Commerce Ins. Co. v. Szafarowicz

483 Mass. 247

131 N.E.3d 782

COMMERCE INSURANCE COMPANY

v.Justina M. SZAFAROWICZ, special representative,

& others.

Justina M. Szafarowicz, special representative,

v.Matthew S. Padovano & others.

SJC-12655

SJC-12656

Supreme Judicial Court of Massachusetts, Worcester..

Argued March 7, 2019.

Decided October 1, 2019.

John P. Graceffa (Lawrence M. Slotnick also present), Boston, for Commerce Insurance Company.

David R. Bikofsky & Michael K. Gillis (Joseph I. Rogers also present), Newton, for Justina M. Szafarowicz & others.

Stephanie V. Corrao & Laura A. Foggan, of the District of Columbia, Richard J. Riley, & Peter C. Kober, Boston, for Complex Insurance Claims Litigation Association & another, amici curiae, submitted a brief.

Kim V. Marrkand & Mathilda S. McGee-Tubb, Boston, for Massachusetts Insurance and Reinsurance Bar Association, amicus curiae, submitted a brief.

Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.

GANTS, C.J.

These appeals present three issues that arise where a motor vehicle insurer recognizes its duty to defend its insureds in a wrongful death action, but does so under a reservation of rights, and then brings a separate action seeking a declaratory judgment that it owes no duty to indemnify its insureds for damages arising from the wrongful death action under the "Optional Bodily Injury To Others" provision of the insurance policy.

As to these three issues, we conclude, first, that there was no abuse of discretion in the judge's denial of the insurer's motions to stay trial in the wrongful death action until the question of coverage had been determined in the declaratory judgment action.

Second, over the insurer's objection, the parties settled the wrongful death action before trial through agreements in which the defendants admitted to negligence, agreed that the amount of damages would be determined through a damages assessment hearing, and assigned all their rights under the insurance policy to the plaintiff.⁵ In return, the plaintiff agreed to release the defendants from liability and seek damages only from the insurer. Because of the amount of damages assessed (more than $5 million, plus prejudgment interest) and because the policy obligated the insurer to pay postjudgment interest, the insurer moved to deposit with the court the policy limits and the accrued postjudgment interest under Mass. R. Civ. P. 67, 365 Mass. 835 (1974), in an attempt to prevent the continued accrual of postjudgment interest pending resolution of the declaratory judgment action and the insurer's appeal in the wrongful death action. We conclude that the judge did not abuse his discretion in denying the insurer's motion to deposit these funds.

Third, we conclude that, where the insurer timely objected to the settlement/assignment agreements, and where it is obligated to pay the accrued postjudgment interest on the wrongful death judgment, the insurer may be bound by the amount of that judgment only where a judge determines that the settlement/assignment agreements were reasonable under the circumstances. Here, the settlements were executed with no determination of reasonableness. We therefore vacate the wrongful death judgment and remand the case to the Superior Court for a hearing on the reasonableness of the settlement/assignment agreements.⁶

Background. The relevant factual and procedural background is not materially in dispute. On August 3, 2013, shortly after a verbal altercation at a bar in Leominster, David M. Szafarowicz was struck and killed by a vehicle operated by Matthew Padovano, who later pleaded guilty to voluntary manslaughter in connection with the fatal incident. The vehicle was owned by Matthew's father, Stephen Padovano, who had purchased an automobile insurance policy from Commerce Insurance Company (Commerce).⁷

Justina M. Szafarowicz, David's mother, in her capacity as special representative of David's estate (estate), brought a wrongful death action against the Padovanos in the Superior Court, claiming that David's death was caused by Matthew's gross negligence in operating a motor vehicle that was negligently entrusted to him by Stephen.⁸ Under the Commerce insurance policy, Stephen was covered for bodily injury to others by compulsory insurance in the amount of $20,000 per person, and by optional insurance in the additional amount of $480,000 per person.

Commerce acknowledged its duty to defend the Padovanos in the wrongful death action under its policy.⁹ See Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352, 357, 951 N.E.2d 662 (2011) ( Morrison ), quoting Billings v. Commerce Ins. Co., 458 Mass. 194, 200-201, 936 N.E.2d 408 (2010) ("An insurer has a duty to defend an insured when the allegations in a complaint are reasonably susceptible of an interpretation that states or roughly sketches a claim covered by the policy terms").

As to its duty to indemnify for damages, Commerce acknowledged its duty to pay the $20,000 in compulsory insurance (and ultimately paid the estate this amount) but issued a reservation of rights regarding the $480,000 in optional insurance. By doing so, Commerce effectively reserved its right to refuse to indemnify the Padovanos beyond $20,000 for damages arising from the wrongful death action if it were determined that David's death was caused by Matthew's intentional act, and was therefore not an "accident" covered by the terms of the policy.¹⁰ See Morrison, 460 Mass. at 357, 951 N.E.2d 662, quoting A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 Mass. 502, 527, 838 N.E.2d 1237 (2005) (duty to defend "is independent from, and broader than, [the] duty to indemnify"); Three Sons, Inc. v. Phoenix Ins. Co., 357 Mass. 271, 276, 257 N.E.2d 774 (1970) ("A reservation of rights ... notifies the insured that the insurer's [defense] is subject to the later right to disclaim liability").

On January 21, 2014, approximately five months after the estate initiated the wrongful death action, Commerce brought a separate declaratory judgment action against the Padovanos and the estate, seeking a declaration from the court that Commerce had no obligation under its optional insurance coverage to indemnify the Padovanos for the damages arising from the fatal incident. The wrongful death action and the declaratory judgment action were consolidated for discovery purposes only.

On April 21, 2016, less than three weeks before the trial in the wrongful death case was scheduled to begin, Commerce filed an emergency motion to intervene and participate in that case pursuant to Mass. R. Civ. P. 24, 365 Mass. 769 (1974). Commerce noted that, based on the summary of evidence proffered by the prosecutor at Matthew's plea hearing, on the night of David's death, Matthew and his girlfriend got into a dispute with David at a bar and the staff asked the three to leave. Matthew and his girlfriend went out the back door, where Matthew's vehicle was parked, and David left through the front door and walked into the bar's parking lot. Rather than depart, Matthew returned in his vehicle to the bar's parking lot, where he saw David and drove near him. David gestured toward Matthew, who then accelerated his vehicle and ran over David, dragging him for forty to fifty feet, killing him.

Commerce noted that, in the wrongful death action, the estate's attorneys had presented a quite different description of events that was consistent with their theory of negligence. The estate's attorneys contend that when Matthew returned in his vehicle to the bar's parking lot, he was frightened by unknown persons who came from the bar with knives, and did not see David when he ran over him.

Commerce argued that it should be permitted to intervene because neither the estate nor the Padovanos had any incentive to offer evidence tending to show that the incident was not an accident, because all parties to the action "would prefer that insurance coverage exist for this loss." Commerce wished to ensure that, if a judgment were to issue in the wrongful death action premised on the finding that David's death was caused by Matthew's negligence rather than by his intentional conduct, it would not be procedurally foreclosed in the declaratory judgment action from litigating the dispositive issue whether David's death arose from an accident.

The judge ordered that the wrongful death trial be continued, and conducted a hearing on Commerce's motion to intervene on May 4, 2016. In his decision denying the motion to intervene, issued on August 22, 2016, the judge acknowledged that Commerce had reason to be concerned about the risk of "underlitigation" in the wrongful death suit -- which he defined, quoting Pryor, W. Page Keeton Symposium on Tort Law, The Stories We Tell: Intentional Harm and the Quest for Insurance Funding, 75 Tex. L. Rev. 1721, 1722 (1997), as "a plaintiff's choice to plead and prove negligence rather than or in addition to intentional tort theories when, absent insurance considerations, the plaintiff would either frame the case solely as an intentional tort claim or emphasize the intentional tort claim." The judge noted the "legitimate interest" of a liability insurer in preventing improper underlitigation of tort claims, and recognized that it would be "patently unfair" to require Commerce to be bound by a jury's negligence finding in the wrongful death action if it were denied the means to challenge the validity of that finding.

But the judge also recognized the need to balance the rights of the insurer with those of the insured. He noted, first, that the Padovanos would be "severely compromised" in their ability to defend themselves if their insurer were permitted to actively participate in the trial and offer evidence that Matthew intentionally struck David. Second, citing concerns raised in Goldstein v. Gontarz, 364 Mass. 800, 309 N.E.2d 196 (1974), the judge noted that Commerce's participation would alert the jury to the possible existence of insurance coverage for the...