Tag Archives: liability

Five Years Of The Litigators’ Blog

It’s hard to believe that this blog marks the five year anniversary of our inception of the Litigators’ Blog. We have tried over the last five years to provide you, our readers, with the most current developments-of-interest to Massachusetts litigators. We have sought to inform, and, when appropriate, offer insight and advice, on the significance of recent developments in the law.

Our latest blog, for example, discusses a recent Appeals Court case involving a general release which a party sought to avoid, advising caution when one seeks more than a straightforward general release of liability in a document.

We have given advice on a wide range of topics — how to access your client’s insurance policy even when the insurer agrees to defend the insured without a reservation of rights, how a non-party to an arbitration agreement can compel an adversary to arbitrate, how to avoid forfeiting an affirmative defense, how to avoid sanctions for deposition communications, and how to draft a settlement agreement to provide a mechanism to best enforce its terms. We have discussed the possibility that a stipulation of the parties will not be enforced, the scope of the new federal discovery Rule 26, and the value of a motion in limine.

From time to time we have talked about our travels, including a six-city, seven-day trip to see major league baseball games, and a hike to the summit of Mount Katahdin in Maine. Occasionally we have commented on current events, as when we gave our perspective as litigators on the Tsarnaev trial.

We hope you have found our blogs to be informative and perhaps even moderately entertaining. We certainly have enjoyed posting them.

This is as good a time as any to acknowledge the invaluable support of Jackie White, who makes sure our blogs are prepared and posted on time, our secretary, Rachel Hendley, and our indomitable editor and partner, Liz Ross.

And now, on to the next five years of the Litigators’ Blog.

Primary Insurance Carrier Entitled To Demand General Release of Claims Before Paying Policy Limit, Even If Doing So Shields Excess Carrier From Liability

In a recent case, Caira v Zurich American Ins. Co., Docket No. 16-P-927 (April 21, 2017), the Massachusetts Appeals Court reaffirmed the principle that an insurance carrier that has issued a primary policy is not required to pay out its policy limit, even if liability is reasonably clear and the damages clearly exceed the primary policy limit, unless and until it obtains a release of all claims against its insureds. The court held that this rule applies even if there is substantial excess insurance available to a plaintiff, leaving plaintiff with the option of accepting a potentially inadequate recovery under the primary policy or taking the entire matter to trial to pursue a larger recovery commensurate with plaintiff’s actual damages.

Massachusetts law protects insureds from unfair and deceptive acts and practices by insurance carriers, including unfair insurance claim settlement practices. Specifically, G.L. c. 176D, §3(9)(f) and G.L. c. 93A, §9, “require an insurer such as (Zurich) promptly to put a fair and reasonable offer on the table when liability and damages become clear, either within the thirty-day period set forth in G.L. c. 93A, §9(3), or as soon thereafter as liability and damages make themselves apparent.” Caira, slip op. at 13.

In Caira, while driving a vehicle rented for work purposes, an employee got into a serious automobile accident. His passenger, Caira, was badly injured and sued. The rental car was covered by the employer’s $1 million primary policy, which was issued by Zurich, and two excess policies which were issued by other carriers, with a total of $10 million of additional coverage. Zurich readily conceded that liability was reasonably clear and that the damages likely exceeded the $1 million primary policy limit. It promptly tendered the policy limit to Caira. However, Zurich conditioned its offer to pay the policy limit on the receipt of a release of its insureds. Caira rejected this position, asserting that he had a right to preserve his ability to proceed against the excess policies.

Massachusetts Appeals Court precedent held at one time that where liability was reasonably clear and a claimant’s damages exceeded the policy limit, an insurer who demanded a release of claims before paying out the policy limit committed an unfair claims settlement practice. See Thaler v. American Ins. Co., 34 Mass. App. Ct. 639 (1993). However, in Lazaris v. Metropolitan Property & Cas. Ins. Co., 428 Mass. 502 (1998), the Supreme Judicial Court overruled Thaler, holding that “a claim is settled within the meaning of §3(9)(f) only when it is fully disposed of, which means that the claimant has released all claims against the insured.” Id. at 504. Where the damages clearly exceeded the available coverage, the SJC found that “[t]he best the insurer can do to effectuate a settlement is to offer the policy limit in exchange for a release, given that payment without a release is not a settlement. The claimant can then decide whether to accept the offer or to decline the offer and proceed to trial.” Caira, at 16-17 (citing Lazaris, at 506).

However, Lazaris did not address a situation in which there is excess insurance available to cover claimed damages. Nonetheless, the Appeals Court found that the reasoning of Lazaris fully applied in the Caira case, notwithstanding the fact that there was excess coverage available. To do otherwise would put a carrier in the untenable position of “either being sued for unfair settlement practices by a claimant who is disgruntled by an insurer’s failure to pay, or being sued by an insured who is disgruntled by the insurer’s payment of the policy limit without obtaining a release of that insured.” Finding that the presence of excess coverage did not alter this dynamic, the Caira court upheld the grant of summary judgment in favor of Zurich, finding that it had not committed an unfair insurance claim settlement practice.

When Is a Limited Guaranty Not Limited

Last week, the Business Litigation Session of the Superior Court, in ABCD Holdings LLC v. Hannon, et al., Docket No. SUCV2015-1367-BLS2 (January 17, 2017)(Sanders, J.), applied the doctrine that a limitation in a personal guaranty does not insulate guarantor from liability under a tort–based theory of recovery.

In ABCD Holdings, defendant executed a personal guaranty in connection with a loan to a business controlled by defendant. Included in the guaranty was the following limitation: “the liability of Guarantor under this Guaranty is limited to the repayment of…no more than $109,879.00 of the Guaranteed Obligations…” In response to plaintiff’s complaint, defendant made a motion to dismiss the complaint to the extent that plaintiff sought damages in excess of $109,879.00 plus costs of collection as provided in the guaranty. The Court initially observed that defendant’s argument as to the cap “has some superficial appeal” and that if plaintiff had alleged only breach of the limited guaranty “then this would be the end of the story.”

However, the Court observed that plaintiff’s complaint alleged more than a breach of that contractual obligation, alleging, among other things, that defendant drained assets from the underlying obligors rendering the obligors “empty shells saddled only with debt.” The Court observed that that allegation was sufficient to state a claim against defendant pursuant to G.L. c. 93A § 2.

In analyzing defendant’s argument that the cap in the guaranty precluded 93A liability in excess of the cap, the Court observed that while the case “involved” a contract with a limitation of liability provision, that cap would not necessarily bar a broader recovery under Chapter 93A. The Court stated that if the 93A claim depended entirely on the breach of contract claim, said claim would be subject to the limitation, but when the conduct at issue is “more tortious in nature”, it would not, citing, for example, VMark Software, Inc. v. EMC Corp., 37 Mass. Appt. Ct. 610 (1994). Upon concluding that the conduct giving rise to the 93A claim sounded “more in tort”, the Court denied defendant’s motion to dismiss.

In effect, then, the Court makes clear that, notwithstanding the clear language limiting guarantor’s liability under the guaranty, guarantor would remain liable for any tort-based theory of recovery even if the conduct giving rise to such claim arose principally out of conduct in connection with the underlying loan transaction for which the guaranty was issued.