Herbert A. Sullivan, Inc. v. Utica Mutual Insurance Company
| Decision Date | 16 May 2003 |
| Docket Number | SJC-08815. |
| Citation | 439 Mass. 387 |
| Parties | HERBERT A. SULLIVAN, INC., & others[ 1 ] vs. UTICA MUTUAL INSURANCE COMPANY. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Present: Marshall, C.J., Greaney, Ireland, Spina, Cowin, Sosman, & Cordy, JJ.
Insurance, Defense of proceedings against insured. Contract, Performance and breach, Insurance. Actionable Tort. Estoppel. Practice, Civil, Motion to amend, Reconsideration, Judgment notwithstanding verdict, Attorney's fees. Consumer Protection Act, Insurance. Negligence, Insurance company. Evidence, Expert opinion. Agency, Independent contractor. Damages, Attorney's fees, Loss of profits.
Civil action commenced in the Superior Court Department on July 28, 1995.
Motions for summary judgment were heard by Thayer Fremont-Smith, J., and a claim for negligence was tried before Paul A. Chernoff, J.
The Supreme Judicial Court granted an application for direct appellate review.
Lon A. Berk (Anna M. Stafford, of Virginia, & Russell F. Conn with him) for the defendant.
William A. McCormack for the plaintiffs.
Richard J. Riley & Peter C. Kober for Complex Insurance Claims Litigation Association & another, amici curiae, submitted a brief.
Owen Gallagher for Gallagher & Associates, P.C., amicus curiae, submitted a brief.
In this complex case, we consider the obligations of an insurance company, and the counsel it hires, to defend an insured against a third-party claim. The plaintiffs, collectively known as Sullivan Risk Management Group (SRMG), commenced an action against Utica Mutual Insurance Company (Utica Mutual), seeking damages for Utica Mutual's alleged failure to provide SRMG with an adequate defense to claims brought against it by St. Mary's Refining Company (St. Mary's).[2] A judge in the Superior Court granted Utica Mutual's motion for summary judgment with respect to four of SRMG's claims. A jury trial was held on SRMG's sole remaining claim, alleging negligence. In response to special questions, the jury attributed fifty-eight per cent of the negligence in the case to Utica Mutual and the counsel it had hired to defend SRMG; the jury attributed forty-two per cent of the negligence to SRMG. Judgment entered in the Superior Court (1) ordering that SRMG recover the sum of $976,975.69 from Utica Mutual on its negligence claim, and (2) dismissing those claims set forth in SRMG's amended complaint that had been the subject of the prior summary judgment order. We granted SRMG's application for direct appellate review, and now affirm in part and remand in part for further proceedings.[3]
1. Background. The basic facts are as follows.[4] SRMG is a Waltham-based risk management and insurance agency that services a national, niche market of small petroleum companies. It was the named insured under an errors and omissions liability policy (errors and omissions policy) issued by Utica Mutual that provided coverage for "negligent acts, errors, or omissions in the conduct of the insured's business" and obligated Utica Mutual to defend SRMG with respect to any such claims. The errors and omissions policy contained a specific exclusion for any claims relating to the payment of premiums to SRMG.
On December 30, 1993, St. Mary's filed a complaint against SRMG in the United States District Court for the Northern District of West Virginia (St. Mary's action). St. Mary's had retained SRMG to secure various lines of coverage for insurable risks associated with St. Mary's business. In its complaint, St. Mary's asserted claims for (1) violation of West Virginia statutes and unjust enrichment where St. Mary's had allegedly been overcharged for premiums; (2) breach of contract where SRMG had allegedly failed to procure environmental impairment liability coverage and had obtained redundant automobile liability coverage; and (3) negligence where SRMG had allegedly failed to secure an "occurrence" policy for excess or "umbrella" liability, thereby placing St. Mary's at risk of being uninsured for claims falling after a particular time period.
On February 14, 1994, James Lee Crumrine, a claims examiner, sent a letter to SRMG advising it that Utica Mutual would defend SRMG in the St. Mary's action, subject to a reservation of rights. Utica Mutual reserved its right to withdraw from the defense and to deny coverage on the ground that while the errors and omissions policy provided coverage for loss arising out of "negligent acts, errors, or omissions," the policy excluded coverage for claims relating to the payment of premiums. Utica Mutual retained Christopher Bastien, a West Virginia attorney, to defend SRMG in the St. Mary's action.
In early 1995, St. Mary's filed an amended complaint which was, in significant ways, different from its original complaint. St. Mary's asserted claims for (1) violation of West Virginia statutes and unjust enrichment where St. Mary's had allegedly been overcharged for premiums; (2) breach of contract where SRMG had allegedly collected monies in excess of the premiums; and (3) fraud where SRMG had allegedly concealed from St. Mary's the types and costs of the insurance that it had procured.[5] St. Mary's amended complaint no longer included a claim for negligence, and each of the restated causes of action related to premium overcharges, which were specifically excluded from coverage. As a result, on July 18, 1995, Utica Mutual sent a letter to SRMG stating that, pursuant to its prior reservation of rights in February, 1994, it would withdraw its defense of SRMG in the St. Mary's action effective August 4, 1995, and would not reimburse SRMG for any defense fees and costs incurred in the St. Mary's action after that date.[6]
On July 28, 1995, SRMG filed a complaint against Utica Mutual arising from Utica Mutual's withdrawal of its defense of SRMG in the St. Mary's action. A five-count amended complaint was substituted. Count I was for declaratory judgment to resolve the controversy over whether the errors and omissions policy provided coverage for any damages judgment in the St. Mary's action or provided for SRMG's ongoing defense by Utica Mutual. Count II was for negligence and alleged, inter alia, that Utica Mutual had failed to employ competent counsel to represent SRMG in the St. Mary's action and had failed to properly supervise the actions of such counsel. Count III was for breach of contract and alleged that because Utica Mutual had failed to provide SRMG with a competent defense in the St. Mary's action, had subsequently terminated its obligation to defend SRMG in that action, and had failed to provide coverage for any judgment or settlement that might result from such action, Utica Mutual had breached the terms of the errors and omissions policy. Count IV was for unfair and deceptive insurance practices and alleged that the actions of Utica Mutual had violated the provisions of G. L. c. 176D. Count V was for alleged violations of G. L. c. 93A, §§ 9 and 11.
On March 11, 1998, prior to the completion of discovery, Utica Mutual and SRMG filed cross motions for summary judgment. A judge in the Superior Court allowed Utica Mutual's motion for summary judgment with respect to Counts I, III, IV, and V of SRMG's amended complaint. The judge denied summary judgment with respect to Count II, alleging negligence. SRMG's cross motion for summary judgment was denied, as was its subsequent motion for reconsideration. On April 5, 1999, SRMG filed a motion for leave to file a second amended complaint. The motion was denied as untimely and as seeking to resurrect claims that had already been eliminated through summary judgment.
Trial commenced on May 23, 2000, on SRMG's negligence claim. In response to special questions, the jury concluded that Utica Mutual had been negligent in its handling of the St. Mary's action, that Christopher Bastien, who had been acting as an agent of Utica Mutual, had been negligent in his legal representation of SRMG, and that SRMG had been negligent in its responsibilities as the client in the St. Mary's action. The jury awarded SRMG $607,000 for out-of-pocket expenses, including legal fees, and $500,000 for lost profits. Following the judge's issuance of rulings on a multitude of posttrial motions by both parties, judgment was entered in favor of SRMG in the amount of $976,975.69 (after factoring in SRMG's comparative negligence). Counts I, III, IV, and V of SRMG's amended complaint were dismissed with prejudice pursuant to the prior summary judgment order entered in 1998.
Utica Mutual filed a motion for judgment notwithstanding the verdict on the grounds that SRMG had failed to introduce evidence at trial that was central to its claim for negligence, that the jury's award of damages for alleged lost profits had no basis in the evidence and was merely speculative, and that the judge's calculation of interest on the damages award was wholly without support. The judge, who did an excellent job in handling this lengthy and complicated case, denied the motion. Both parties filed timely notices of appeal from the final judgment and from various orders that had been entered in the Superior Court both before and after trial. SRMG has now raised the following issues for our review: (1) whether the motion judge erred in declaring that Utica Mutual properly withdrew its defense of SRMG when St. Mary's amended its complaint to eliminate a claim for negligence; (2) whether the motion judge erred in failing to enter summary judgment in favor of SRMG on its breach of contract claim; (3) whether the trial judge erred in denying SRMG's motion for attorney's fees where Utica Mutual breached its duty to defend SRMG in the St. Mary's action; (4) whether Utica Mutual's conduct estopped it from disclaiming its duty to defend SRMG; and (5) whether the evidence at trial warranted judgment in SRMG's favor on its claim pursuant to G. L. c. 93A. In its cross appeal, Utica Mutual asserts that the trial judge erred in failing to grant...
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