Lumbermens Mut. Cas. Co. v. Y.C.N. Transp. Co., Inc.

• Decision Date: 26 March 1999
• Docket Number: No. 96-P-1990,96-P-1990
• Citation: 46 Mass.App.Ct. 209,705 N.E.2d 297
• Parties: LUMBERMENS MUTUAL CASUALTY COMPANY v. Y.C.N. TRANSPORTATION COMPANY, INC.
• Court: Appeals Court of Massachusetts

Page 297

705 N.E.2d 297

46 Mass.App.Ct. 209

LUMBERMENS MUTUAL CASUALTY COMPANY v. Y.C.N. TRANSPORTATION COMPANY, INC.

No. 96-P-1990.

Appeals Court of Massachusetts,

Norfolk.

Argued Feb. 4, 1998.

Decided Jan. 25, 1999.

Further Appellate Review Denied March 26, 1999.

Stephen M.A. Woodworth, South Easton (Jack D. Speranza, with him), for the plaintiff.

Karen M. Thursby, for the defendant.

Present: KASS, SMITH, & FLANNERY, JJ. ¹

SMITH, J.

Lumbermens Mutual Casualty Company (Lumbermens) brought an action in the Superior Court seeking declaratory relief against its insured, Y.C.N. Transportation Company, Inc. (YCN). At issue was whether Lumbermens had a duty to reimburse YCN for its costs and fees in defending itself from 1986 through 1993 in a tort action filed against it by one Todd Paolucci and others. YCN answered and filed a counterclaim for declaratory relief, breach of contract, and violations of G.L. c. 93A.

After stipulating to certain facts, the parties filed cross motions for summary judgment. After oral argument, a Superior Court judge allowed YCN's motion for summary judgment as to "defense and indemnification for litigation of the Paolucci lawsuit," from the beginning of the lawsuit to its termination, and denied YCN's c. 93A claim. The judge denied Lumbermens' summary judgment motion. The parties agreed that judgment should enter for a certain amount but preserved all rights of appeal as to the judge's decisions on the summary judgment motions. Both parties appealed.

We summarize the stipulation of facts entered into by the parties and quote portions of the insurance policy. Lumbermens is an insurance company licensed to underwrite casualty insurance in Massachusetts. YCN is a transportation company, licensed to carry passengers.

For the period from April 9, 1984, through April 9, 1985, YCN was insured by Lumbermens' business automobile insurance policy. The policy insured YCN against any liabilities arising out of the ownership, maintenance, and use of its automobiles, subject to the terms and conditions of the policy.

Among other provisions, the policy contained the following:

"I... Coverage B--Bodily Injury Liability--Other Than Statutory--(This Coverage is Optional)

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, sustained by any person, caused by accident and arising out of the ownership, maintenance or use, including loading and unloading, of the insured motor vehicle."

* * *

"II. Defense, Settlement, Supplementary Payments. With respect to such insurance as is afforded by this policy under coverages B, C, and division 1 of coverage A, the company shall:

"(a) have the right and duty to defend any suit against the insured seeking damages payable under the terms of this policy, even if any of the allegations of the suit are groundless, false or fraudulent, but the company may make such investigation and settlement of any claim or suit as it deems expedient...."

* * *

"Conditions Applicable to Part I....

"8. Assault and Battery. Assault and battery shall be deemed an accident unless committed by or at the direction of the insured."

On or about October 17, 1986, Paolucci, a minor, through his father and next friend, brought an action against YCN and others seeking damages for personal injuries arising out of an alleged incident of sexual assault and molestation he claimed to have occurred in December of 1984, while a passenger in a school bus owned and operated by YCN. The acts were allegedly committed by a monitor hired by YCN to control unruly passengers. There was no allegation in the complaint that the assault was at YCN's direction. The complaint alleged that as a common carrier and employer of the monitor, YCN owed a duty to its passengers to provide them with safe transportation, and that it was negligent in its duty, causing Paolucci to suffer injuries.

YCN notified Lumbermens of the Paolucci action in a timely manner, and requested that Lumbermens defend and indemnify it under its business automobile insurance policy.

On February 23, 1987, Lumbermens sent a letter to YCN disclaiming any obligation to defend or indemnify YCN under the insurance policy. The basis for its decision was that the loss was "not an accident arising out of the ownership, maintenance or use of a covered motor vehicle." Lumbermens relied on Aetna Cas. & Sur. Co. v. United States Fid. & Guar. Co., 806 F.2d 302, 303-304 (1st Cir.1986), which held that a rape of a child by a bus driver in a school bus did not result from the ownership, maintenance, or use of the covered vehicle.

As a result of the disclaimer, YCN hired counsel to defend it in the Paolucci action. The attorney proceeded to file pleadings, conduct discovery, and file various motions, including a motion to dismiss the action, accompanied by a brief.

On July 8, 1993, this court decided Roe v. Lawn, 34 Mass.App.Ct. 726, 728-729, 615 N.E.2d 944 (1993). In Roe, we were called upon to interpret an insurance policy identical to the policy at issue here. ² A passenger in a school bus was sexually assaulted by the insured's driver while transporting the passenger to school. The transportation company's insurer refused to indemnify and defend the transportation company in a civil action brought by the passenger. This court ruled that where the policy defined "accident" to include deliberately wrongful conduct, "an 'accident' arises out of the use of the motor vehicle when an assault by the driver on the passenger occurs within the bus and in the course of the performance of [the insured]'s duty to transport the passenger to an agreed destination." Id. at 729-730, 615 N.E.2d 944.

As a result of the Roe decision, YCN renewed its request that Lumbermens defend and indemnify it in the Paolucci case. Lumbermens again disclaimed any obligation to defend or indemnify YCN on the grounds that the Roe decision had been accepted for further appellate review by the Supreme Judicial Court. In June, 1994, the Supreme Judicial Court affirmed our decision. See Roe v. Lawn, 418 Mass. 66, 69-70, 634 N.E.2d 117 (1994). The court emphasized that the "school bus was used in the service of a common carrier of passengers and, therefore, carried an implied promise of safe passage." Id. at 69, 634 N.E.2d 117.

YCN again requested that Lumbermens defend and indemnify it under its insurance policy. Lumbermens then paid YCN for the costs of its defense, but only from July 8, 1993 (the date of our decision in Roe v. Lawn ), through the conclusion of the underlying claim. ³ Lumbermens then instituted this action seeking a declaration that it was not required to pay the costs of the defense prior to July of 1993. YCN filed a counterclaim seeking reimbursement for all costs of defense from the beginning of the Paolucci action in 1986, to July of 1993.

On appeal, Lumbermens claims that (1) our decision in Roe v. Lawn, supra, was not applicable to the events that occurred in 1984, (2) the statute of limitations barred YCN's claims, and (3) there were material facts in dispute, and, therefore, summary judgment should not have been granted. ⁴ YCN in its cross appeal contends that the motion judge committed error when he denied its c. 93A claim.

1. Retroactive application of Roe v. Lawn. In deciding YCN's motion for summary judgment in its favor, the motion judge ruled that Roe v. Lawn was to be retroactively applied to the events that occurred in 1984. The judge cited Schrottman v. Barnicle, 386 Mass. 627, 631, 437 N.E.2d 205 (1982), in support of his ruling. In that decision, the court stated that "[d]ecisional law is generally applied 'retroactively' to past events" because "[i]n an ideal world, courts are said to find and declare law, rather than to create new law that might surprise past actors." Ibid. The court noted, however, that "[n]evertheless, it is sometimes necessary to depart from the general rule of retroactivity, in order to protect the reasonable expectations of parties." Ibid. Here, Lumbermens argues that Roe v. Lawn should not be applied retroactively because it established a new rule of law, and Lumbermens reasonably relied on the law in existence at the time it made its decisions not to defend or indemnify YCN.

Three factors are employed in order to determine whether an exception to retroactivity is warranted. They are "(1) the extent to which the decision creates a novel and unforeshadowed rule; (2) the benefits of retroactive application in furthering the purpose of the new rule; and (3) the hardship or inequity likely to follow from retroactive application." Schrottman v. Barnicle, supra at 631-632, 437 N.E.2d 205. McIntyre v. Associates Financial Servs. Co. of Mass., Inc., 367 Mass. 708, 712, 328 N.E.2d 492 (1975).

Contrary to Lumbermens' claim, our decision in Roe v. Lawn, supra, did not change the law that existed prior to that decision. The appellate courts have consistently ruled for many years that the standard of care binding on a common carrier is the "very highest,...