinole v. Countrywide Home Loans, Inc. 571 F.3d 935 (9th Cir. 2009) and cases there cited. However, in those cases the Federal Courts have distinguished motions brought under Rule 12(f) predicated on the inadequacy of the pleadings from those brought after the plaintiffs have had an adequate time to conduct discovery and present a factual record supporting their claim to proceed on behalf of a class of similarly situated individuals. Id. at 940-941.
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our payment [we] have the right to exercise any of the secured lender’s legal rights of recovery.” In other words, from the perspective of the insured there is no transfer of risk of loss; there is only a change of creditors with Commerce substituted for the financing firm. In consequence, there is no class of insured’s that suffered economic loss simply because Commerce did not pay the finance company that held a disclosed lien on its insured’s automobile. While this theory of loss could be applied to a class of insureds, it is not supported by the language of the Policy.
In the operative third amended complaint the plaintiff also alleges that Commerce is unjustly enriched when it fails to pay a secured lender which has not made a claim under the policy. However, an insurance policy is a contract between the insurer and the insured. See Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146 (1982). And, a claim of unjust enrichment cannot be asserted when the parties’ obligations to one another are covered by a contract. See, e.g., Bosewell v. Zephyr Lines, Inc. 414 Mass. 241, 250 (1993) (Where the court held that recovery for unjust enrichment or other quasi contract theories “presupposes that no valid contract covers the subject matter of a dispute.”). Moreover, it should be noted that the right of a secured lender to recover the amount of the loss when the insurer has properly denied the policy holder’s claim is not a “coverage” described in the coverage section of the Policy or listed on the policy holder’s Coverage Selection Page. No part of the premium is calculated based on this policy provision, and it is included in every policy regardless of whether there is a lien on a covered automobile. In any event, no claim for unjust enrichment can be brought by the plaintiff in this case or by a class of plaintiffs.
The plaintiff also alleges an element of damages in the Complaint that could, in theory, be asserted by him and other policy holders, but which he has specifically represented to the court he is not pursuing. The plaintiff contends that he has defenses and counterclaims that he
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could assert against Commerce, if Commerce had paid BMW Bank and sued him as successor to BMW Bank’s rights under the loan. However, the plaintiff has stated that he is not contesting Commerce’s decision to deny his direct claim because of misrepresentations concerning his residence and where the BMW was garaged. Clearly, the only defense (or counterclaim) that the plaintiff could assert against Commerce that would not lie against BMW Bank would arise from assertions that Commerce wrongfully denied coverage for the loss sustained when the BMW crashed. Presumably, the plaintiff renounced any claims based on a wrongful denial of coverage because the coverage question would involve facts unique to any policyholder and would not be susceptible to class treatment. In any event, the plaintiff cannot reintroduce wrongful denial of coverage into this litigation by alleging that an inability to defend against claims under the loan based on a denial of coverage is as an element his damages.
It may be noted that an insurer’s refusal to pay a secured lender when the insured is validly contesting a denial of coverage on the grounds of misrepresentation might well cause damages to the insured, who might not have the funds to obtain substitute transportation and pay the existing loan while contesting the insurer’s position. Whether such claims could be asserted on behalf of a class is unclear. In such circumstances, the validity of the insured’s position would likely turn on facts unique to each insured. This is likely why, in this case, the plaintiff made clear that he was not contesting Commerce’s denial of coverage.6
6 The prerequisite for class certification that common questions of law and fact predominate over individualized questions is discussed infra. See Mass. R. Civ. P. 23(b). The court also notes that, having reviewed the October 7, 2014 letter to plaintiff in which Commerce informed the plaintiff of the results of its investigation concerning his residence, the court has some question as to whether the plaintiff would be an adequate class representative of a class of plaintiffs who had valid reasons to contest a denial of coverage on the grounds of misrepresentations in the insurance application.
11
2. Claims in which common questions of fact are not predominant.
Under Mass. R. Civ. P. 23, in order for a class to be certified by the court, a plaintiff must demonstrate that (1) the class is sufficiently numerous to make joinder of all parties impracticable, (2) there are common questions of law and fact, (3) the claims or defenses of the representative party are typical of the claims or defenses of the class, and (4) the named plaintiff will fairly and adequately protect the interests of the class. See Mass. R. Civ. P. 23(a). Additionally, a plaintiff must show that common questions of law and fact predominate over individualized questions and that the class action is superior to other available methods for fair and efficient adjudication of the controversy. See Mass. R. Civ. P. 23(b). It is the “predominance” test which arises under Rule 23(b) that requires close attention in addressing the pending motion to strike.
“The predominance test expressly directs the court to make a comparison between the common and individual questions involved in order to reach a determination of such predominance of common questions in a class action context” Salvas v. Wal-Mart Stores, Inc., 452 Mass. 337, 363 (2008) (citation omitted). The predominance requirement is satisfied by a sufficient constellation of common issues between class members and cannot be reduced to a mechanical, single-issue test. See Weld v. Glaxo Wellcome Inc., 434 Mass. at 92. See also Waste Mgt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 296 (1st Cir. 2000).
There is, of course, a predominant issue of law raised by the Complaint and common to any policyholder: (1) who disclosed a lien on a covered automobile in her/his insurance application; (2) subsequently had a claim denied based on the insured’s “acts or neglect” (other than loss to the insured’s auto that “is the result of conversion, embezzlement, or secretion by you or any household member”); (3) where the lien holder did not make a demand for payment
12
of the loss,7 and (4) Commerce did not tender payment in the amount of the loss to the lien holder. It is the court’s understanding that Commerce’s position is that the Policy does not require it to tender payment under these circumstances. Whether that interpretation of the Policy is correct raises a common and predominant question of law. However, for a putative class member to have a claim and therefore to be a member of a class, he/she must have suffered a loss. The question of whether an insured suffered damage as a result of Commerce’s position on the Secured Lender provisions of the Policy appears to introduce individualized and predominant questions of fact. A review of the overbroad class definition alleged in the Complaint makes this clear.
The plaintiff contends that every insured whose collision/comprehensive coverage claim was denied for the reasons stated above and whose lender was not paid the loss that would have been paid to the insured, but for the denial of coverage, is a member of the class. It is, however, evident that many insureds, if not most of them, would not have suffered any loss as a result of Commerce’s failure to pay the secured lender, have no claim, and consequently not be a member of the proposed class.
For example, the proposed class definition included claims like the one asserted in this case in which the car was a total loss, as well as claims in which the car was capable of repair. An insured who fixed the car and kept-up payments on the loan will have suffered no loss. Indeed, an insured who knew that he had no basis for contesting the denial of coverage might well not want the finance company which financed the purchase of his car to know that he had made misrepresentations on his insurance application. Even when the car is a total loss, many
7 The Complaint does not allege that the plaintiff made a demand on Commerce to pay BMW Bank. It is not clear from any pleading filed in this case, if Commerce has a practice of refusing to pay the lien holder if the insured directs Commerce to make the payment.
13
insureds might prefer to deal with a finance company, as opposed to creating a financial obligation to Commerce. For instance, where the amount of the loss is far less than the amount still due on the loan, the insured might prefer to have one creditor to negotiate with rather than owing the finance company the balance due on the loan and Commerce the amount of the loss paid to the finance company. And, of course, where an at-fault driver of another car caused the loss, the insured may suffer no loss.
Because Commerce’s payment to the lien holder only causes a substitution of Commerce as creditor, it is manifest that a special set of events has to occur as a consequence of Commerce’s failure to pay the loss to the finance company for Commerce’s conduct to have caused its insured to sustain damages. These events would have to be proven by any insured making a claim against Commerce, as the plaintiff himself must do to prevail in his own individual claims against Commerce in this litigation.8
The plaintiff argues that: “[t]he particular nature of the damages flowing from the same [sic, presumably wrongful act] are irrelevant for the purposes of certification,” citing Weld v. Glaxco Wellcome Inc., 434 Mass. 81, 92 ( 2001). However, in Weld, the Supreme Judicial Court (SJC) noted that the allegedly wrongful course of conduct engaged in by the defendants involved a per se violation of the privacy of each class member and whether there would even be differences in potential damages among class members was not clear. By contrast, in the instant case, it is evident that a factual inquiry as to whether a potential class member suffered any
8 In this case, the plaintiff alleges as damages that he paid $ 4,359 to BMW Bank after the accident, but he also alleges that Commerce informed him that the amount of the loss on the BMW was less than the amount still due on the loan at the time of the accident. It may be that the amount he paid BMW Bank was not in excess of the balance of the loan less the amount of the loss. Additionally, he alleges that the BMW was repossessed, but also that it was a total loss. The correspondence that he attached to the Complaint suggests that he may have simply left the vehicle at the BMW dealership in Fort Lauderdale. In addressing the pending motion all plausible factual inferences must, of course, be drawn in favor of the plaintiff. Nonetheless, the nature of these factual allegations underscore the individualized factual issues that would have to be resolved in ruling on each putative class member’s claim.
14
damage is required. In Aspinall v. Philip Morris Cos., 442 Mass. 381, 397 n.19, (2004), the SJC explained that: “The plaintiffs do not seek damages for personal injuries. Were it otherwise, unique and different experiences of each individual member of the class would require litigation of substantially separate issues and would defeat the commonality of interests in the certified class.” Again, this case requires individual fact finding not only to determine the amount of damages, but whether a claimant suffered any damages and therefore could be a member of the class.
There is another way to think about the problems that arise when individualized fact finding is required to determine who is a member of a putative class. Federal case law suggests that there is another implicit element that must be established before a class may be certified, that is that the class is “ascertainable.” In Dononvan v. Philip Morris USA, Inc., 268 F.R.D. 1, 9 (D. Mass. 2010), a Federal District Court described this requirement as follows: “While not explicitly mentioned in Rule 23, an implicit prerequisite to class certification is that a ‘class’ exists—in other words, it must be administratively feasible for the court to determine whether a particular individual is a member . . . . To be ascertainable, all class members need not be identified at the outset; the class need only be determinable by stable and objective factors.” Dononvan v. Philip Morris USA, Inc., 268 F.R.D. at 9 (internal quotations and citations omitted). However, when “class members [are] impossible to identify prior to individualized fact-finding and litigation, the class fails to satisfy one of the basic requirements for a class action under Rule 23.” Shanley v. Cadle, 277 F.R.D. 63, 68 (D. Mass 2011). See also Kwaak v. Pfizer, Inc., 71 Mass. App. Ct. 293, 300-301 (2008) (where class certification was reversed when individual proof would be required to determine whether a particular purchaser of Listerine was exposed to
15
deceptive advertising that affected the decision to purchase the product as the advertising was not uniform during the class period).
In this case, while Commerce’s own records might be adequate to identify insureds who had their collision/comprehensive claims denied because of their own conduct or neglect, had disclosed liens on their covered automobiles, and the lien holders were not paid the amount of the loss, those records would be inadequate to identify which of those insureds suffered a loss—that would require individualized fact finding concerning what thereafter happened to these insureds, more specifically whether they then suffered some manner of loss attributable to a failure to pay the lien holder. In Carrera v. Bayer Corp., 727 F.3d 300, 306-307 (3rd Cir. 2013), the Third Circuit Court of Appeals explains the concept of ascertainability at length and its importance in determining whether a class may be certified. Of relevance to this case, the Third Circuit explains: “A defendant in a class action has a due process right to raise individual challenges and defenses to claims, and a class action cannot be certified in a way that eviscerates this right or masks individual issues . . . A defendant has a similar, if not the same, due process right to challenge the proof used to demonstrate class membership as it does to challenge the elements of a plaintiff’s claim.” Id. at 307. No Massachusetts appellate decision has yet specifically addressed the question of whether ascertainablity should be considered in determining whether a class may be certified, but these concerns appear to underlay the Appeals Court’s decision in Kwaak cited above.
C. Applying the Rule 12(b)(6) Standard.
The standard to be applied in deciding whether to strike class action allegations from a complaint is a rigorous one. Nonetheless, in this case the factual allegations of the complaint do not support a plausible claim that the plaintiff may proceed on behalf of a class of similarly
16
situated individuals. In order to avoid dismissal of his own claim, the plaintiff amended his complaint to assert special damages allegedly incurred because Commerce did not pay BMW Bank the amount of the loss occasioned by the crash of his BMW. The plaintiff will have to prove these consequential damages to recover against Commerce. Any other plaintiff would similarly have to prove such damages to recover—or be a member of a class. No discovery obtained from Commerce could cure the inherent shortcomings in the class allegations.
ORDER
For the foregoing reasons, the defendant’s motion to strike the class action allegations is ALLOWED.
__________________
Mitchell H. Kaplan
Justice of the Superior Court
Dated: November 9, 2017 read more

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Posted by Stephen Sandberg - December 6, 2017 at 8:28 pm

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Great Divide Insurance Company v. Lexington Insurance Company (Lawyers Weekly No. 10-172-17)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

SJC-12164

GREAT DIVIDE INSURANCE COMPANY  vs.  LEXINGTON INSURANCE COMPANY.

Suffolk.     March 6, 2017. – November 1, 2017.

Present:  Gants, C.J., Lenk, Hines, Gaziano, Lowy, & Budd, JJ.[1]

Motor Vehicle, Insurance.  Insurance, Motor vehicle insurance, Excess liability insurance.

Certification of a question of law to the Supreme Judicial Court by the United States District Court for the District of Massachusetts.

 

Adam R. Doherty (Thomas M. Elcock also present) for the plaintiff. read more

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Posted by Stephen Sandberg - November 1, 2017 at 4:07 pm

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OneBeacon America Insurance Company v. Celanese Corporation (Lawyers Weekly No. 11-134-17)

NOTICE:  All slip opinions and orders are subject to formal revision and are superseded by the advance sheets and bound volumes of the Official Reports.  If you find a typographical error or other formal error, please notify the Reporter of Decisions, Supreme Judicial Court, John Adams Courthouse, 1 Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-1030; SJCReporter@sjc.state.ma.us

16-P-203                                        Appeals Court

ONEBEACON AMERICA INSURANCE COMPANY  vs.  CELANESE CORPORATION.

No. 16-P-203.

Suffolk.     November 18, 2016. – October 16, 2017.

Present:  Trainor, Meade, & Hanlon, JJ.

Insurance, Defense of proceedings against insured, Insurer’s obligation to defend.  Contract, Insurance.  Conflict of Interest.  Practice, Civil, Summary judgment, Attorney’s fees.

Civil action commenced in the Superior Court Department on March 2, 2010. read more

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Posted by Stephen Sandberg - October 16, 2017 at 5:18 pm

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DeOliveira v. Liberty Mutual Insurance Company (Lawyers Weekly No. 09-016-17)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
No. 17-00218-BLS1
MONICA DEOLIVEIRA1
vs.
LIBERTY MUTUAL INSURANCE COMPANY
MEMORANDUM OF DECISION AND ORDER ON
DEFENDANT’S MOTION TO DISMISS
Plaintiff, Monica DeOliveira, seeks to recover from her automobile insurer, defendant,
Liberty Mutual Insurance Company (Liberty), under a Massachusetts Automobile Insurance
Policy (Policy). DeOliveira alleges that Liberty improperly failed to pay benefits under the
Medical Payments (MedPay) provision of the Policy. DeOliveira’s Second Amended Complaint
(Complaint) asserts three claims against Liberty: breach of contract (Count I), declaratory
judgment (Count II), and violation of G.L. c. 93A (Count III).2 Liberty moves to dismiss all three
claims for failure to state a claim upon which relief can be granted under Mass. R. Civ. P.
12(b)(6).3 For the reasons stated below, Liberty’s motion to dismiss is denied.
1 On behalf of herself and all others similarly situated.
2 DeOliveira filed a Motion for Leave of Court to File a Second Amended Complaint on
August 16, 2017, after the parties filed their memoranda on Liberty’s motion to dismiss. On
August 18, 2017, this court allowed DeOliveira to file the Second Amended Complaint and
noted that if new allegations in that version of the Complaint required supplemental briefing, the
parties could file written memoranda on the date of the oral argument on the motion to dismiss.
The parties declined to file supplemental memoranda.
3 Liberty also moves to dismiss on the ground of insufficiency of service of process. The
motion to dismiss on that ground is denied. On April 18, 2017, DeOliveira filed a motion to
BACKGROUND
The facts as revealed by DeOliveira’s Complaint are as follows.
DeOliveira is a resident of Worcester, Massachusetts. Liberty is a Massachusetts
corporation with a principal place of business in Boston, Massachusetts.
On October 28, 2010, DeOliveira purchased the Policy from Liberty. The Policy is
attached to the Complaint as Exhibit A. The Policy includes up to $ 8,000 in personal injury
protection (PIP) benefits. It also includes an optional coverage for up to $ 5,000 in MedPay
benefits. DeOliveira paid an additional premium of $ 10 per vehicle for two vehicles for the
MedPay coverage.
The Policy’s MedPay provision (Part 6) states, in part: “Under this Part, we will pay
reasonable expenses for necessary medical and funeral services incurred as a result of an
accident. We will pay for expenses resulting from bodily injuries to anyone occupying your auto
at the time of the accident.” In addition, the MedPay provision states that: “We will not pay
under this Part for any expenses that are payable, or would have been payable except for the
deductible, under the PIP coverage of this policy or any other Massachusetts auto policy.”
The Policy’s PIP provision provides coverage for three kinds of benefits: (1) medical
expenses, (2) lost wages, and (3) replacement services. The PIP provision also states, in part:
Some people have a policy of health, sickness, or disability insurance or a contract
or agreement with a group, organization partnership or corporation to provide, pay
for, or reimburse the cost of medical expenses (“health plan”). If so, we will pay
up to $ 2,000 of medical expenses for any injured person. We will also pay
medical expenses in excess of $ 2,000 for such injured person which will not be
paid by a health plan. Medical expenses must be submitted to the health plan to
determine what the health plan will pay before we pay benefits in excess of
extend the date for service of process that was allowed by the court (Kaplan, J.).
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$ 2,000 under this Part. We will not pay for medical expenses in excess of $ 2,000
that the health plan would have paid had the injured person sought treatment in
accordance with the requirements of the health plan. In any case, our total
payment for medical expenses, lost wages and replacement services will not
exceed $ 8,000.
On June 7, 2011, DeOliveira operated a motor vehicle that was involved in a collision.
She suffered personal injuries as a result of the collision. As a result of the collision, DeOliveira
received reasonable and necessary medical care and treatment for personal injuries, the cost of
which totaled $ 4,004.30. She notified Liberty of the loss and submitted her medical bills to
Liberty. Liberty paid DeOliveira $ 2,000 in PIP benefits. On October 25, 2011, Liberty issued a
PIP exhaustion letter to DeOliveira, which is attached to the Complaint as Exhibit C. The PIP
exhaustion letter states, in part:
Please be advised that the $ 2,000.00 Personal Injury Protection coverage on this
claim has been exhausted. Please submit all outstanding medical bills to your
private health carrier.
If your health carrier denies payment or only pays a portion of the bill, please
forward a copy of their explanation of benefits to the address listed in the
letterhead so that I may review it for any necessary payments.
DeOliveira submitted reasonable and necessary medical bills and expenses totaling
$ 2,004.30 to her health insurance carrier, Fallon Community Health Plan (Fallon). DeOliveira’s
health insurance policy with Fallon did not contain a provision deferring to payment under the
MedPay provision of her Policy. Fallon paid the $ 2,004.30 in medical bills and expenses.
On April 23, 2012, Fallon asserted a statutory lien of $ 791.49 against DeOliveira’s third
party personal injury claim arising from the collision (Fallon lien).
Over a year later, on September 3, 2013, DeOliveira settled her personal injury claim with
the tortfeasor involved in the June 7, 2011 collision. The tortfeasor paid DeOliveira as a result of
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the settlement. Shortly thereafter, DeOliveira paid the Fallon lien, in full, from proceeds she
received from the settlement.
On August 29, 2013, DeOliveira sought payment from Liberty under the terms and
conditions of the Policy’s MedPay provision. The Fallon lien was itemized to indicate the bills
that Fallon paid. DeOliveira asserted that the medical bills and expenses in excess of $ 2,000 that
were covered by Fallon and not payable under the PIP provision of the Policy were covered
under the MedPay provision. Complaint at paras. 36-37. Liberty, however, refused to pay
DeOliveira under the MedPay provision of the Policy.
On January 20, 2017, DeOliveira filed this action against Liberty. DeOliveira claims that
Liberty breached the Policy by failing to provide her with MedPay coverage and that this conduct
violated Chapter 93A. She brings this putative class action on behalf of herself and all persons
similarly situated. She seeks to define the class as, “all persons who purchased one of
Defendant’s Massachusetts automobile insurance policies with MedPay coverage and/or were
covered under one of Defendant’s Massachusetts automobile insurance policies with MedPay
coverage who sustained personal injuries and incurred medical bills and expenses as a result of
an automobile accident and reached the $ 2,000 initial PIP exhaust[ion] level.”
ANALYSIS
To survive a motion to dismiss, the plaintiff’s “[f]actual allegations must be enough to
raise a right to relief above the speculative level . . . [based] on the assumption that all the
allegations in the complaint are true (even if doubtful in fact) . . . .” Iannacchino v. Ford Motor
Co., 451 Mass. 623, 636 (2008), citing Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964-1965
(2007). In other words, “[w]hile a complaint attacked by a . . . motion to dismiss does not need
-4-
detailed factual allegations . . . a plaintiff’s obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’ requires more than labels and conclusions . . . .” Iannacchino, 451 Mass.
at 636, quoting Bell Atl. Corp., 127 S. Ct. at 1966. Dismissal under Mass. R. Civ. P. 12(b)(6) is
proper where a reading of the complaint establishes beyond doubt that the facts alleged do not
support a cause of action which the law recognizes, such that the plaintiff’s claim is legally
insufficient. Nguyen v. William Joiner Center for the Study of War and Social Consequences,
450 Mass. 291, 295 (2007).
DeOliveira’s Complaint asserts substantially similar facts and claims to those presented
in a case in which the Appeals Court affirmed, in an unpublished Rule 1:28 decision, a decision
of the District Court in favor of the insured. Kirby v. Liberty Mutual Ins. Co., 89 Mass. App. Ct.
1136, 2016 WL 4162351, at *1-*3 (August 5, 2016) (Rule 1:28), rev. den., 476 Mass. 1106
(Nov. 30, 2016). In Kirby, the plaintiff sustained injuries in an automobile accident and incurred
$ 13,387.56 in medical expenses. Id. at *1. At the time of the accident, plaintiff was insured
under a health insurance policy and a Massachusetts automobile policy issued by Liberty that
provided $ 8,000 in PIP benefits and $ 5,000 in MedPay coverage. After the accident, Liberty
notified plaintiff that her $ 2,000 in PIP coverage was exhausted and that she should submit all
outstanding medical bills to her health insurance provider.4 As a result, her health insurer paid
$ 4,956.67 in additional medical expenses. The health insurer executed a lien for that amount in
the civil action that Kirby filed against a third-party tortfeasor. Plaintiff later paid $ 4,956.67 to
her health insurer to satisfy and release the lien. Thereafter, plaintiff submitted a claim to Liberty
4 Liberty paid a total of $ 3,283.92 in PIP benefits for medical expenses that plaintiff
incurred–$ 2,000 in initial PIP benefits and $ 1,283.92 in PIP benefits to cover copayments and
other medical expenses denied by plaintiff’s health insurer.
-5-
under the MedPay portion of her automobile insurance policy for reimbursement of the
$ 4,956.67. Liberty refused coverage under MedPay, and plaintiff filed suit for breach of contract
against Liberty in the District Court. After a hearing, a District Court judge allowed plaintiff’s
motion for summary judgment, and Liberty appealed to the Appellate Division of the District
Court, which affirmed the summary judgment ruling in favor of plaintiff. See Kirby v. Liberty
Mutual Ins. Co., 2014 Mass. App. Div. 190 (Sept. 25, 2014). Liberty appealed, and the Appeals
Court affirmed. See Kirby v. Liberty Mutual Ins. Co., 2016 WL 4162351 at *1. The Appeals
Court noted that the case was governed in all material respects by Golchin v. Liberty Mut. Ins.
Co., 460 Mass. 222 (2011) (Golchin I ), and Golchin v. Liberty Mut. Ins. Co., 466 Mass. 156
(2013) (Golchin II ). Kirby v. Liberty Mutual Ins. Co., 2016 WL 4162351 at *2 (discussing
Golchin I and Golchin II). Ultimately, the Appeals Court concluded that plaintiff was entitled to
MedPay benefits because she “incurred” the $ 4,956.67 in expenses and PIP benefits in excess of
the $ 2,000 paid were not available to her. Id. at *2-*3.
DeOliveira pleads facts in her Complaint that are closely similar to the factual scenario in
Kirby.5 In light of Kirby, 6 which I find persuasive, I conclude that DeOliveira’s Complaint
properly asserts claims for breach of contract, declaratory judgment, and violation of Chapter
5 Here, as in Kirby, DeOliveira asserts in her Complaint that she “incurred” additional
medical expenses after her PIP benefits were exhausted or unavailable. See Kirby v. Liberty
Mutual Ins. Co., 2016 WL 4162351 at *1-*2. See also Golchin II, 466 Mass. at 163
(determining that medical expenses were clearly “incurred” within plain language of auto policy,
first by plaintiff’s health insurer, and later when plaintiff satisfied lien placed by her health
insurer, and thus, plaintiff was entitled to recover MedPay benefits under auto policy).
6 As Kirby progressed through the courts, a total of seven judges agreed that Liberty was
liable for breach of contract by failing to provide plaintiff with MedPay coverage.
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93A.7 See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008) (noting that an unpublished
memorandum and order issued pursuant to Appeals Court Rule 1:28 has persuasive, but not
precedential, authority). See also Bonin v. Amica Mutual Ins. Co., SUCV2014-04073-BLS2,
slip. op at 1 (Mass. Super. Ct. Sept. 9, 2015) (Sanders, J.) (denying defendant insurer’s motion to
dismiss claims for breach of contract and violation of Chapter 93A based on failure to provide
MedPay coverage under automobile insurance policy). Accordingly, Liberty’s motion to dismiss
is denied.
CONCLUSION
Defendant Liberty Mutual Insurance Company’s Motion to Dismiss is DENIED.
By the Court,
______________________________
Edward P. Leibensperger
Justice of the Superior Court
Dated: September 29, 2017
7 At oral argument, counsel for Liberty acknowledged that I would have to disagree with
the reasoning in Kirby to grant Liberty’s motion to dismiss. I do not disagree.
-7- read more

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Posted by Stephen Sandberg - October 5, 2017 at 4:32 pm

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Safety Insurance Company v. Chau, et al. (Lawyers Weekly No. 09-005-17)

1
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
SUCV2015-02554-BLS2
SAFETY INSURANCE COMPANY
vs.
LAURA CHAU &
NAKOUZI ENTERPRISES, INC. d/b/a UNION AUTOMOTIVE
MEMORANDUM OF DECISION AND ORDER
ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
Plaintiff Safety Insurance Company (Safety) filed this action to determine its coverage obligations with respect to a motor vehicle accident which is the subject of separate litigation. The defendant Laura Chau was allegedly injured in that accident and in that separate lawsuit, seeks to recover against Nakouzi Enterprises, Inc. d/b/a Union Automotive (Nakouzi), which is Safety’s insured. The Complaint seeks a declaration both as to Safety’s duty to defend Nakouzi and its duty to indemnify. The matter is now before this Court on Safety’s Motion for Summary Judgment. This Court concludes that Safety does have a duty to defend, but that the obligation to indemnify cannot be decided at this juncture because of fact disputes as to what caused the accident.
BACKGROUND
The summary judgment record contains the following relevant facts. In June 2015, Chau filed a lawsuit against David Lam and Nakouzi in Plymouth Superior Court seeking to recover for injuries she suffered in an accident that occurred while she was driving Lam’s car. See Chau v. Lam et al., Civ. No. 2015-00589 (the Plymouth Action). The complaint filed in the
2
Plymouth Action alleges that, prior to the accident, Nakouzi had issued a Certificate of Inspection for the vehicle despite the fact that its tires had heavily worn treads that did not comply with the state’s safety requirements for tire tread depth. As a result of Nakouzi’s negligence, Chau mistakenly believed that Lam’s vehicle was safe to drive and that the accident occurred because the worn tire treads led her to lose control of the car and collide with oncoming traffic. The Plymouth Action is still pending.
At the time of the accident, Nakouzi was the named insured on a Massachusetts garage insurance policy issued by Safety (the Policy). The Policy provided two types of liability coverage for injuries resulting from “garage operations” — specifically, a) coverage for injuries from garage operations involving the ownership, maintenance and use of covered “autos,” and b) coverage for injuries from garage operations other than the ownership, maintenance, and use of covered “autos.” The parties agree that Lam’s car was not a covered auto, so it is the second type of liability coverage that is relevant here. As to both types of liability coverage, Safety was required to pay all sums its insured was legally required to pay as damages for bodily injury or property damage provided that such injury or damage was “caused by an ‘accident’ and resulting from ‘garage operations.’” Garage Operations was defined to include “all operations necessary or incidental to a garage business.” See Section IX.H, page 23 of Policy. If suit was filed against Nakouzi seeking damage for bodily injury or property damage, Safety acknowledged that it had a duty to defend, provided that such injury or damage was covered by the Policy. See Section IV.A, page 5 of Policy (“We have the right and duty to define any ‘insured’ against a ‘suit’ asking for these damages even if it is without merit”).
3
After Chau filed the Plymouth Action, Nakouzi sought coverage from Safety under the Policy. Safety agreed to defend Nakouzi in Chau’s suit under a reservation of rights, then filed the instant action.
DISCUSSION
It is well established that the duty to defend and the duty to indemnify are distinct and independent obligations. See A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 Mass. 502, 527 (2005). The duty to defend arises at the outset of litigation against the insured. It is triggered as long as the allegations in the complaint brought in the underlying action “are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms.” Billings v. Commerce Ins. Co., 458 Mass. 194, 200 (2010). “There is no requirement that the facts alleged in the complaint specifically and unequivocally make out a claim within the coverage.” Id. at 201, quoting Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. 316, 319 (1983). The duty to indemnify, in contrast, arises at the close of litigation. It is triggered “when a judgment within the policy coverage is rendered against the insured.” Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10 (1989). Whether the duty exists is determined based on the actual facts proven at trial, rather than what may have been suggested by the general allegations in the complaint. See id. at 10-11. The duty to indemnify is thus narrower than the duty to defend. See Transamerica Ins. Co. v. KMS Patriots, 52 Mass. App. Ct. 189, 196 (2001). Accordingly, “[a]n obligation to indemnify does not automatically follow from the existence of a duty to defend.” Polaroid Corp. v. The Travelers Indem. Co., 414 Mass. 747, 762 n.19 (1993). That is, an insurer may have a duty to defend but ultimately have no duty to indemnify
4
As noted above, the Policy provides liability coverage for injuries “caused by an ‘accident’ and resulting from ‘garage operations.’” “Garage operations” is defined to include, among other things, “all operations necessary or incidental to a garage business.” Safety argues that it has no duty to defend because Nakouzi’s inspection was not a “garage operation.” If there is no duty to defend, then it necessarily follows that there can be no duty to indemnify.
There are no Massachusetts appellate decisions interpreting the relevant provisions. Although the parties cite cases from the Massachusetts federal district court and other jurisdictions, they are not particularly helpful in that they involve different policy language or arise from different circumstances. Thus, to determine whether Safety’s reading of the Policy is correct, this Court relies on the general rules that govern the interpretation of insurance contracts.
When interpreting an insurance policy, the Court construes the policy’s words in “their usual and ordinary sense.” Hakim v. Massachusetts Insurers’ Insolvency Fund, 424 Mass. 275, 280 (1997). Each word “must be presumed to have been employed with a purpose and must be given meaning and effect whenever practicable . . . without according undue emphasis to any particular part over another.” Boston Gas Co. v. Century Indem. Co, 454 Mass. 337, 355 (2009). (internal citations and quotations). If the meaning of the policy language is unclear, the Court considers “what an objectively reasonable insured, reading the relevant policy language, would expect to be covered.” Metropolitan Life Ins. Co. v. Cotter, 464 Mass. 623, 635 (2013), quoting Hazen Paper Co. v. United States Fid. & Guar. Co., 407 Mass. 689, 700 (1990). Applying these principles, the Court concludes that the Policy requires Safety to defend Nakouzi against the claims Chau asserts against it because the inspection constituted a “garage operation” as defined by the Policy.
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The Policy defines “garage operations” expansively to include not just activities “necessary” to a garage business but also “all” activities that are “incidental” to the business, i.e., ones that play a small or even insignificant role. See Black’s Law Dictionary (10th ed. 2014) (defining incidental as “[s]subordinate to something of greater importance; having a minor role”); The American Heritage Dictionary of the English Language (5th ed. 2017) (defining incidental as “of a minor, casual, or subordinate nature”). In this Court’s view, inspections are clearly incidental to a garage’s operations. Certainly, it is not at all unusual for motor vehicle service stations and automobile repair shops to conduct vehicle inspections. An insured in Nakouzi’s position, reading the relevant Policy language, would reasonably expect that accidents arising from inspections conducted at his garage would be covered. Since Chau in the Plymouth Action alleges that her accident was caused by Nakouzi’s negligent inspection, Safety is therefore required to defend Nakouzi.
As Safety acknowledged at the hearing on this motion, its assertion that it has no duty to indemnify is based on its contention that it has no duty to defend. It conceded that, if the Court finds that it has a duty to defend Nakouzi, the Court cannot make a summary determination on whether Safety has a duty to indemnify because Chau’s lawsuit against Nakouzi remains pending. Summary judgment regarding Safety’s indemnification obligations is therefore inappropriate.
CONCLUSION AND ORDER
For all of the foregoing reasons, Safety’s Motion for Summary Judgment that is has no duty to defend is DENIED. Because there are no material facts in dispute regarding that duty, it is further ORDERED, however, that judgment enter in favor of Nakouzi declaring that Safety does have a duty to defend in the Plymouth Action. Because the duty to indemnify cannot be
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determined until the Plymouth Action is resolved, this Court schedules this matter for December 5, 2017 at 2:00 p.m. so that it may be apprised of the status of that action. If the parties wish to have a Rule 16 conference before that date, they may request an earlier date from the court clerk.
______________________________
Janet L. Sanders
Dated: September 15, 2017 Justice of the Superior Court read more

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Posted by Stephen Sandberg - October 4, 2017 at 8:20 am

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Casella Waste Systems, Inc., et al. v. Steadfast Insurance Company (Lawyers Weekly No. 09-008-17)

COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
No. 2016-2521 BLS 1
CASELLA WASTE SYSTEMS, INC. et al1
vs.
STEADFAST INSURANCE COMPANY
MEMORANDUM AND ORDER ON STEADFAST INSURANCE COMPANY’S
MOTION FOR SUMMARY JUDGMENT
This is an insurance coverage dispute between a company engaged in the landfill business
and its insurer. The insurer, defendant Steadfast Insurance Company, issued a policy called Z
Choice Pollution Liability (the “Policy”) to plaintiff, Casella Waste Systems, Inc., naming
Casella and its subsidiary, Southbridge Recycling & Disposal Park, Inc. (“SRDP”), as insureds.
The Policy covers claims made against the insureds during the Policy period of April 30, 2015 to
June 15, 2016. Following notification by Casella in October 2015 to the Massachusetts
Department of Environmental Protection (“DEP”) of the detection of pollution flowing from
Casella’s property to neighboring property, a claim by DEP, as defined in the Policy, arose.
Casella sought insurance coverage for the claim. Steadfast denied coverage. Casella sued for
breach of contract, violation of G.L. c. 93A and for a declaration of coverage. Steadfast now
moves for a summary judgment declaring there is no coverage under the Policy. For the reasons
described below, summary judgment must be denied because there are material issues of fact that
1 Southbridge Recycling & Disposal Park, Inc.
1
are genuinely in dispute.
BACKGROUND
The following facts are taken from the parties’ Statement of Undisputed Material Facts
and Responses Thereto (“SUMF”), supplemented by documents and affidavits in the summary
judgment record.
The coverage at issue under the Policy is what was provided under Coverage C: Cleanup
Costs – New Pollution Event. Under Coverage C, Steadfast is obligated to pay “cleanup costs” to
the extent resulting from a “new pollution event” that migrates beyond the boundaries of a
“covered location” if that “new pollution event” is first “discovered” during the policy period.
The obligation to pay includes “cleanup costs” that the insured is legally obligated to pay
resulting from a third-party “claim.” The Policy also contains an exclusion from coverage for a
“known pollution event.” The words in quotes are defined terms in the Policy.
Casella seeks to be reimbursed and indemnified by Steadfast for all past and future
cleanup costs incurred on account of a claim by DEP. There is no dispute that (i) Casella incurred
cleanup costs, as defined, (ii) arising from migration of pollution from a covered property, as
defined, and (iii) Casella received and reported to Steadfast a claim, as defined, coming from
DEP. The dispute between the parties that is the crux of this lawsuit is whether the DEP claim
resulted from a “new pollution event” that first commenced in the Policy period and was not
known by Casella prior to the commencement of the Policy
The DEP claim concerns a landfill in the Town of Southbridge, Massachusetts operated
by plaintiff/insured SRDP. Beginning in 2002, the landfill began an annual residential well
monitoring program under which residents within ½ mile of a portion of the landfill could
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request testing of their potable wells. On October 23, 2015, Casella, by its consultant, gave notice
to DEP that SRDP’s well testing in September 2015 had detected certain contaminants above
applicable standards in the wells of three residences. The three residence were along a road called
H. Foote Road and the addresses were 65, 74 and 81 H. Foote Road. Of the three residences, it
was only at 65 where two contaminants – – trichloroethene (“TCE”) and 1,1-dichloroethene
(“DCE”) were detected in the well water at concentrations greater than the Massachusetts
Maximum Contaminant Level (“MMCL”). In fact, the detection of TCE and DCE at 65 H. Foote
Road was nearly double the applicable MMCLs. This was the first time since the well testing
program had begun that TCE and DCE were detected at concentrations above the MMCLs in any
residential well that participated in the program. The residence at 65 H. Foote Road had not
participated in the well testing program until December 2014, and its drinking water was not
tested until September 24, 2015.
The notice to DEP also referenced that another contaminant, 1,4 dioxane (“Dioxane”),
was detected in the well water of all three residence at 65, 74 and 81 H. Foote Road. The
concentration levels were all above the Massachusetts Drinking Water Guideline. Also, TCE and
DCE were found in the water of 81 H. Foote Road at levels below MMCL.
Prior to the September, 2015 detection of TCE and DCE at levels above MMCL at 65 H.
Foote Road, there had been detections, as part of the well testing program, of TCE and DCE
below MMCL, as well as detections above reportable conditions of Dioxane in the drinking
water supply of some of the residences on H. Foote Road. None of these detections, however,
caused Casella to be assigned a release tracking number under the 21-E Program or to be
designated as a potentially responsible party. No claim was asserted by DEP and no remedial
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action was required because of these earlier detections.
As a result of the notice to DEP in October 2015, the DEP for the first time assigned a
Release Tracking Number pursuant to its 21-E Program and identified SRDP as a potentially
responsible party for cleanup costs. Casella prepared, as required by DEP, an Immediate
Response Action Plan which was subsequently approved by DEP. In March 2017, Casella
reached an agreement in principle with the Town of Southbridge, the Town of Charlton and the
DEP to resolve the DEP claim. The agreement in principle was later finalized by way of an
Administrative Consent Order in May 2017, providing, among other things, for the sharing of
costs between DEP and SRDP of up to $ 10 million to install a municipal waterline in the Town
of Charlton. Casella became legally obligated to pay cleanup costs and take other remedial
action. Casella incurred more than $ 2.5 million in cleanup costs in connection with the DEP
claim and expects to incur additional costs.
On December 15, 2015, Casella provided notice to Steadfast of an occurrence or claim by
attaching a letter from Casella’s consultant to DEP. By letter dated April 8, 2016, Casella
notified Steadfast of the DEP claim. Steadfast denied coverage for the DEP claim, by letter dated
April 27, 2016, based on the “known pollution event” exclusion. This lawsuit followed.
DISCUSSION
A claim cannot be resolved on a motion for summary judgment where “a reasonable jury
could return a verdict for the nonmoving party.” Dennis v. Kaskel, 79 Mass. App. Ct. 736, 741
(2011), quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For this reason, in
evaluating the motion for summary judgment the court “must . . . draw all reasonable
inferences” from the evidence presented “in favor of the nonmoving party,” as a jury would be
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free to do at trial. Godfrey v. Globe Newspaper Co., Inc., 457 Mass. 113, 119 (2010). A request
for summary judgment must be denied where a claim turns on disputed issues of fact or on
disputed inferences from admitted facts. See Molly A. v. Commissioner of Dept. of Mental
Retardation, 69 Mass. App. Ct. 267, 284 (2007)(“summary judgment cannot be granted if the
evidence properly before the motion judge reveals a genuine issue of disputed material fact”);
Flesner v. Technical Communications Corp., 410 Mass. 805, 811-812 (1991) (“Where a jury can
draw opposite inferences from the evidence, summary judgment is improper.”).
Here, there are at least two major disputes of fact that are material to the legal issue of
whether insurance coverage exists under the Policy. Those disputes are (1) whether a relevant
“pollution event” was known to a “responsible insured” prior to the commencement of the
Policy, and (2) whether the “claim” submitted by Casella to Steadfast resulted from a “new
pollution event.” The disputes coalesce around the events at 65 Foote Road.
(1) Knowledge of Pollution Event
In SUMF Nos. 19, 20 and 45, Steadfast asserts that a 2006 collection of samples of water
at 65 H. Foote Road showed some level of TCE and DCE. Steadfast claims that the samples were
part of the residential well program of testing by SRDP. Casella denies these facts, based on
affidavits stating that the 2006 detections were not part of its well program. The affidavits aver
that the 2006 results were not known by Casella until late 2015. In SUMF No. 85, a statement of
fact submitted by Casella, Steadfast then admits that Casella was not aware of the 2006 report of
TCE and DCE at 65 H. Foote Road before April 2015 (the commencement of the Policy). This
contradiction suggests an unresolved issue of fact. Moreover, Steadfast contends in response to
SUMF No. 85 that detection by Casella’s well testing program prior to 2015 at other residences
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on H. Foote Road revealed at least some level of TCE and DCE in the water migrating to the
residences along H. Foote Road. While not stated with precision, Steadfast appears to argue that
the known pollution along H. Foote Road may be sufficient to ascribe knowledge of pollution at
65 H. Foote Road to Casella.
Thus, the facts of what did Casella know and when did it know it, are at issue. The
insurance provided by the Policy does not apply to a “pollution event” that was known to Casella
before the commencement of the Policy. A “pollution event” is defined in the Policy to mean
“the discharge, release, or escape of any solid, liquid, gaseous or thermal irritant, contaminant or
pollutant . . . into or upon land . . . or any watercourse or body of water including groundwater.”
Whether there was a pollution event known to Casella prior to the commencement of the policy
at 65 H. Foote Road or at any other relevant residences presents factual issues that must be
determined by a jury.
(2) What Caused the Claim
The question of what caused DEP’s claim brings the focus to 65 H. Foote Road. That is
because Steadfast’s obligation to pay under the Policy is triggered when Casella is legally
obligated to pay “as a result of” a “claim.”
The Policy defines “claim” as a “written demand or written notice received by the
‘insured’ alleging liability or responsibility on the part of the ‘insured.’” There does not appear to
be any dispute that the “claim” in this case is the assertion of liability of SRDP and Casella by
DEP.2 It is the position of Casella that the claim by DEP “resulted from” (quoting the language of
2 On March 9, 2016, Casella provided Steadfast with notice of a letter from legal counsel
to residents in the surrounding area of H. Foote Road. That letter threatened a lawsuit under
federal law for the alleged contamination of drinking water. By letter dated April 5, 2016,
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the Policy) the discovery in September 2015, of TCE and DCE at levels in excess of MMCL at
65 H. Foote Road. Stated another way, Casella contends that but for the discovery of high levels
of TCE and DCE at 65 H. Foote Road, there would not have been a DEP enforcement proceeding
or a claim at all. In SUMF No. 79, Casella states “[i]t was not until the detection in the drinking
water of TCE and 1,1 DCE above the MMCLs – – which had never occurred previously as part of
the Well Program – – that Casella was faced with a Claim in connection with the Well Program
identifying SRDP as a PRP under M.G.L. c. 21E and mandating that Casella incur extensive
‘cleanup costs’ in the form of a submission of an Immediate Response Action plan and the
performance of extensive remediation in accordance with M.G.L. c. 21E.” Steadfast disputes
SUMF No. 79. In addition, in response to Steadfast’s SUMF Nos. 18 to 44, wherein Steadfast
described detections on dates prior to the inception of the Policy of some level of TCE and DCE
and Dioxin at residences on H. Foote Road, other than number 65, Casella responded that “the
Mass DEP Claim was not as a result of those detections.”
In sum, Casella asserts that (1) it had no knowledge prior to September 2015 of pollution
migrating to 65 H. Foote Road, and (2) the “claim” occurred as a result of what was discovered
in September 2015 at 65 H. Foote Road, and absent the discovery at 65 H. Foote Road there
would have been no claim. The latter assertion will, ultimately, depend on Casella’s ability to
prove what would have occurred in a hypothetical situation: i.e., if only the Dioxane test results
for 74 and 81 H. Foote Road had been reported rather than in combination with the severe
readings of TCE and DCE from 65 H. Foote Road. I find that the facts asserted by Casella, as to
Steadfast denied coverage under the Policy for this potential claim based upon the “known
pollution event” exclusion. While these events are recited at ¶¶ 35 to 37 of the Complaint,
Casella asserts no claim in this lawsuit arising from this correspondence.
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the lack of any enforcement by DEP prior to the October 2015 report of findings at 65 H. Foote
Road, and the immediate assertion of a claim arising after the October 2015 report, give rise to a
reasonable inference that the claim by DEP resulted from a “new pollution event” at 65 H. Foote
Road.3 The reasonable inference may be rebutted by evidence in the correspondence and
otherwise indicating that DEP required remedial action with respect to 74 and 81 H. Foote Road,
but a triable issue is presented. Moreover, it may be that some of the “claim” asserted by DEP
resulted from pollution at locations other than 65 H. Foote Road as to which Casella was aware
prior to 2015. In that case, a question of allocation of cleanup costs to a covered claim (65 H.
Foote Road) and other locations that may not be covered because of the “known pollution event”
exclusion, may have to be determined. Summary judgment is not available to decide those fact
issues.
CONCLUSION
For the reasons stated above, Steadfast’s Motion for Summary Judgment is DENIED.
By the Court,
Edward P. Leibensperger
Justice of the Superior Court
Date: September 7, 2017
3 A “new pollution event” is defined in the Policy to mean “a ‘pollution event’ that first
commences after the ‘delimitation date.’” The delimitation date is April 30, 2015.
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Posted by Stephen Sandberg - October 4, 2017 at 1:11 am

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Philadelphia Indemnity Insurance Company v. National Union Fire Insurance Company of Pittsburgh, PA (Lawyers Weekly No. 12-083-17)

1
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
NO. 2016-00045 BLS1
PHILADELPHIA INDEMNITY INSURANCE COMPANY
vs.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA
MEMORANDUM OF DECISION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
Plaintiff Philadelphia Indemnity Insurance Company (PIIC) and defendant National Union Fire Insurance Company (National Union) each issued insurance policies to North Suffolk Mental Health Associated, Inc. (North Suffolk). PIIC issued a Commercial General Liability (CGL) policy; and National Union issued a Workers’ Compensation and General Liability (Workers’ Comp.) policy. In a case filed in the Middlesex Superior Court in 2011, captioned Estate of Stephanie Moulton v. Nicholas Puopolo, et al. (the Underlying Action), the plaintiff estate brought suit against eighteen directors of North Suffolk (the Director Defendants) asserting claims arising out of the work related death of Ms. Moulton, a North Suffolk employee. The Director Defendants tendered the claim to both PIIC and National Union. PIIC defended the claim (under a reservation of right) and National Union declined coverage. The Director Defendants’ motion to dismiss the Underlying Action was eventually allowed, after appeal to the Supreme Judicial Court (SJC). See Estate of Moulton v. Puopolo, 467 Mass. 478 (2014) (Moulton). In this action, PIIC has filed suit against National Union asserting claims for
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declaratory judgment and equitable subordination and seeking to recover the cost of its successful defense of the Underlying Action. The case is now before the court on the parties’ cross-motions for summary judgment. For the reasons that follow, National Union’s motion is ALLOWED, and PIIC’s motion is DENIED.
ADDITIONAL FACTS
The following additional facts are undisputed.
Ms. Moulton was an employee of North Suffolk, a charitable corporation that provides mental health and rehabilitation services. She was assaulted and killed by a patient while performing her job. As explained in Moulton, her estate (the Estate) filed the Underlying Action against the directors of North Suffolk and others. It alleged claims for willful, wanton, reckless, malicious and grossly negligent conduct and, also, as to the Director Defendants, breach of fiduciary duty. The complaint alleged that the Director Defendants “effectuated” policies and failed to “effectuate” other policies that caused Ms. Moulton’s death. Id. at 480. They “moved to dismiss the complaint chiefly on the grounds that, with respect to the wrongful death action, they are immune from suit, as Ms. Moulton’s employer, under the exclusive remedy provision, G.L.c. 152, § 24 of the Workers’ Compensation Act (act), and, with respect to the breach of fiduciary duty claim, they owed Moulton no such duty.” Id. The Superior Court denied the motion to dismiss; the director defendants sought interlocutory review under the doctrine of present execution; and the case was transferred to the SJC.
As relevant to this case, the SJC found that: “The complaint, fairly read, alleges that the Director Defendants, acting qua directors rather than in any other capacity, set and enforced misguided and wrongful corporate policies that resulted in Mouton’s death while in the course of
3
her employment. There is no allegation that the directors undertook any action without a formal board meeting or vote, . . . to the extent that the complaint alleges that Moulton’s death arose from the adoption of or failure to adopt corporate policies, it alleges conduct by the charitable corporation that could have been occasioned only by the vote of its directors acting collectively as a board.” Id. at 488-489. It then held that, “we conclude that the director defendants were Moulton’s employer for purposes of the exclusivity provision of the act. As Moulton’s employer, the director defendants are therefore immune from suit for workplace injuries due to actions taken by the board.” Id. at 490-491.1
The Worker’s Comp. Policy
The National Union Workers’ Comp. policy was in effect when the Moulton claim was asserted. It is a standard form of Worker’s Comp. policy issued in Massachusetts. It has two coverage parts. Part One provides for payment of any benefits “required of you by the workers compensation law;” and that National Union has “the right and duty to defend at our expense any claim, proceeding or suit against you for benefits payable by this insurance. . . . We have no duty to defend a claim, proceeding or suit that is not covered by this insurance.”
Part Two provides Employers’ Liability Insurance. As explained by the SJC in HDH Corporation v. Atlantic Charter Ins. Co., 425 Mass. 433, (1997) (Atlantic Charter), the seminal decision addressing the coverage provided under a workers’ compensation policy, discussed at greater length infra: “Part Two, the employers’ liability portion of the insurance policy, is intended to provide coverage in the rare circumstance in which an employee who has affirmatively opted out [of the workers’ compensation benefits system at the time of hire] brings a tort action for personal injuries.” Id. at 439 n.11.
1 The SJC also held that, “as Moulton’s employer, the director defendants, acting as a board, had no fiduciary duty to her.” Id. at 493.
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The declarations page of the Workers’ Comp. policy identifies North Suffolk as the named insured. There are no policy provisions or endorsements that broaden the definition of named insured to include directors, officers, or employees.
DISCUSSION
PIIC first argues that since, in Moulton, the SJC held that “the director defendants were Moulton’s employer for purposes of the exclusivity provision of the act,” they might also be insureds under the Workers’ Comp. policy, even though the policy terms do not extend coverage to them; or, at least, there is a “possibility” that they would be held to be insureds in a declaratory judgment action addressing coverage issues under the Workers’ Comp. policy. PIIC next argues that there then also exists a “possibility” that the claims asserted by the Estate in the Underlying Action were covered under either Part One or Part Two of the Workers’ Comp. policy coverage provisions. PIIC then goes on to cite Billings v. Commerce Ins. Co., 458 Mass. 194, 200-201 (2010) for the long established principle that: “In order for the duty of defense to arise, the underlying complaint need only show through general allegations, a possibility that the liability claim falls within the insurance coverage.” (Emphasis supplied.) According to PIIC, given this possibility of coverage, National Union had a duty to defend the Director Defendants in the Underlying Action.
The court finds it doubtful that the SJC’s holding that, under the “so-called exclusivity provision of the act,” the directors of a corporation cannot be sued for work place injuries in the Superior Court, when they were alleged to have done nothing more than vote on corporate policies, could be interpreted to mean that the directors were additional insureds under a workers’ compensation policy. However, the court declines to address that argument. This is
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because the SJC’s decision in Atlantic Charter clearly establishes that National Union’s Workers’ Comp. policy did not provide coverage for the claims asserted by the Estate in the Underlying Action.
Claims Asserted under Part One of the Workers’ Comp. Policy
In Atlantic Charter, an employee sued its former employer HDH Corporation (HDH) for personal injuries arising from her allegedly wrongful termination; her husband also asserted claims for loss of consortium. HDH tendered the claim to its workers’ compensation carrier, Atlantic Charter, which declined coverage. The case went to arbitration and the plaintiff employee recovered. HDH then sued Atlantic Charter, claiming coverage under Part One of the policy. The SJC explained the extent of coverage provided under Part One of a workers’ compensation policy as follows:
The terms of Part One of the policy clearly limit defense and indemnity of the employer to claims for benefits required by the workers’ compensation statute. However, the employee brought a civil action seeking monetary damages, and made no claim for workers’ compensation benefits. Indeed, no matter what the allegations of the complaint, as a matter of law, workers’ compensation benefits cannot be recovered by instituting a civil action. A claim for benefits must be brought before the department and adjudicated through the statutorily prescribed workers’ compensation system. See Neff v. Commissioner of the Dep’t of Indus. Accs., 421 Mass. 70, 74 (1995) (describing procedural course for the adjudication of workers’ compensation dispute through the Department of Industrial Accidents). See also Alecks’ Case, 301 Mass. 403, 404 (1938) (under the workers’ compensation statute, an employee “acquires a right to compensation for personal injury as provided in that act, to be enforced by claim against the insurer filed with the Industrial Accident Board…. [T]he policy of the act is to deprive [the employee] of all right of action in tort against his employer for damages for an injury within the scope of the [workers’] compensation act”).
The record demonstrates that a claim for benefits was never initiated by the employee, as mandated by G.L. c. 152, § 10. Accordingly, Atlantic is correct that it had no duty to defend the civil action because the complaint did not state a claim that could result in liability which Atlantic would be obligated to pay under any reasonable interpretation of Part One of the policy. See, e.g., Jimmy’s Diner, Inc. v. Liquor Liab. Joint Underwriting Ass’n of Mass., 410 Mass. 61, 65 (1991).
425 Mass. at 433.
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In Atlantic Charter, the SJC also explained the important public policy considerations underlying the legislation that it was interpreting:
Public policy also supports our decision. The fundamental purpose of the workers’ compensation system is to make funds more readily available to injured employees. Accordingly, the Commonwealth requires all employers to provide workers’ compensation benefits to their employees. See G.L. c. 152, § 25A. As amici point out, the cost of mandatory workers’ compensation insurance is a significant aspect of the business climate of the Commonwealth. Recent legislative reforms have sought to lower the insurance rates employers must pay to provide the security of workers’ compensation benefits to their employees. See St.1991, c. 398. Requiring workers’ compensation insurers to defend civil actions outside the workers’ compensation system would represent an unwarranted expansion of coverage historically understood as provided under this mandatory form of insurance, a result which would increase insurance costs for employers, and could gut the legislative scheme for workers’ compensation. See, e.g., La Jolla Beach & Tennis Club, Inc., supra at 44, 36 Cal.Rptr.2d 100, 884 P.2d 1048.
Id. at 440.
In the present case, Moulton’s estate made no claim to recover workers’ compensation benefits2; indeed, it did not sue North Suffolk, but rather its directors, in an obvious and unsuccessful attempt to recover damages and not the benefits provided under the act.3 PIIC’s argument that the SJC’s decision in Moulton overruled the express holding in Atlantic Charter that Part One of a workers’ compensation policy only provides coverage for workers’
2 The workers’ compensation act has long been held to provide the exclusive remedy by which the estate of deceased employee can recover from his employer. See McDonnell v. Berkshire St. Ry. Co., 243 Mass. 94, 95
(1922) (“The employer who is insured under the workmen’s compensation act is relieved of all
statutory liability, including that for death of an employee under the employers’ liability act”);
Cozzo v. Atlantic Refining Co., 299 Mass. 260, 262 (1938) (“Nor can an action at law be
maintained against such employer [i.e., one who is insured under the workers’ compensation law] to recover for the death of an employee resulting from such injury [i.e., one arising out of and in
the course of his employment],” citing G. L. c. 152, 68); Ferriter v. Daniel O’Connell’s Sons,
Inc., 381 Mass. at 528 (“We acknowledge that G. L. c. 152, 1[4] and 68, bar a deceased
employee’s dependents from recovering under G. L. c. 229, 2 and 2B, for loss of consortium,
as against an employer covered by G. L. c. 152”).
3 In Peerless Ins. Co. v. Hartford Ins. Co., 48 Mass. App. Ct. 561 (2000), decided shortly after Atlantic Charter, the Appeals Court addressed a coverage dispute between an employer’s general liability insurer and its workers’ compensation insurer very much like the dispute presented by this case. There the estate of a deceased employee sued the employer. The workers compensation carrier denied coverage and the general liability carrier defended the claim. The Appeals Court held that because the estate could not bring a claim against the employer for workers compensation benefits or for wrongful death, the workers’ compensation carrier had no duty to defend and no obligations to the general liability carrier.
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compensation benefits, and those benefits can only be claimed in the Department of Industrial Accidents, simply does not parse. In holding that the Estate could not bring an action against the Director Defendants based on allegations that they had voted to adopt corporate policies that allegedly contributed to Ms. Moulton’s death, the SJC was clearly not expanding the coverage provided by workers’ compensation policies. It was also not seeking to “gut” the public policy considerations underlying the statutory scheme, which were intended to reduce the costs of this mandatory insurance coverage, by saddling workers compensation insurers with potential additional costs unrelated to the employee benefits mandated by the act. Indeed, in Moulton, the SJC was not addressing insurance at all. It was only concerned with whether the Director Defendants were subject to suit at common law by an injured employee.
In a somewhat round about argument, PIIC suggests that the Appeals Court’s decision in Norfolk & Dedham Mutual Fire Ins. Co. v. Cleary Consultants, Inc., 81 Mass. App. Ct. 40 (2011) (Norfolk & Dedham) supports its position. In furtherance of its arguments that the claims asserted in the Underlying Action were not covered, National Union quoted the following sentence from Atlantic Charter: “Indeed, no matter what the allegations of the complaint, as a matter of law, workers’ compensation benefits cannot be recovered by instituting a civil action.” 425 Mass. at 439. PIIC argues that in Norfolk & Dedham, the Appeals Court noted that an insurer that provided coverage for slander, libel, and invasion of privacy could not disclaim coverage just because these common law claims were asserted together with claims for sexual harassment before the Massachusetts Commission Against Discrimination (MCAD). In fact, in that case, the Appeals Court held that those claims could be asserted as part of a claim for sexual harassment, because they are compensable under an award for emotional distress. The Court did go on to comment that even if the claims were “viewed as a misguided effort to adjudicate
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claims of slander and invasion of privacy in an improper forum, that would not affect Norfolk’s duty to defend. An insurer’s obligation to defend is not limited to valid claims; it extends even to claims potentially dismissible for lack of subject matter jurisdiction.” 81 Mass. App. Ct. at 48-49. This comment, of course, has no bearing on the statutory scheme for workers’ compensation benefits, in which a workers compensation policy insures only those benefits provided by the act, benefits that can only be awarded by the Department of Industrial Accidents. Obviously, a covered claim filed in the wrong court still gives rise to a duty to defend. An insurer could not disclaim a duty to defend because a plaintiff mistakenly filed an action in federal court, when there was no federal jurisdiction, but the policy covered the injury alleged in the complaint. A worker’s compensation insurer does not have a duty to defend a claim filed in Superior Court for damages that are expressly not covered under the workers’ compensation system.
Claims Asserted under Part Two of the Workers’ Comp. Policy
At oral argument, PIIC acknowledged that its principle argument that the “possibility” of coverage existed and this triggered National Union’s duty to defend was based on Part One of the coverage provisions. It nonetheless also asserted that a duty to defend arose under Part Two. Here, PIIC does not argue that Moulton overturned that part of Atlantic Charter in which the SJC stated that: “Part Two, the employers’ liability portion of the insurance policy, is intended to provide coverage in the rare circumstance in which an employee who has affirmatively opted out brings a tort action for personal injuries.” Rather, PIIC argues that the Estate’s amended complaint “included claims for funeral expenses, as well as for wrongful death and pain and suffering without reference to the Wrongful Death Act, and did not indicate whether Moulton’s parents were dependent upon her for financial support. Those claims arguably fell within the
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scope of claims subject to G.L. c. 152, §§ 33, 31 and/or 32, respectively, but were presumably intended to circumnavigate the Workers’ Compensation statute entirely and therefore [because there was no allegation that Moulton had waived her rights to workers’ compensation benefits] left open the question whether Moulton had preserved her common law rights in lieu of accepting Worker’s Compensation benefits.” In consequence, until it could be established that Ms. Moulton had not affirmatively opted out of workers’ compensation coverage when she began work at North Suffolk, the possibility that claims asserted in the amended complaint were covered by the Workers’ Comp. policy existed.
However, in Moulton, the SJC summarily dismissed the suggestion that an employer/defendant had to assert non-waiver of workers’ compensation benefits as an affirmative defense. It explained that the statute (G.L. c. 152, § 24) expressly provides that the employee “shall be held to have waived his right of action at common law,” if he does not provide a written notice that he is claiming his right to opt out at the beginning of his employment. Therefore, non-waiver is not an affirmative defense, but rather it is the plaintiff that must allege in the complaint that the “right to payment under the act” was waived. 467 Mass. at 484 n. 12. This was not pled in the Estate’s amended complaint (nor could it be,) and therefore the complaint alleged no facts even suggesting a claim covered by workers’ compensation insurance. “When the allegations in the underlying complaint lie expressly outside the policy coverage and its purpose, the insurer is relieved of the duty to investigate and defend the claimant.” Herbert A. Sullivan, Inc. v. Utica Mut. Ins. Co., 439 Mass 387, 394-395 (2003) (Internal citations and quotations omitted.)
Moreover, the issue now before the court is not whether the Estate stated a cause of action against the Director Defendants that could possibly survive a motion to dismiss. This is a
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coverage case between two insurers. PIIC issued a comprehensive general liability policy to its insured, North Suffolk. It is claiming a right to equitable subrogation or contribution from National Union in its capacity as North Suffolk’s workers’ compensation carrier. Its rights to recover against National Union are no greater than North Suffolk’s rights to demand that National Union defend the Underlying Action. Clearly, North Suffolk could not demand coverage based on the absence of an allegation that Ms. Moulton had affirmatively opted out of her rights for workers’ compensation benefits, knowing full well that she had not.
ORDER
For the foregoing reasons, National Union’s motion for summary judgment is ALLOWED and PIIC’s moiton for summary judgment is DENIED. Final judgment shall enter dismissing the complaint.
_______________________
Mitchell H. Kaplan Justice of the Superior Court
Dated: June, 13 2017 read more

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Posted by Stephen Sandberg - July 3, 2017 at 10:06 pm

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McEvoy v. Savings Bank Life Insurance Co. of Massachusetts (Lawyers Weekly No. 12-084-17)

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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT
CIVIL ACTION
NO. 2017-1961 BLS1
LESLIE V. McEVOY, individually and on behalf of a class of similarly situated persons,
vs.
SAVINGS BANK LIFE INSUARNCE CO. OF MASSACHUSETTS
MEMORANDUM OF DECISION AND ORDER PLAINTIFF’S MOTION FOR A PRELIMINARY INJUNCTION
The plaintiff Leslie V. McEvoy alleges that she holds a participating whole life insurance policy issued by the defendant Savings Bank Life Insurance Co. (SBLI).1 In this action, she seeks to enjoin all SBLI’s policyholders from voting on a proposed conversion of SBLI from a stock life insurance company to a mutual life insurance company. The case came before the court on June 27, 2017 on the plaintiff’s motion for a preliminary injunction enjoining the vote until additional disclosures concerning the plan of conversion demanded by her were made to SBLI’s other 480,000 policyholders. In her complaint, the plaintiff alleges that the vote on the plan of conversion is to occur at a Special Meeting of policyholders scheduled for that purpose on June 28, 2017. It appears, however, that voting has actually been underway for weeks. While the meeting was scheduled for 11:00 AM on June 28, 2017, and policyholders present at the meeting who had not previously voted could vote at that time, voting opened on May 19, 2017 and could be accomplished by mail, phone call, or on the internet, so long as the votes were
1 It appears that the plaintiff owns two policies, each in the face amount of $ 1,000, although was is pledged to a division of the State of New Hampshire.
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received in time to be counted by the time of the meeting. As a result, the majority of votes cast in this election may well have been received by SBLI management before the annual meeting. In consequence, from a practical perspective a motion brought before the court on the afternoon of June 27th to preliminarily enjoin the vote that was to be completed and tallied the following morning was not timely.
The proposed conversion of SBLI into a mutual insurance company calls for the SBLI shareholders, 30 Massachusetts banks or banks that had acquired Massachusetts banks, to receive $ 57.3 million in return for their shares in SBLI. This sum is to be financed through the issuance of Surplus Notes. While SBLI and its financial advisers have been working for some time on the sale of these Surplus Note to certain financial institutions, at oral argument the court was informed that the closing on that transaction was still two or three weeks away. In theory, therefore, the court could still issue a mandatory preliminary injunction voiding the vote, which would of course preclude any possibility that SBLI could issue the Surplus Notes on the schedule now contemplated, and ordering that revised informational materials be sent to policyholders and a new vote undertaken. The court declines to enter such an extraordinary order and, accordingly, DENIES the motion for a preliminary injunction.
Generally, it is this court’s practice to issue a comprehensive memorandum of decision when addressing a motion for preliminary relief in a case of this nature. However, in this case it appears that speed is more important than a carefully crafted explanation of the court’s reasoning, so that the plaintiff may consider any other opportunities for the relief she requested. Accordingly, what follows is a summary statement of court’s reasoning.
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DISCUSSION
Background
The history of how Louis D. Brandeis originally devised and promoted the establishment of SBLI and it then came to be reorganized on multiple occasions by the Massachusetts Legislature is set out in prior decisions, including Goldstein v. Savings Bank Life Ins. Co. of Massachusetts, 435 Mass. 760 (2002) and, on remand, the Superior Court’s decision on Cross-Motions for Summary Judgment dated July 3, 2008 (Gants, J.) (Goldstein). Its unique status as the only life insurance company previously required to conform to both G.L. c. 175 and G.L. c. 178A has been noted by the SJC. Id. at 770. Indeed, the conflicts inherent in an entity that owes obligations to shareholders and policyholders has been the catalyst for much prior litigation. It appears that more recent events have increased the shareholder banks’ desire to liquidate their interests in SBLI. First, they no longer sell a material number of SBLI policies or annuity contracts and therefore no longer have a business interest in the insurer. More critically, recent adoption of the so-called Basel III capital rules increased the risk weighting for non-publicly traded equity securities owned by banks, like the shares of SBLI, from 100% to 400%. In consequence, SBLI’s bank shareholders must increase the capital held against their investment in SBLI by a factor of four.
Following meetings with financial, actuarial and legal advisors, the plan to convert SBLI to a mutual insurance company wholly owned by its policyholders by having SBLI purchase all shares was adopted by the interested parties as the most expedient means for the shareholders to exit, while permitting SBLI to continue to serve the purpose for which it was founded–providing
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secure, low-cost life insurance. The plan was unanimously approved by SBLI’s nine member board of directors. While these directors are elected by the shareholder banks, five of the members are independent. The shareholders then voted to approve the conversion. The plan also had to be approved by the three member Policyholders Advisory Board (PAB), a statutorily mandated body established by the Legislature in connection with a 2010 reorganization of SBLI, whose mission is to protect the interests of policyholders and promote SBLI’s purpose. The current chair of the PAB is a former Massachusetts Commissioner of Insurance. The PAB unanimously approved the plan of conversion in October, 2016, and, following its review of a fairness opinion prepared by the actuarial firm Milliman, Inc. that opined that the conversion was fair to policyholders on an actuarial basis, once again in January, 2017. The plan of conversion still, however, required the approval of the Commissioner of Insurance. See G.L. c. 175, § 19D(2). After nearly four months of review, by letter dated May 25, 2017, the Commissioner also approved the plan, subject to conditions not relevant to the pending motion. Among the findings that the Commissioner was required to make in order to approve the conversion is that the plan is “not prejudicial to the policyholders of such company or to the insuring public.” Id.
With respect to this finding, the Commissioner noted that SBLI management was of the view that participating policyholders and the shareholders have an interest in SBLI’s surplus, while the staff of the Division of Insurance is of the view that only the shareholders have an interest in the surplus. The $ 57.3 million to be paid to the shareholders represented an amount substantially less than the percentage of the surplus that SBLI attributed to the shareholders.
Of particular note to the pending motion, the Commissioner observed that the annual costs of the interest to be paid on the $ 57.3 million of Surplus Notes, plus the creation of reserves necessary to repay the Notes on maturity (something in the nature of a sinking fund), exceeds the
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amount of the dividends currently being paid to shareholders. However, because of the new Basel III requirements, pursuant to which the bank shareholders will have to increase their capital in respect of the shares by a multiple of four, their cost of holding SBLI shares will also increase by a factor of four. In consequence, shareholder dividends could be expected to increase by the same factor, an amount which would not violate statutory limitations on dividends that shareholder owned life insurance companies may issue. At that point, the amount of annual dividends paid to the banks would substantially exceed the interest and reserve expenses associated with the new Surplus Notes.
The last step in the plan of conversion is a vote to approve the plan of conversion by the policyholders; a majority of policyholders who vote is required for approval. According to the Chair of the PAB, the Commissioner reviewed and approved the disclosures sent to the policyholders soliciting their votes for the plan of conversion (hereafter referred to as the Notice).
Analysis of the Claims
It is important to note that the issue before the court on this motion for a preliminary injunction is not whether the plan of conversion is good, bad, or indifferent, as it affects the interests of policyholders, including those that have participating policies and receive annual dividends, as well as those that hold policies that do not provide a right to annual dividends. Rather, the question is whether any disclosures in the Notice are materially misleading, either by what they say or omit to say. It is also notable that the plaintiff’s complaint does not allege a breach of fiduciary duty by SBLI Board or the PAB. This case, as presently pled, is solely about the nature of the disclosures.
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The parties have not provided the court with any case that addresses the standard to apply in assessing the disclosures that should be made to policyholders when a stock insurance company is converted to a mutual company. The parties have both relied on a Superior Court decision—Silverman v. Liberty Mut. Ins. Co., 13 Mass. L.Rptr. 303 (2001) (Gants, J.)—to define the standard. That case, however, addressed the demutualization of an insurance company. In consequence, in that situation the policyholders clearly owned all of surplus and held voting rights, both of which they would be conceding in a demutualization. This case presents the reverse situation, further complicated by the unique structure of SBLI. Policyholders will be acquiring all voting rights and full ownership of any surplus available for distribution to equity holders on liquidation. The policyholders will obviously not receive any cash in this transaction, nor will they be required to pay for the shares that will be acquired by SBLI, although the value of the entity which they will then own will certainly be affected by the amount paid to the departing shareholders. Nonetheless, Silverman provides a useful guide. There Justice Gants wrote:
A mutual insurer has a duty to provide its policyholders with full and honest disclosure of material facts relating to a transaction that requires policyholder approval. .. .An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. . . . The standard contemplates a showing of substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information available.” (Internal citations and quotations omitted.)
It is, perhaps, worthy to note that this description of the law of disclosure was borrowed from securities cases in which the person receiving the disclosure was truly an investor primarily concerned with a monetary return on the investment. Here, the recipients of the information are policyholders who purchased a life insurance policy (or annuity contract) specifically designed to
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be low cost and secure, in the sense that if a claim was made for insurance benefits or redemption it would be paid. Only those policyholders that owned participating policies had any expectation of dividends (which would be modest), and no expectation that SBLI would ever be liquidated and the policyholder receive some part of surplus.
With these standards in mind, the court turns to the areas of disclosure in the information sent to policyholders soliciting their votes (hereafter the Notice) that the plaintiff alleges were materially misleading.
The NOLs
The plaintiff’s first claim of “egregiously” misleading disclosure involves so-called NOLs. SBLI has $ 219 million in Net Operating Losses (NOLs) that could be used to offset future profits of the company for federal income tax purposes. SBLI management’s financial forecast assumes that SBLI will be in a position to begin making use of these NOLs, subject to certain restrictions, in 2021. The Notice discloses that: “If the Internal Revenue Service . . . determines that the Conversion constitutes a change of control . . . SBLI’s ability to utilize these NOLs will be limited.” The Notice went on to explain that SBLI believes that the Conversion would not constitute a change in control, but the IRS might take a different position. The Notice fairly disclosed the value of the NOLs to SBLI and that the conversion places them at risk. The Notice appropriately takes no position on the likelihood of IRS audit in the years 2021 and subsequent when SBLI hopes to begin to be able to make use of the NOLs or the ultimate outcome of any dispute with the IRS concerning “change of control” and how that would limit SBLI’s to use the NOLs to offset taxable income. It appears that the plaintiff’s real argument as it relates to the NOLs is not the disclosure, but rather whether the conversion is too risky because this contingent asset might be forfeit. That risk is, however, is sufficiently disclosed.
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The Piper Jaffray Fairness Opinion
The plan of conversion calls for the shareholders to receive $ 500 for each Class A share (the voting shares, of which there are only one for each shareholder) and $ 128 for each Class B share. As part of the conversion process, the shareholders received a fairness opinion from the investment banking firm Piper Jaffray to the effect that the plan was fair to shareholders. The Piper Jaffray opinion was not included in the Notice sent to the policyholders. The Notice provided a copy of the Milliman opinion, which addresses the fairness of the conversion to the policyholders from an actuarial point of view.
The plaintiff argues that the failure to include the Piper Jaffray opinion was materially misleading because Piper Jaffray arrived at a number of values for a Class B share, one of which was based on a discounted cash flow analysis that yielded share values of $ 85.10 to $ 92.87. However, another version of the cash flow analysis provided values of $ 174.64 to $ 191.30. Under the Piper Jaffray analyses any changes in operational results that result in changes in cash flow produce very substantial changes in projected share values because Piper Jaffray was using discount rates of 14% to 18% based on a capital asset pricing model which was undoubtedly affected by the SBLI’s modest size, as well as the completely illiquid nature of a share of SBLI stock. This court questions whether a discounted cash flow analysis of after-tax cash flows theoretically available to equity holders of SBLI is particularly useful to a shareholder or a policyholder.2 However, from a policyholder’s perspective it would have little to do with a
2 Piper Jaffray noted that the illiquidity of an investment in SBLI “is the result of SBLI’s unique ownership structure, in which ownership is restricted to Massachusetts-chartered savings banks and acquirers thereof. Based on academic research, institutional studies, market, examples of discounts on illiquid securities, and Piper Jaffray’s professional experience, Piper Jaffray has applied an illiquidity discount of 30%, and such discount is incorporated in the numerical results for all of the valuation methodologies enumerated below.”
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policyholder’s principal concerns: will SBLI be able to pay any claims, issue a dividend if the policy is participating, or redeem the policy if it is a whole life policy.
According to SBLI, the Commissioner recommended against inclusion of the Piper Jaffray opinion in the Notice. The court can understand why. While a shareholder bank voting in favor of the plan of conversion must have support for its decision, because it has fiduciary obligations to its own shareholders, it is unclear how this information will materially assist a policyholder in addressing the impact of the conversion on policyholders’ interests. The PAB withheld its final approval of the plan until it received an opinion from Milliman, one of the largest actuarial firms in the world, that the conversion was fair to policyholders from an actuarial point of view.
The Costs of the Surplus Note
The plaintiff complains about a failure to disclose the costs to SBLI of the Surplus Notes. Frankly, the court does not fully understand the plaintiff’s argument in this respect. The Notice includes pro formas that assume completion of the conversion and clearly show that $ 57.3 million of Surplus Notes will be issued and that they will bear interest at 6% a year, which is a rate in excess of that which management asserts it will have to offer to sell the Notes. The pro formas also reflect approximately $ 6.5 million of transaction related expenses. It is self-evident that the Notes will have to be repaid on maturity.
The court does believe that the Notice could have been more clear in comparing the annual cost associated with the debt service on the Notes and the creation of a reserve (similar to a sinking fund) to repay the Notes on maturity with the current amount of the dividends being paid to the shareholders, which is much less. The assumption that makes the conversion
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attractive to policyholders, and was important to the Commissioner, is that the SBLI Board, which is controlled by the shareholders, will vote to increase the dividends as a consequence of the very substantial increased capital requirements that the banks will incur with respect to their SBLI shares as a result of Basel III. It seems that this is the most relevant information that a policyholder, at least a participating policyholder hoping for dividends, would want. The court believes that this could have been more clearly stated in the Notice, but does not find what is stated materially misleading.
The Dilution of Participating Shareholders Interest in Surplus
The plaintiff argues that the Notice should disclose that participating policyholders will suffer dilution of their dividend rights. The court finds that this argument is simply in error. There is nothing in the conversion that will transform non-participating policies into policies that will be entitled to dividends.
The Quoted Passage from Goldstein
The plaintiff argues that it was misleading to quote a passage from Goldstein which reads: “this Court declares as a matter of law that the precise percentage of original surplus that is attributable to stockholder equity is 37.5 percent.” The quote is found in that part of the Notice that describes SBLI’s historic method of accounting for its surplus following a 1992 reorganization. There, the Notice explains that beginning with the 2001 financial statements, the amount of surplus attributable to the shareholders has been based on the assumption that the shareholders’ interest in the surplus following the 1992 reorganization was 37.5% or approximately $ 39.5 million. The Notice comments that this assumption was “affirmed” by that
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statement from the Goldstein opinion quoted above. The use of the word “affirmed” is perhaps a bit much, but it is not materially misleading. Moreover, the plaintiff has not argued that $ 57.3 million is more than the shareholders’ interest in the surplus. For its part, the Division of Insurance believes that the shareholders would be entitled to all of the surplus if SBLI liquidated. Arguably, a plan of conversion that allowed the shareholders to withdraw all of their ownership in the surplus on the sale of their shares to SBLI would be fair from a monetary point of view.
Miscellaneous
The plaintiff makes a number of arguments that appear to assert mismanagement of SBLI. Whether those complaints are valid cannot inform the question of whether the Notice is materially misleading. If the conversion succeeds, the policyholders will have voting control over SBLI and can replace management.
* * *
In sum, the court finds that the plaintiff is not likely to succeed on the merits of her claim that: “The Notice prominently and falsely states to Policyholders that ‘the premiums, benefits, values, guarantees and dividend rights of your insurance policies or annuity contracts WILL NOT be reduced, changed, or affected in any way as a result of the Conversion.’” It appears to this court that this statement read in the context of the entire Notice is not materially misleading. The policies will not be affected. The policyholder claims will be superior to claims made under the Surplus Notes. Dividend rights afforded participating policyholders are also not directly affected, although undoubtedly indirectly affected by the future profitability of SBLI, but as to that, the expenses and risks associated with the issuance of the Notes are generally disclosed.
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Irreparable Injury
To succeed on a motion for a preliminary injunction, the moving party bears the burden of showing: (1) a likelihood of success on the merits of its claim; (2) that it will suffer irreparable harm if injunctive relief is not granted; and (3) that its harm, if injunctive relief is denied, outweighs any harm that would be suffered by the party enjoined, if the injunction issued. See Boston Police Patrolmen’s Ass’n, Inc. v. Police Dept. of Boston, 446 Mass. 46, 49-50 (2006); Packaging Indus. Group. Inc. v. Cheney, 380 Mass. 609, 616-617 (1980).
In this case, weighing the harm that would be inflicted on not only SBLI, but also potentially on all of the 480,000 other policyholders of SBLI, if the injunction issues, against plaintiff’s alleged harm, suggests to the court that it would be highly improvident to enter an injunction effectively delaying this transaction for an indefinite period, if not putting the entire conversion at risk. The court does not yet know whether the policyholders voted to approve the plan of conversion. If they did not, the motion is moot. If they did, the costs of vacating the results of the vote, revising the Notice, and beginning the process anew could be enormous. In addition to which, further delay could well increase the interest rates required to place the Surplus Notes in the current environment of generally rising interest rates (the Federal Reserve Bank increased rates again only two weeks ago). Potentially, an injunction could make institutional investors now interested in buying the Notes wary.
It appears to the court, that most purchasers of SBLI policies are primarily concerned with the premium cost and security of their policies, rather than their interest in SBLI’s surplus in the unlikely event of SBLI’s liquidation. Eliminating the bank shareholders, who are not policyholders and no longer market SBLI policies or annuity contracts, but nonetheless have
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voting control over SBLI and fiduciary duties to their own constituencies will be beneficial to policyholders. SBLI could then be managed exclusively for the benefit of the policyholders that will own it. The court cannot help but note that the only plaintiff in this case owns only two $ 1,000 policies, one of which she pledged. Given the nature of the allegedly misleading statements about which the plaintiff complains and the potential of undoing this transaction that most policyholders may well find favorable (even if the Piper Jaffray opinion were attached to the Notice), or, at least, making it far more costly, the court declines to enter the extraordinary relief requested.
Moreover, the underlying theme of the plaintiff’s complaint is that this conversion was intended to unfairly further the interests of the shareholders at the expense of the policyholders. While there is no claim for breach of fiduciary duty against the SBLI Board asserted, that is the underlying subtext. All of the shareholders who will be receiving cash for their shares are Massachusetts banks or acquirers of Massachusetts banks. If the conversion results in the unlawful transfer of value from the policyholders to the shareholders, there are other claims that could, at least in theory, be asserted.
The court finds that the potential harm that would arise from the entry of a preliminary injunction undoing the vote and undoubtedly the issuance of the Surplus Notes outweighs the potential irreparable harm that would result from its entry.
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ORDER
For the foregoing reasons, the plaintiff’s motion for a preliminary injunction is DENIED.
____________________
Mitchell H. Kaplan
Justice of the Superior Court
Dated: June 30, 2017 read more

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