Policyholder can sue over allegedly illegal ‘binding restriction’

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A policyholder could bring a putative Chapter 93A/176D class action against an auto insurer for refusing to offer optional collision and comprehensive coverage pursuant to an allegedly illegal “binding restriction.”

When plaintiff Danielle Gondola sought coverage for her car in December 2023, defendant Progressive Direct Insurance Co. refused to offer physical damage coverage.

The insurer stated that there was an ongoing weather emergency in Massachusetts at the time and thus a binding restriction — in other words, a temporary freeze on the issuance of certain coverages during a major weather event — did not allow it to sell such coverage while the emergency was in effect.

Instead, Progressive sold her a policy with only liability coverage.

Gondola’s vehicle was later totaled in an accident.

After Progressive denied her claim and refused to cover her loss, she filed suit asserting that the insurer committed unfair insurance practices in violation of Chapters 93A and 176D by disregarding state law requiring it to offer collision and comprehensive coverage absent certain statutory exceptions that did not apply here.

In a motion to dismiss, the insurer argued that the plaintiff’s allegations did not give rise to a 93A claim.

But Superior Court Judge Debra A. Squires-Lee, sitting in the Business Litigation Session, disagreed.

“[O]n this record, I cannot conclude Plaintiff has not stated a straightforward claim under 93A, §9 where, as alleged, Progressive refused to provide coverage it was obligated by law to offer by misrepresenting its reliance on a ‘binding restriction,’” Squires-Lee wrote in denying Progressive’s motion. “Progressive’s assertion that it is not obligated to offer optional coverage and that binding weather restrictions are commonplace and/or approved by the Commissioner of Insurance is not supported.”

The seven-page decision is Gondola v. Progressive Direct Insurance Company, Lawyers Weekly No. 09-157-25.

Brazen behavior?

Scott G. Gowen of Medway, who represented the plaintiff, said the decision is important because Progressive, as a national insurer, failed to adjust its national policies to local jurisdictions.

“They may do [what they did here] in other states, but the standard Massachusetts automobile policy is clear that they must offer collision and comprehensive coverage,” Gowen said.

Gowen also noted that the weather event giving rise to Progressive’s binding restriction was the December 2023 flooding in Leominster. The plaintiff lived nowhere near the region where the flooding was occurring, but the insurer put the restriction in place statewide, he said.

As a result of Progressive’s refusal to sell the plaintiff collision and comprehensive coverage, she is currently paying the loan on a total loss in order to preserve her credit, while the vehicle sits in her driveway because the bank holds the title.

Progressive seemed to take the position that this is industry standard. Attorneys should make sure that insurance companies are following the law rather than just blindly accepting [their] statement that ‘this is how we do things.’

— Joshua N. Garick, Reading

Gowen’s co-counsel, Joshua N. Garick of Reading, said Progressive acted “brazenly” in trying to exclude coverage when G.L.c. 90, §34O, clearly states that insurers in Massachusetts must offer collision and limited collision coverage at the policyholder’s option.

“The fact that Progressive is trying to shift its risk is problematic to the consumer, and we hope to hold them responsible for doing this,” he said. “Progressive seemed to take the position that this is industry standard, but here the law controls and attorneys should make sure that insurance companies are following the law rather than just blindly accepting [their] statement that ‘this is how we do things.’”

Swampscott insurance attorney Andrew F. Caplan, who is not involved in the case, said he found it remarkable that an insurer believed it could sidestep Massachusetts insurance law by invoking internal “rules” that directly contradict Massachusetts insurance statutes.

“This kind of deliberate noncompliance isn’t just unfair to policyholders, it’s a textbook 93A violation,” he said. “If Progressive is right that this practice is ‘commonplace’ in the auto insurance industry, then class action lawyers may have found their next cottage industry: holding insurers accountable when they unlawfully refuse to issue mandatory collision coverage during storms or emergencies.”

Elliott Beresen of Framingham said the case reminds him of Estrada, et al. v. Progressive Direct Insurance Company, a 2016 class action concerning Progressive policies that contained an $8,000 PIP deductible. The deductible was added to the policy via an allegedly deceptive website that advised customers with health insurance to purchase such a policy.

Because Massachusetts provides a maximum of $8,000 in PIP benefits, Progressive denied claims for covered losses wholly due to the deductible. The case resulted in an $8 million settlement.

“By my way of thinking, the Gondola case is Progressive at it again, doing what seems to be a very similar thing, if not the same thing,” he said. “Once again, there is an issue with selling a policy that is less than what the people believed should have been covered.”

Progressive’s attorney, Melanie A. Conroy of Boston, declined to comment.

Declined coverages

On or about Dec. 20, 2023, Gondola sought a policy from Progressive to cover two cars.

Progressive provided a six-month term policy on Dec. 23, 2023.

During the sale, the plaintiff allegedly requested and would have purchased optional collision and comprehensive coverage.

However, Progressive reportedly declined to provide any first-party physical damage coverage even though neither the plaintiff nor her vehicles fell within any of the exemptions for such coverage under G.L.c. 175, §113H.

Though the plaintiff was required to purchase collision coverage as part of her financing agreement, Progressive maintained that it could not offer it because of a binding restriction.

The insurer later indicated in a hearing that it temporarily halts sale of optional damage coverage during weather events and emergencies, and that at the time the plaintiff sought her policy, there was a National Weather Service flood warning in place.

The plaintiff ultimately purchased a policy without those coverages for her 2022 Mazda CX-30 for an assessed premium of $931.

On Jan. 10, 2024, she was involved in a three-car collision causing physical damage that resulted in a total loss.

Progressive denied her subsequent claim.

The plaintiff ultimately filed a putative class action in Superior Court on behalf of herself and others similarly situated, alleging unfair and deceptive insurance practices under Chapters 93A and 176D as well as claims of breach of contract and violation of the covenant of good faith and fair dealing.

Progressive moved to dismiss for failure to state a claim.

Dismissal denied

Addressing Progressive’s motion, Squires-Lee reviewed the statutory framework around the case, noting that under Chapter 90, §34O, every auto insurer must provide collision coverage and limited collision coverage at the policyholder’s option and that the commissioner of insurance may provide conditions, exclusions and limitations.

The judge also noted that G.L.c. 175, §113H, creates an exception under which insurers are not obligated to provide certain optional coverage to certain high-risk drivers. The purpose behind the exception is to find a way to insure drivers who would otherwise have difficulty obtaining any coverage, she said.

That was relevant because Progressive’s brief characterized Gondola as having argued that binding restrictions run counter to Chapter 175, §113H, in that she was refused the optional coverages despite not being a high-risk driver.

Progressive argued that Gondola, as someone who was not a high-risk driver and did not obtain her coverage pursuant to the system created by the statute, lacked standing to challenge an alleged violation of that statute.

“Progressive misunderstands the claim,” Squires-Lee said.

She explained that the plaintiff relied on Chapter 175, §113H, merely to argue that it provides the only exceptions to an insurer’s statutory obligation to provide optional collision and comprehensive coverage; she did not sue under that statute.

Rather, Squires-Lee continued, she brought breach-of-contract claims and a 93A claim for unfair insurance practices because of the insurer’s refusal to offer optional coverage based on undefined, undisclosed binding restrictions and misrepresenting the terms of coverage.

“She has alleged facts sufficient to plausibly suggest violation of G.L.c. 176D, §3 which defines unfair insurance practices to include: ‘[m]isrepresenting pertinent facts or insurance policy provisions relating to coverages at issue,’” the judge said. “On this record and procedural posture dismissal is not appropriate.”

Squires-Lee did, however, grant dismissal of the breach-of-contract claim, finding that because the parties’ agreement did not offer the coverages in question, the plaintiff did not accept them and Progressive thus could not be liable for breaching them.