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Cotto v. Universal Underwriters Ins. Co.

Appeals Court of Massachusetts.
Jun 12, 2012
968 N.E.2d 942 (Mass. App. Ct. 2012)

Opinion

No. 11–P–717.

2012-06-12

Stephanie A. COTTO v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY.


By the Court (CYPHER, COHEN & WOLOHOJIAN, JJ.).

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

In this action to reach and apply an insurance policy, the plaintiff, Stephanie A. Cotto, appeals from a summary judgment entered in favor of the defendant, Universal Underwriters Insurance Company (Universal). We vacate and remand for further proceedings.

Background. On May 22, 2002, Cotto was injured in an automobile accident while riding as a passenger in a vehicle owned by George Luddy Chevrolet, Inc. (Luddy) and driven by Cotto's friend, Julie Bertholdt, who was then a Luddy employee. At the time of the accident, Bertholdt was insured under a commercial automobile policy issued to Luddy by Universal. In April, 2003, Cotto filed a lawsuit against Bertholdt and Luddy, and, eventually, Universal assigned counsel to defend them. On September 25, 2006, Cotto obtained a default judgment as a result of Bertholdt's failure to answer interrogatories. A judge assessed damages of $51,000, plus interest, on December 3, 2008, and issued an execution in the amount of $89,357.72, on April 7, 2009. When Universal refused to satisfy the judgment, Cotto filed this action, pursuant to G.L.c. 214, § 3(9), and G.L.c. 175, § 113, to reach and apply the optional liability coverage provided to Bertholdt under Universal's policy. On Universal's motion for summary judgment, a judge of the Superior Court concluded that Universal was entitled to disclaim coverage because Bertholdt had breached the policy's cooperation clause, and Universal had not waived this policy defense.

When counsel was assigned, the case had been in suit for approximately sixteen months, and Bertholdt and Luddy had been in default for approximately five months. Counsel succeeded in removing the defaults.

Because compulsory liability coverage does not extend to guest passengers, only the optional liability coverage is implicated in this case.

Discussion. To avoid coverage based upon noncooperation by an insured, the insurer bears the burden of proving (1) a substantial and material breach of the duty to cooperate; (2) actual prejudice to the insurer's interest due to the lack of cooperation, i.e., serious impairment of the insurer's investigation or defense of the action; and (3) the insurer's exercise of diligence and good faith in obtaining the insured's cooperation. Darcy v. Hartford Ins. Co ., 407 Mass. 481, 488–491 (1990). Even when these elements are met, however, the insurer will remain obligated to provide coverage if the insured (or, as in this case, the party standing in the shoes of the insured) is able to prove that the insurer waived its right to assert the policy breach as a ground for denying liability. Rose v. Regan, 344 Mass. 223, 229 (1962). See Merrimack Mut. Fire Ins. Co. v. Nonaka, 414 Mass. 187, 190 (1993). Waiver may be inferred from the circumstances. Ibid. Thus, a policy defense will be deemed waived where the insurer has exercised dominion over the case at an important point which made a significant and irrevocable change in the insured's position, without issuing a timely and effective reservation of rights or disclaimer. DiMarzo v. American Mut. Ins. Co., 389 Mass. 85, 99–100 (1983).

Cotto does not contest the existence of a material breach by Bertholdt or the existence of prejudice to Universal. The only points of dispute are whether the insurer exercised due diligence to locate Bertholdt and secure her cooperation, and whether the insurer waived its right to disclaim. We review the judge's rulings on these issues de novo. Utica Mut. Ins. Co. v. Fontneau, 70 Mass.App.Ct. 553, 556 (2007).

1. Due diligence. The summary judgment record establishes that Universal made various attempts to locate Bertholdt and seek her cooperation, and that, at one point, Bertholdt communicated to defense counsel that she was “not going to trial.” While these facts ultimately may prove persuasive to a fact finder, we are unable to conclude, as matter of law, that Universal carried its burden of proving that it exercised due diligence. Especially given Bertholdt's youth and transient lifestyle, a trier of fact reasonably could conclude that due diligence required Universal to take further steps.

Significantly, after the reach and apply action was filed, Universal deposed Cotto and learned that even though Bertholdt had left the area, was estranged from her family, and had unstable living arrangements, Cotto had been able to maintain contact with her through text messages, My Space, and Facebook. In contrast, there is nothing in the record to indicate that such sites were consulted by Universal or its investigators, despite the importance of social media sites as centers of communication and sources of information. Nor does the record reflect that Universal considered Cotto, herself, as a source of information about Bertholdt's whereabouts.

2. Waiver. Because the judge's decision on the issue of waiver was grounded in part upon his determination that Universal and assigned defense counsel had made diligent efforts to locate Bertholdt, we reach a different conclusion as to that issue, as well. We conclude that questions of fact remain as to whether the reservation of rights and disclaimer letters were sent in a manner reasonably calculated to reach Bertholdt ; whether Universal's disclaimer, which was not sent until February 1, 2007, was timely; and whether counsel's continued representation of Bertholdt for fifteen months thereafter constituted the exercise of dominion over the case in a manner inconsistent with disclaimer. See Employers' Liability Assur. Corp. v. Vella, 366 Mass. 651, 656–657 (1975).

It can be inferred that neither the reservation of rights letter nor the disclaimer letter was successfully delivered. There is evidence that the reservation of rights letter was returned as undeliverable, and although the disclaimer letter was sent to several addresses, it was not sent to the most current address suggested by Universal's investigator. Universal's claims handler testified at his deposition that several of the disclaimer letters were returned as undeliverable, and that he did not know if any of the letters was not returned.

During this period, defense counsel sent Bertholdt letters which, if received, would have conveyed to her that she continued to be represented and would be represented at the assessment of damages trial.

Conclusion. The judgment is vacated, and this matter is remanded to the Superior Court for further proceedings consistent with this memorandum and order.

So ordered.


Summaries of

Cotto v. Universal Underwriters Ins. Co.

Appeals Court of Massachusetts.
Jun 12, 2012
968 N.E.2d 942 (Mass. App. Ct. 2012)
Case details for

Cotto v. Universal Underwriters Ins. Co.

Case Details

Full title:Stephanie A. COTTO v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY.

Court:Appeals Court of Massachusetts.

Date published: Jun 12, 2012

Citations

968 N.E.2d 942 (Mass. App. Ct. 2012)
81 Mass. App. Ct. 1142