Safety Ins. Co. v. Day

• Decision Date: 28 October 2005
• Docket Number: No. 04-P-450.,04-P-450.
• Citation: 65 Mass. App. Ct. 15,836 N.E.2d 339
• Parties: SAFETY INSURANCE COMPANY v. Ann B. DAY & another<SMALL><SUP>1</SUP></SMALL>; The Andover Companies & others,<SMALL><SUP>2</SUP></SMALL> third-party defendants.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

836 N.E.2d 339

65 Mass. App. Ct. 15

SAFETY INSURANCE COMPANY v. Ann B. DAY & another¹; The Andover Companies & others,² third-party defendants.

No. 04-P-450.

Appeals Court of Massachusetts, Suffolk.

Argued March 16, 2005.

Decided October 28, 2005.

COPYRIGHT MATERIAL OMITTED

Stephen M.A. Woodworth, South Easton, for the plaintiff.

Samuel M. Furgang, Boston, for Merrimack Mutual Fire Insurance Company.

James C. Donnelly, Jr., Fall River, for Ann B. Day.

Present: GREENBERG, COWIN, & GREEN, JJ.

COWIN, J.

The defendant Ann B. Day, while driving a motor vehicle owned by her housemate, Donna E. Enberg, collided with a motor vehicle operated by the defendant Noreen Mahan, resulting in personal injuries to Mahan. The insurer of Day's own vehicle, the plaintiff, Safety Insurance Company (Safety), provided Day with a defense in a personal injury action brought against her by Mahan but, after an extended period, declined to indemnify Day on the ground that her use of Enberg's vehicle brought her within the so-called "regular use" exclusion of Safety's policy.

Safety commenced a declaratory judgment action to determine the question of coverage, and a judge of the Superior Court, deciding that Day had not made regular use of her housemate's vehicle, entered summary judgment in Day's favor. Another judge of the Superior Court granted Day's application for an award of attorney's fees and costs, and Safety appealed from a separate and final judgment entered pursuant to Mass.R.Civ.P. 54(b), 365 Mass. 820 (1974).³ We conclude that Day's use of Enberg's vehicle constituted regular use excluded from coverage. However, we hold in addition that, on the undisputed facts in the summary judgment record, Safety's unreasonable delay in asserting the exclusion defense, accompanied by prejudice both to Day and her umbrella insurance carrier, estopped Safety from a denial of indemnification. Accordingly, we affirm the judgments, including the portion awarding attorney's fees and costs.

1. Material facts and relevant prior proceedings. The underlying material facts appear to be undisputed. On September 16, 1996, Day and Enberg shared a house. Each owned an insured motor vehicle, Day owning a 1989 Ford Taurus (insured by Safety with an optional bodily injury limit of $250,000 per person) and Enberg owning a 1994 Ford Taurus (insured by Trust Insurance Company with an optional bodily injury limit of $100,000 per person). Each was listed as an occasional operator on the other's insurance policy. Day had additional coverage under a homeowners policy with a personal umbrella liability endorsement issued by Merrimack Mutual Fire Insurance Company (Merrimack).

While there are minor variations in the parties' characterizations of practices involving Day's use of Enberg's vehicle, they agree on the following. Day primarily used her own vehicle. With Enberg's permission, she used Enberg's vehicle two or three times per month for trips out of town. About twice per month, Enberg would drive her own vehicle, with Day as a passenger, to Day's out-of-town meetings. Day would also occasionally use Enberg's vehicle for local purposes. Day did not have a set of keys to Enberg's vehicle; however, the keys were often left in a basket by the door and were accessible to Day at the times of her use. Day always informed Enberg when she wanted to use Enberg's vehicle.⁴

On the date in question, Day, operating Enberg's vehicle with Enberg's permission, was involved in a motor vehicle accident with Mahan's vehicle, allegedly resulting in personal injuries to Mahan. On that date, Safety insured Day by means of a standard Massachusetts automobile insurance policy, sixth edition, that provided, in part 5, that Safety would "pay damages to people injured or killed in accidents if you or a household member is legally responsible for the accident," but would not pay "for injuries resulting from an accident while you or a household member[⁵] is using an auto which you or any household member owns or uses regularly, unless a premium for this Part [5] is shown for that auto on the Coverage Selections Page." Day had not listed Enberg's automobile on the coverage selections page of her policy with Safety and correspondingly did not pay any premium to cover Enberg's vehicle under her policy with Safety. On July 17, 1997, Mahan commenced a personal injury action against Day and Enberg. Trust Insurance Company, Enberg's insurer, defended Enberg and, with Safety's consent, defended Day as well.⁶

On March 20, 1998, Trust Insurance Company reported to Safety that the vehicle that Day operated at the time of the accident had been borrowed from Enberg. Safety made no effort at that time, nor for some time thereafter, to investigate or determine whether, as a result, the regular use exclusion might affect Day's coverage. On September 16, 1998, Trust Insurance Company settled on Enberg's behalf by paying Mahan the full amount of its policy ($100,000). Trust Insurance Company obtained a release from Mahan of further claims against Enberg, but did not obtain such a release in favor of Day. Safety did not participate in the settlement or attempt to do so.

On September 28, 1998, Safety notified Day that it would assume her defense in the personal injury action by Mahan. Safety also reported to Mahan's attorney that Day was insured by a $250,000/$500,000 automobile liability policy that covered the accident. Safety made no reservation of rights with respect to its coverage, nor had it done so previously. From that point forward, Safety provided Day a full defense until the case eventually settled. During the ensuing months, Safety was informed at various times by counsel it had selected to represent Day that Mahan's injuries were serious; that she was a convincing witness; that her employment capacity and life-style appeared to have been adversely affected by the accident; that Day, while a credible witness, had no testimony that helped in the defense; and that Safety had considerable exposure to a damages judgment.⁷

On December 21, 1998, Day's counsel reported to Safety that Mahan's attorney valued the case at Safety's policy limit of $250,000, but was willing to mediate. On April 9, 1999, counsel reported to Safety that Mahan's counsel had made a demand for $250,000.⁸ None of the information regarding the value of Mahan's case, Mahan's demand of $250,000, or Mahan's willingness to mediate was communicated by Safety to Day. In early 1999, Safety began to investigate whether the regular use exclusion might apply. The investigation included an interview with Day that was conducted without her counsel being present.

On June 9, 1999, Safety informed Day by letter that it would seek a judgment declaring that it was not obligated to provide coverage by virtue of the regular use exclusion. Safety filed its complaint on the following day. As noted above, Safety continued to defend Day in the tort action. As the declaratory judgment case proceeded, discovery disputes developed in due course. It is unnecessary to detail them, other than to note that Safety, for reasons that are unclear, sent to Mahan's attorney a copy of a confidential status report earlier prepared by Safety's attorney for Safety that disclosed the information that Safety's counsel viewed Mahan's case as valid and difficult to defend with a potential for significant damages.⁹ Inspired by these disclosures, Mahan pressed for more money in the underlying personal injury action.

The parties in the declaratory judgment proceeding filed cross motions for summary judgment. The motion judge, acknowledging that "the issue is close," determined that Day's use of Enberg's vehicle was not regular use under the policy, allowed the summary judgment motions of Day and Mahan, and denied the summary judgment motion of Safety. Having concluded that there was coverage under the terms of the policy, the judge did not address Day's alternative contention that Safety's failure to address, or inform Day of, the coverage question for twenty-three months after commencement of Mahan's personal injury action estopped it from asserting a coverage defense, "other than to note the inherent conflict where an insurer-selected defense counsel represents the insured." Another judge, over Safety's opposition, determined that Day was entitled to attorney's fees and costs for prevailing in the declaratory judgment case, and entered an award of $101,649.10 (with an additional $4,000 in reimbursement of expert witness fees). Safety filed a timely notice of appeal.

Mahan's personal injury claim against Day ultimately settled for $700,000. Safety contributed $250,000 of that amount; Merrimack paid $450,000; and the insurers agreed that, should Safety prevail in this appeal, Merrimack would reimburse Safety its $250,000 payment (given that, in the absence of liability on Safety's part, Merrimack's umbrella coverage would "drop down" to cover Day's entire exposure).¹⁰ Accordingly, the basic dispute is actually one between insurance carriers, with Day having exposure only with respect to attorney's fees and costs incurred by her in the declaratory judgment case.

2. The "regular use" exclusion. The regular use exclusion is expressed in the "optional bodily injury to others" portion of the standard automobile liability policy as a denial of coverage in the event of an accident while the insured operator "is using an auto which you or any household member owns or uses regularly" unless a premium has been paid for that vehicle. That exclusion continues to present difficulties in its application to different factual situations. It may be that the concept cannot be defined more precisely, and so we look to the insurer's underlying objective. That objective has been stated as the provision of coverage for "occasional or incidental use of other . . . [than vehicles owned by the insured] without the payment of an additional premium, but to exclude the habitual...