Rli Ins. Co. v. Klonsky
| Decision Date | 11 February 2011 |
| Docket Number | Case No. 2:09–cv–157. |
| Citation | 771 F.Supp.2d 314 |
| Parties | RLI INSURANCE COMPANY, Plaintiff,v.Arthur KLONSKY, Jane Klonsky and Maria Rosatone, Defendants. |
| Court | U.S. District Court — District of Vermont |
OPINION TEXT STARTS HERE
Mark D. Cahill, Samantha A. Krasner, Esq., Choate Hall & Stewart LLP, Boston, MA, Samuel Hoar, Jr., Esq., Shapleigh Smith, Jr., Sophie E. Zdatny, Esq., Dinse, Knapp & McAndrew, P.C., Burlington, VT, for Plaintiff.Pietro J. Lynn, Esq., Lynn, Lynn & Blackman, P.C., Burlington, VT, for Defendants.
Plaintiff RLI Insurance Company (“RLI”) seeks a judicial determination of its rights and responsibilities under a policy of personal umbrella liability insurance issued to Defendants Arthur and Jane Klonsky. The Klonskys are responsible for injuries sustained by Defendant Maria Rosatone in an automobile accident in 2008. Rosatone filed a claim with RLI under the Klonskys' policy. RLI denied coverage on the ground that the policy was void because Arthur Klonsky had made material misrepresentations about the Klonskys' motor vehicle history when he applied for and renewed their policy. RLI then filed this declaratory judgment action against the Klonskys and Rosatone.
The Defendants counterclaimed, alleging violations of Massachusetts General Laws chapter 93A and 176D, common law bad faith, breach of contract and violation of the Federal Fair Credit Reporting Act. RLI and Defendants have filed cross-motions for summary judgment. For the reasons that follow, the Defendants' motion, ECF No. 65, is denied; RLI's motion, ECF No. 74, is granted in part and denied in part.
The following facts are undisputed, except where noted. RLI is an insurance company incorporated under Illinois law and having a principal place of business in Peoria, Illinois. Among its insurance products, RLI offers personal umbrella liability policies. These policies provide an additional layer of liability protection over an insured's existing homeowners and automobile insurance policies. RLI considers its personal umbrella liability policies to be “self-underwriting,” meaning that RLI allows applicants to determine their own eligibility to obtain or renew a policy based on the information they submit to RLI.
Defendant Arthur Klonsky submitted an application for insurance to RLI, dated July 25, 2007, intended to cover all drivers in the household (himself, his wife Jane and their daughter). In response to questions on the application, Arthur Klonsky stated that all drivers had a total of three moving violations in the past three years; that no drivers had any at-fault accidents in the last three years; and that no one driver had more than three moving violations in the past three years. Jane Klonsky did not submit information to RLI, nor did she sign the application.
Based on the information supplied by Arthur Klonsky, RLI issued Arthur and Jane Klonsky a personal umbrella liability insurance policy, PUP0396453 (“the Policy”), with a policy term of July 25, 2007 to July 25, 2008. The Policy provided for $2 million in coverage over the Klonskys' homeowners and automobile insurance policies.
Arthur Klonsky submitted a renewal application the following year. The application contained the same questions. In the renewal application Arthur Klonsky stated that the total of moving violations was three; that no driver had an at-fault accident; that no driver had his license suspended within the last five years; and that no one driver had more than three moving violations. Again, Jane Klonsky did not provide any information to RLI, nor did she sign the renewal application. Based on the information supplied by Arthur Klonsky, RLI renewed the Klonskys' policy for the period July 25, 2008 to July 25, 2009.
This information was untrue. As of July 2007, Arthur Klonsky had a total of four moving violations, and Jane Klonsky had one moving violation and an at-fault accident. As of July 2008, Arthur Klonsky had a total of five moving violations and had his license suspended in October 2007, and Jane Klonsky had one moving violation and an at-fault accident.
Above an applicant's signature, the policy application contains the following:
APPLICANT STATEMENT: The information given on this application is true and complete to the best of my knowledge. I understand that any omission or misstatement of fact in the information given, which if known by RLI Insurance Company would have caused RLI Insurance Company to decline this application, is grounds for voiding the policy.
PUP Appl. 4, ECF No. 77–2; PUP Renewal Appl. 2, ECF No. 77–7. The policy application also notifies the applicant that RLI may obtain information regarding the applicant's driving record.1
The parties agree that had Arthur Klonsky submitted an accurate application, RLI would have declined to issue the policy. Had he submitted an accurate renewal application, RLI would have declined to renew the policy.
In its Vermont Amendatory Endorsement, the Policy provides that:
This insurance is void if you intentionally concealed or misrepresented any material fact or circumstance relating to this insurance at the time you applied for this policy. Further we will not pay for any loss or damage in any case of:
1) Concealment or misrepresentation of a material fact; or
2) Fraud committed by you before the effective date of this policy.
Policy, Vt. Amendatory Endorsement 4, ECF No. 77–4, 77–8.
RLI's underwriting branch can obtain Motor Vehicle Reports (“MVRs”) on insurance applicants from the Insurance Information Exchange (“iiX”). RLI's policy is not to obtain MVRs on applicants unless the application discloses a “youthful driver,” defined as someone under the age of 22. Dean Dep. 27:4–25, Feb. 4, 2010, ECF No. 65–10. RLI did not obtain MVRs for the Klonskys at the time of the application or its renewal, and did not check the accuracy of Arthur Klonsky's statements regarding the Klonsky's driving records. Nor did RLI seek information from Jane Klonsky or require her to submit an application or to certify the accuracy of information on the application Arthur Klonsky submitted. It did, however, obtain an MVR for the Klonskys' daughter, who was under the age of 22 at the time of the application and the renewal application.
On November 15, 2008, the Klonskys' automobile, with Arthur Klonsky driving and Jane Klonsky in the passenger's seat, accidentally collided with Rosatone, a pedestrian, in Lynnfield, Massachusetts. Rosatone was seriously injured.
The Klonskys had primary automobile insurance coverage with Progressive Insurance Company (“Progressive”) with policy limits of $500,000.00. On February 3, 2009, RLI was notified of the accident and of the possibility that the losses might exceed the Progressive policy limits.
RLI's policy is to obtain MVRs when RLI is notified of a claim for the purpose of verifying the information in the insurance application, to confirm whether the applicant was eligible for coverage and to determine whether or not to renew the policy. RLI's underwriting branch obtained MVRs for the Klonskys on February 6, 2009. RLI certified to iiX that the Klonskys' MVRs would only be used for underwriting purposes.
Upon receiving notice of the claim RLI assigned a claims examiner, Mary Snodgrass, to investigate the claim. Among other tasks, Snodgrass reviewed the MVRs generated by RLI's underwriting branch. Shortly thereafter, in February 2009, Snodgrass discussed coverage issues with RLI's vice president for claims, Andrea Dean. Dean concluded that the information in the MVR likely disqualified Arthur Klonsky from coverage.
On April 14, 2009, Rosatone made a settlement demand of $1 million.
On April 27, 2009, Dean transferred the file to claims director Robert Handzel, who transferred the file to a senior claims examiner, Michael Stockbridge, on May 8, 2009.
On May 4, 2009, RLI sent the Klonskys a renewal application for their policy.
On May 16, 2009, Rosatone raised her demand to $1.2 million. RLI was advised on May 19, 2009, that Rosatone's medical expenses continued to rise, and that the demand would likely be raised further. On May 27, 2009, Rosatone's counsel presented a demand for $2 million to RLI pursuant to Massachusetts General Laws chapters 93A and 176D, claiming that RLI was unreasonably delaying settlement of her claim. Rosatone demand letter, ECF No. 77–18.
On June 17, 2009, Handzel created a separate coverage file to further investigate the coverage issue. RLI determined that Arthur Klonsky's misrepresentations on the application and renewal application were material to its decision to issue the Policy, and that therefore the policy was void and the Klonskys were not entitled to coverage. It also determined that the Klonskys breached the express terms and conditions of the Policy. RLI communicated its decision to the Klonskys by letter on June 26, 2009, see Handzel letter, ECF No. 77–10, and filed this declaratory action complaint.
RLI also responded to Rosatone's demand letter on June 26, 2009, stating among other things that its investigation had revealed issues concerning whether coverage was available “due to material misrepresentations apparently made by the insureds in their application for the RLI Policy,” and that it had no obligation to pay claims made against the Klonskys until it could confirm the existence of coverage. Stockbridge letter, ECF No. 77–17. Rosatone thereupon brought suit in Massachusetts against the Klonskys and RLI.
In August 2009, the Klonskys and Rosatone settled the Massachusetts suit. Their settlement agreement provided for judgment for Rosatone in the amount of $2.5 million (the limits of both policies) in exchange for an assignment of all rights under the RLI Policy to Rosatone and Rosatone's agreement not to execute against any of the Klonskys' assets.
Summary judgment is granted “if the movant shows that there is no genuine dispute as to any material fact...
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