Nortek, Inc. v. Liberty Mut. Ins. Co.

• Decision Date: 15 March 2006
• Docket Number: No. 05-P-200.,05-P-200.
• Court: Appeals Court of Massachusetts
• Parties: NORTEK, INC. & another<SMALL><SUP>1</SUP></SMALL> v. LIBERTY MUTUAL INSURANCE COMPANY.

843 N.E.2d 706

65 Mass. App. Ct. 764

NORTEK, INC. & another¹ v. LIBERTY MUTUAL INSURANCE COMPANY.

No. 05-P-200.

Appeals Court of Massachusetts, Suffolk.

Argued January 9, 2006.

Decided March 15, 2006.

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John M. Edwards, Boston (Joshua C. Rowland with him) for the plaintiffs.

Daniel P. Tighe, Boston (Sara Jane Shanahan with him) for the defendant.

Present: RAPOZA, GREEN, & KATZMANN, JJ.

GREEN, J.

The plaintiffs, MPDC, Inc. and its parent corporation, Nortek, Inc., appeal from a judgment dismissing their complaint and awarding damages on the defendant's counterclaim, and an order denying their postjudgment motions for relief from the judgment. The underlying dispute concerns the plaintiffs' obligations to pay retrospective premiums on certain insurance policies issued by the defendant. A judge of the Superior Court concluded that the plaintiffs were bound by the terms of an agreement for judgment as to the defendant's counterclaim, and that the plaintiffs' affirmative claims were time-barred. We affirm the judgment on the defendant's counterclaim, but reverse so much of the judgment as dismissed the plaintiffs' affirmative claims.

Background.² From 1976 through 1988, defendant Liberty Mutual Insurance Company (Liberty) issued to Nortek (and Monogram Industries, Inc., a predecessor to MPDC) commercial general liability insurance policies naming American Pneumatic Tool Company (APT) as an insured. The policies furnished coverage on a so-called "occurrence basis," so that the policies insured losses (subject to the policy limits) arising during any period in which each policy was in place, even if such losses were not realized until after the end of the policy period. The policies also provided for payment of annual premiums based upon (among other things) actual loss experience. Accordingly, as and when losses were realized by an insured, and paid by Liberty, "retrospective premiums" would become due based on a formula set forth in the insurance contract.³

In May, 1994, Nortek and Liberty settled two lawsuits involving a dispute over Liberty's coverage obligations and Nortek's liability for previously billed retrospective premiums.⁴ As part of the settlement, Nortek pledged certain securities to secure its obligations to pay retrospective premiums arising in the future; under the terms of the pledge and security agreement, Liberty was authorized to liquidate such securities to satisfy premiums that Nortek did not pay when due.

As its name suggests, APT manufactured various pneumatic tools. Beginning in 1989, APT was named in a series of lawsuits in Mississippi claiming that certain of its products had caused hearing loss in workers who used them. Liberty advised Nortek by letter that the policy applicable to Nortek's claim of coverage was the policy in effect from 1988-1989, and it allocated the costs of defense of the hearing loss claims to that policy year. In September, 1994, Liberty agreed to pay approximately $3 million in settlement of those claims, in addition to $400,000 incurred in defense costs. Thereafter (based on its conclusion that it was impossible to ascertain when the hearing losses which resulted in the covered liability had occurred), Liberty determined to allocate those costs among the various policies it had issued to Nortek and MPDC's predecessor from 1976 through 1989. That allocation resulted in a higher retrospective premium than if all such costs had been treated as incurred in the 1988-1989 policy year. On July 28, 1995, Nortek wrote to Liberty to express its disagreement with Liberty's decision to allocate losses to prior policy years. By letter dated August 30, 1995, Liberty responded that it would investigate the situation and get back to Nortek. Representatives of the two parties discussed their respective positions intermittently between 1995 and 1999, without resolution. Though the invoices themselves are not in the record, the parties appear to agree that, beginning in 1995, Liberty submitted invoices to Nortek for payment of premiums in the amounts it claimed as due; however, with one exception due to inadvertence, Nortek did not pay the invoices.⁵ In a telephone conversation on January 28, 1999, Nortek's representative received for the first time Liberty's substantive response to his July 28, 1995, letter. In that conversation, Liberty advised that, following its review of Nortek's concerns, Liberty had concluded that it would nonetheless insist on payment of retrospective premiums based on the allocation of claims to various policy years, as previously expressed and invoiced. Nortek persisted in its view that Liberty's allocation method was inappropriate, and did not pay the invoiced amounts. In October, 2001, Liberty liquidated securities held under the pledge and security agreement to satisfy amounts it claimed due as retrospective premiums, based on its method of loss allocation and premium calculation.

On September 25, 2002, Nortek and MPDC filed their complaint claiming breach of contract, conversion, and violation of G.L. c. 93A, § 11, and seeking a declaration of the parties' rights and obligations. Liberty counterclaimed against MPDC, seeking recovery of $665,178 Liberty claimed due from it.⁶

The case progressed toward trial, scheduled for June 1, 2004. On May 21, 2004, Nortek and MPDC jointly filed an offer of judgment under Mass.R.Civ.P. 68, 365 Mass. 835 (1974), offering "to allow judgment to enter in favor of [Liberty] in the amount of FIVE HUNDRED THIRTY THOUSAND EIGHT HUNDRED FORTY-SEVEN DOLLARS ($530,847.00), in full satisfaction of Liberty's counterclaims." On May 25, 2004, Liberty filed its notice of acceptance of the offer of judgment, and requested entry of judgment against MPDC in accordance with it. Shortly thereafter, on May 27, 2004, Liberty filed a motion to dismiss MPDC as a plaintiff, and for summary judgment against Nortek on the ground that its claims were barred by the six-year statute of limitations applicable to claims for breach of contract. A judge of the Superior Court allowed Liberty's motion, directed entry of judgment accordingly, and denied the plaintiffs' postjudgment motions for relief under Mass.R.Civ.P. 59(e), 365 Mass. 827 (1974), and Mass.R.Civ.P. 60(b), 365 Mass. 828 (1974).⁷ This appeal followed.

Discussion. a. Statute of limitations. An action for breach of contract must be brought within six years after the cause of action accrues. G.L. c. 260, § 2. "A cause of action for breach of contract accrues at the time of the breach .... even though a specific amount of damages is unascertainable at the time of the breach or even if damages may not be sustained until a later time." International Mobiles Corp. v. Corroon & Black/Fairfield & Ellis, Inc., 29 Mass.App.Ct. 215, 221, 560 N.E.2d 122 (1990) (citations omitted).

The plaintiffs' breach of contract claim rests on their contention that Liberty's allocation of losses to policy years other than 1988-1989 constituted a breach of the covenant of good faith and fair dealing implied in every contract. See Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376, 385, 805 N.E.2d 957 (2004).⁸ Liberty argues (and the motion judge agreed) that Liberty's allegedly improper allocation of losses occurred in 1994, and that Nortek expressed its awareness of Liberty's chosen method at least as early as July 28, 1995. Accordingly, even if the limitations period were tolled for the period preceding the plaintiffs' discovery of the breach, see International Mobiles, Corp. v. Corroon & Black/Fairfield & Ellis, Inc., supra at 222, 560 N.E.2d 122, the six-year statute of limitations under G.L. c. 260, § 2, would have expired on July 28, 2001.

On the record before the motion judge, we view the matter differently. Though Nortek was aware in July, 1995, that Liberty had allocated losses in a manner with which Nortek disagreed, Liberty expressed to Nortek at that time, and for a lengthy period thereafter, its intention to investigate and consider Nortek's contrary position and to furnish a response. Though Liberty had submitted invoices for retrospective premiums based on the disputed allocation, it took no steps to collect payment in accordance with those invoices, and indeed (at Nortek's request) credited Nortek's account on the one occasion on which Nortek inadvertently tendered payment on one of the disputed invoices. See note 5, supra. It was not until early in 1999 that Liberty informed Nortek that it intended to insist on its allocations, upon consideration and rejection of Nortek's protestations to the contrary. Assuming, without deciding, that the mere assertion (unaccompanied by collection action) of an unsupported right to payment constitutes an actionable breach of the covenant of good faith and fair dealing, the record indicates that the assertion did not reflect Liberty's final or definitive position, and the breach of the implied covenant consequently did not occur, until January, 1999.⁹ It is difficult to imagine that the burden should be on Nortek, as the party owing payment of a disputed amount to a creditor which had taken no legal action to collect the debt and which had further indicated an intention to investigate the dispute, to initiate an action claiming breach of contract at any time before Liberty's 1999 rejection of Nortek's protest. It was error to dismiss the breach of contract claim on the ground of the statute of limitations.

The plaintiffs' claim under G.L. c. 93A, § 11, rests on essentially the same alleged misconduct. Though subject to a shorter, four-year, limitations period under G.L. c. 260, § 5A, the plaintiffs' c. 93A claim likewise was not time-barred, as the complaint was filed within four years following the first date on which Liberty unequivocally and finally rejected Nortek's position on the proper method for allocation of losses and computation of retrospective premiums.¹⁰ See International Mobiles Corp....