Massachusetts Bay Transp. Authority v. Allianz Ins. Co., Inc.

• Citation: 597 N.E.2d 439,413 Mass. 473
• Parties: MASSACHUSETTS BAY TRANSPORTATION AUTHORITY v. ALLIANZ INSURANCE COMPANY, INC., & others. 1
• Decision Date: 20 August 1992
• Court: United States State Supreme Judicial Court of Massachusetts

Page 439

597 N.E.2d 439

413 Mass. 473

MASSACHUSETTS BAY TRANSPORTATION AUTHORITY v. ALLIANZ INSURANCE COMPANY, INC., & others. ¹

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Jan. 8, 1992.

Decided Aug. 20, 1992.

Nancer H. Ballard, Boston, A. Lauren Carpenter, with her, for plaintiff.

William P. Hurley, Boston, Edward W. Waystack, with him, for Allianz Ins. Co., Inc.

John B. Sheehan, Boston, for Lexington Ins. Co.

Allan E. Taylor, Boston, for First State Ins. Co.

Before LIACOS, C.J., and ABRAMS, LYNCH, O'CONNOR and GREANEY, JJ.

O'CONNOR, Justice.

In this case we revisit the question whether the lower limits of excess insurance benefits "drop down" to fill a void in underlying insurance created by the insolvency of an underlying carrier. See Vickodil v. Lexington Ins. Co., 412 Mass. 132, 587 N.E.2d 777 (1992); Gulezian v. Lincoln Ins. Co., 399 Mass. 606, 506 N.E.2d 123 (1987); Massachusetts Insurers Insolvency Fund v. Continental Casualty Co., 399 Mass. 598, 506 N.E.2d 118 (1987). The parties filed cross motions for summary judgment. A judge in the Superior Court allowed the plaintiff's (MBTA) motion with respect to its contract claim against Allianz Insurance Company, Inc. (Allianz), and denied the MBTA's motion with respect to its claims against Allianz asserting violations of G.L. c. 93A (1990 ed.) and G.L. c. 176D (1990 ed.) and asserting breach of an implied covenant of good faith and fair dealing. Consistent with those rulings, the judge denied Allianz's motion for summary judgment on the MBTA's contract claim, and allowed Allianz's motion as to the other claims. Also, the judge denied the MBTA's motion for summary judgment against the other defendants and allowed those defendants' cross motions. The judge ruled that Allianz's excess coverage drops down to cover nine fourteenths of the MBTA's loss in excess of collectible underlying insurance ( 9/14 X $1,800,000 = $1,157,142.70), but that none of the other excess insurance drops down. The MBTA appeals the judge's ruling that Allianz is not required to pay the MBTA's entire loss in excess of collectible underlying insurance, and the dismissal of its other claims against Allianz. The MBTA also appeals the judgments in favor of the other defendants on the contract and the c. 93A, c. 176D and common law claims. Allianz appeals the judgment against it in favor of the MBTA. We reverse the judgment against Allianz. We affirm the judgments in favor of the other defendants.

The following facts are undisputed. On December 18, 1982, Eleanor Currie was struck and seriously injured by an MBTA bus. Following a trial in 1986, a jury rendered a verdict in Currie's favor against the MBTA that, with prejudgment interest, resulted in a judgment of $3,300,000. While the MBTA's appeal was pending (and postjudgment interest was accumulating), the MBTA and Currie entered into a settlement agreement providing for a payment of $3,100,000. The MBTA paid Currie that amount.

At the time of the accident, the MBTA was self insured for $1,000,000 per occurrence. In addition, the MBTA was insured by five carriers forming three layers of excess coverage. The first layer was provided by Integrity Insurance Company (Integrity) in the sum of $5,000,000 in excess of the MBTA's $1,000,000 self insurance for each occurrence. The second layer of coverage was provided by policies issued by Allianz and Mutual Fire, Marine and Inland Insurance Company (Mutual Fire), which was a defendant in the Superior Court but is not a party on appeal. Allianz's policy provided $9,000,000 coverage, and Mutual Fire's policy provided $5,000,000. The third level of coverage was provided by the defendant Lexington Insurance Company (Lexington) in the amount of $22,500,000, and First State Insurance Company (First State) in the amount of $7,500,000.

In March, 1987, the first-layer excess carrier, Integrity, was declared insolvent, and thereafter the Massachusetts Insurers Insolvency Fund paid the MBTA $299,999.99, the maximum statutory allowance. The MBTA notified the excess carriers of the Currie claim and Integrity's insolvency. In February, 1989, Mutual Fire, which, together with Allianz was a second-level excess carrier, was also declared insolvent. After the MBTA deducted from the $3,100,000 Currie settlement amount the $1,000,000 in self insurance and the $299,999.99 the MBTA received from the Massachusetts Insurers Insolvency Fund, the MBTA sought the $1,800,000 balance from Allianz, Lexington and First State. Those insurers rejected the MBTA's claims, asserting that the lower limits of their coverage did not drop down to replace the first excess layer that had become uncollectible because of Integrity's insolvency.

Summary judgment is appropriate when there are no material facts in dispute and the moving party is entitled to judgment as a matter of law. Mass.R.Civ.P. 56(c), 365 Mass. 824 (1974). Here, there are no material facts in dispute. The only dispute is about the proper interpretation of the relevant insurance policies, and therefore raises only a question of law. Nelson v. Cambridge Mut. Fire Ins. Co., 30 Mass.App.Ct. 671, 673, 572 N.E.2d 594 (1991).

Paragraph 1 of the "Insuring Agreement" of the Allianz policy defines Allianz's liability in relation to the underlying insurance in this way: "The Company hereby indemnifies the insured against ultimate net loss in excess of and arising out of the hazards covered and as defined and in excess of the underlying insurance as shown in Item 3 of the Declarations (hereinafter referred to as 'underlying insurance')" (emphasis added). Item 3 of the Declarations provides: "Underlying Insurance: A) $5,000,000 excess of self-insured retention--$1,000,000 per occurrence as respects buses and trolleys and $2,000,000 per occurrence as respects other transportation units (trains)--Integrity Insurance Company--policy number to be advised." In addition, Item 4 of the Declarations states: "Limit(s) of Coverage Hereunder: $9,000,000 part of $14,000,000 excess of Item 3" (emphasis added). Paragraph 4 of the "Insuring Agreement" is also relevant. It provides: "Unless aggregate limits are specifically stated in Items 3 and 4 of the Declarations [which they are not in this case], the coverage provided by this Policy applies only with respect to each accident or occurrence for limits in excess of the amount provided for same in the underlying insurance and does not apply over any reduced amount of underlying insurance in the event of the exhaustion or reduction of aggregate limits (if any) in the underlying insurance" (emphasis added). "Underlying insurance" is defined in paragraph 1 of the "Insuring Agreement" as the "insurance shown in Item 3 of the Declarations," that is, the $5,000,000 coverage provided by Integrity in addition to the $1,000,000 self insured retention. There is nothing ambiguous about any of that language. It provides that Allianz's commitment is to pay excess of the MBTA's self insurance and the commitment made by Integrity. The Allianz policy makes clear that the lower limit of its excess indemnity coverage is not adjustable downward in response to the insolvency of the first-level excess carrier. This case, therefore, is readily distinguishable from Massachusetts Insurers Insolvency Fund v. Continental Casualty Co., 399 Mass. 598, 506 N.E.2d 118 (1987), in which there were two provisions that, when read together, created an ambiguity that was then construed against the insurer. Id. at 598, 506 N.E.2d 118.

The MBTA argues that the judge correctly determined that two provisions of the Allianz policy, especially when read together, create an ambiguity concerning whether the lower limits of Allianz's coverage drop down to fill the void left by Integrity's insolvency. Therefore, the MBTA argues, in keeping with the principle that ordinarily ambiguities in insurance policies are resolved against the insurer, Vickodil v. Lexington Ins. Co., 412 Mass. 132, 135, 587 N.E.2d 777 (1992); Gulezian v. Lincoln Ins. Co., 399 Mass. 606, 612, 506 N.E.2d 123 (1987); Massachusetts Insurers Insolvency Fund v. Continental Casualty Co., supra 399 Mass. at 600, 506 N.E.2d 118, the judge correctly concluded that Allianz's coverage drops down in this case. We do not agree that the provisions on which the judge focused, or any other provisions in the Allianz policy, created an ambiguity with respect to whether the Allianz coverage crops down in the event of the insolvency of a lower level excess carrier, and therefore we do not agree that the insurance provided by Allianz drops down.

The judge's memorandum invites special attention to paragraphs 11 and 3 of the "Insuring Agreement." Paragraph 11 provides in part: "The Company's obligation to pay any ultimate net loss and costs with respect to any...