Insurance – Duty to defend – Bar fight

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Where an insurance company has been charged with breaching its duty to defend under a homeowners’ policy issued to the parents of a young man who was involved in a bar fight, the insurer’s handling of a claim made by a bar patron against the insurers’ son did not amount to a breach of the duty to defend.

Declaratory judgment for the insurer affirmed.

Background

“During his Thanksgiving vacation from college in November 2007, [Boris] Maguire was socializing with friends in Boston. After drinking at two other establishments, the group, which included a young man named William Schaetzl, arrived at the Pour House Bar and Grille. Another group of young adults, including Robert Kalsow-Ramos, was also drinking at the Pour House. Although the details of what ensued are not clear, the parties agree that what began as an altercation between Schaetzl and Kalsow-Ramos ended abruptly when Maguire hit Kalsow-Ramos in the face with a glass beer mug. The glass shattered, cutting the side of Kalsow-Ramos’s face and the muscle, tissue, and saliva duct below. Kalsow-Ramos underwent emergency surgery and recovered, but the incident left him with permanent scars.

“Within weeks, Maguire received notice of a criminal hearing at the Boston Municipal Court scheduled for January 4, 2008, to address whether there was probable cause to charge Maguire. The Maguire family retained Attorney Max Stern to represent Boris at the hearing.

“When Stern arrived at the courthouse, he met Attorney Paul Rufo, who represented Kalsow-Ramos. Rufo and Stern discussed the possibility of settling any potential civil claims and requested that the hearing be postponed. The hearing was rescheduled for February 29.

“On January 9, Rufo sent Stern a letter stating that Kalsow-Ramos intended to seek legal remedies against Maguire. That letter was followed by a more detailed one, dated January 16, in which Rufo outlined his client’s view of the facts, enclosed medical records and photographs of Kalsow-Ramos’s injuries, and made a formal ‘demand for settlement of [Kalsow-Ramos’s] claim for personal injury.’ Rufo offered to settle for a payment of $800,000, and stipulated that the offer expired on February 1.

“During the subsequent negotiations, Rufo emphasized to Stern that Kalsow-Ramos wanted to avoid participating in any criminal proceedings, and thus he was willing to accept a lower settlement payment. However, any such settlement had to be finalized before the probable cause hearing on February 29. On February 6, Rufo sent a revised settlement offer to Stern, calling for a $475,000 payment in exchange for release of all criminal and civil liability. The Maguires’ new attorney, John Markham, reached an agreement with Rufo on February 12 contingent upon Vermont Mutual waiving a particular provision — the ‘voluntary payment’ provision, discussed below — in the Maguires’ homeowners’ insurance policy. When Vermont Mutual refused to do so, the Maguires and Kalsow-Ramos continued to negotiate. On February 26, they signed an agreement obligating the Maguires to pay $425,000 to Kalsow-Ramos, who agreed not to pursue criminal or civil claims against Boris.”

No breach of duty

“Assuming there was a duty to defend triggered by the demand for settlement, it arose on January 17, when Vermont Mutual received a copy of the detailed Kalsow-Ramos demand letter. … At that point, [claims investigator  Mark] McGreevy began investigating the claim in earnest, responding to Stern’s email containing the demand letter within minutes. On January 22, less than a week later, McGreevy timely responded to Rufo’s demand letter by rejecting the offer to settle for $800,000. After that point, he continued to investigate the claim diligently by visiting the Pour House, attempting to interview numerous witnesses and speak with attorneys involved in the case, attending the Licensing Board hearing, and obtaining relevant reports and transcripts. Less than three weeks after receiving the initial demand letter, McGreevy issued the reservation of rights letter that explicitly told the Maguires that Vermont Mutual would continue to handle the claim despite some doubt that coverage existed.

“Meanwhile, Stern — first alone and then together with Markham — was negotiating a settlement with Kalsow-Ramos and gave Vermont Mutual no notice of such negotiations until February 7, after the reservation of rights letter had been sent on February 4. Moreover, although Stern forwarded the email with Rufo’s new offer of $475,000, made on February 6, the offer had expired eight hours before it was ever presented to McGreevy. In the same email, Stern reiterated that Maguire could only be interviewed if such communications were privileged, and he revealed that he had additional witness statements that he would share with Vermont Mutual only if they, too, were privileged.

“After Vermont Mutual learned of the ongoing settlement negotiations in the early evening of Thursday, February 7, it received Markham’s letter on Monday, February 11, reporting that a settlement had been reached contingent upon Vermont Mutual either paying the settlement amount or waiving the ‘voluntary payment’ provision. Vermont Mutual’s attorney, [Peter] Kober, responded four days later, explaining why the company would not accept either option and reiterating the company’s concern about the time frame and the restricted access to Maguire. Because Vermont Mutual did not agree to either contingency, the final settlement, entered February 26, contained slightly altered terms.

“Throughout this unusually condensed timeline, Vermont Mutual took no action that signaled a rejection or abandonment of its responsibility to defend Maguire. Nor did it fail to pursue the claim such that a breach of the duty to defend could be based on the company’s inaction. To the contrary, McGreevey actively investigated the incident and told the Maguires that Vermont Mutual would continue to handle the claim. Yet, despite McGreevey’s attentiveness and the reassurance of the reservation of rights letter sent on February 4, the Maguires went ahead with negotiations and authorized their attorneys to reach a settlement with Kalsow-Ramos, first on February 11 and ultimately on February 26.

“Given this background, the Maguires’ assertion that they felt ‘unprotected’ can be based only on Vermont Mutual’s communication that it needed more information before it would enter into a settlement. Such investigation of the nature and value of the Kalsow-Ramos claim was not only permissible, but required. … Moreover, although the Maguires contend that Vermont Mutual was obligated to enter the settlement negotiations so as to protect the insureds, the only opportunity the company was given to do so was after the initial demand letter — when the company did, in fact, enter the discussion by rejecting the $800,000 offer. After that point, the Maguires negotiated through Stern and Markham, disregarding Vermont Mutual’s explicit promise to handle the claim.

“The reason the Maguires took that step is obvious. If their primary concern had been the civil claim, Vermont Mutual’s statement on February 4 that it was handling the claim would have been a sufficient indication, at least in the short term, that their interests were being protected. Their main concern, however, was avoiding criminal charges. The Maguires do not argue that their insurance coverage extended to criminal defense, nor do they posit that Vermont Mutual was obligated to take the possibility of such charges into account in determining the value of the claim and the need to expedite negotiations. We see no basis for either argument. Indeed, the latter argument raises the troubling implication that insurance companies have a duty to negotiate aggressively and offer greater amounts as an incentive for third-party plaintiffs — some of whom may be unrepresented or susceptible to financial coercion — to drop criminal charges. …

“… Vermont Mutual did not merely reserve its rights and then fail to conduct an investigation. To the contrary, it acted quickly and diligently to uncover the facts relating to the incident and the value of the claim. On this record, we see no basis for concluding that Vermont Mutual breached any duty to defend that may have existed.”

Vermont Mutual Insurance Company v. Maguire, et al. (Lawyers Weekly No. 01-276-11) (19 pages) (Lipez, J.) (1st Circuit) Appealed from a decision by Zobel, J., in the U.S. District Court for the District of Massachusetts. John J.E. Markham II, with whom Bridget A. Zerner and Markham & Read were on brief, for the defendants-appellants; Peter C. Kober for the plaintiff-appellee (Docket No. 10-1542) (Oct. 31, 2011).

Click here to read the full-text opinion.