Lumbermens Mutual Casualty Co. v. Y.C.N. Transportation Co.

Citations: 46 Mass. App. Ct. 209; 705 N.E.2d 297; 1999 Mass. App. LEXIS 55Docket: No. 96-P-1990

Court: Massachusetts Appeals Court; January 25, 1999; Massachusetts; State Appellate Court

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Lumbermens Mutual Casualty Company initiated a declaratory relief action against Y.C.N. Transportation Company, Inc. regarding its obligation to reimburse YCN for legal costs incurred from 1986 to 1993 in defense of a tort action brought by Todd Paolucci. YCN counterclaimed for declaratory relief, breach of contract, and violations of G. L. c. 93A. After stipulating to certain facts, both parties filed cross motions for summary judgment. The Superior Court ruled in favor of YCN for defense and indemnification for the duration of the Paolucci lawsuit but denied YCN's G. L. c. 93A claim. Lumbermens' motion for summary judgment was denied, and both parties appealed after agreeing on a judgment amount while preserving appeal rights.

Lumbermens is licensed to provide casualty insurance in Massachusetts, while YCN is a transportation company. From April 9, 1984, to April 9, 1985, YCN was covered under Lumbermens' business automobile insurance policy, which included coverage for bodily injury liability and stipulated that Lumbermens had a duty to defend any suit for damages payable under the policy, regardless of the merit of the allegations.

The case arose from a lawsuit filed by Paolucci, alleging personal injuries due to an incident of sexual assault on a YCN-operated school bus in December 1984, involving a monitor hired by YCN. YCN promptly notified Lumbermens of the lawsuit and requested defense and indemnification. However, on February 23, 1987, Lumbermens disclaimed responsibility, arguing that the incident did not constitute an accident related to the ownership or use of the covered vehicle.

Lumbermens cited Aetna Cas. Sur. Co. v. United States Fid. Guar. Co., which determined that a child's rape by a bus driver was not related to the ownership or use of the vehicle. Following this, YCN engaged legal counsel for the Paolucci action, during which motions and pleadings were filed. On July 8, 1993, the court issued a ruling in Roe v. Lawn, interpreting a similar insurance policy where a bus passenger was assaulted by the driver. The court concluded that an assault within the bus while fulfilling transport duties constituted an accident under the policy. Subsequently, YCN requested Lumbermens to defend and indemnify it based on this ruling, but Lumbermens declined, citing the pending appellate review of Roe. In June 1994, the Supreme Judicial Court upheld the Roe decision, reinforcing the implied promise of safe passage for passengers. Lumbermens then covered YCN's defense costs from the date of the Roe decision but sought a declaration to avoid paying for costs prior to July 1993. YCN counterclaimed for reimbursement of all defense costs from 1986 to July 1993. On appeal, Lumbermens contended that the Roe decision did not apply retroactively, that YCN's claims were time-barred, and that there were disputed material facts. YCN argued against the denial of its c. 93A claim. The motion judge ruled that Roe should be applied retroactively, referencing Schrottman v. Barnicle, which favored retroactive application of decisional law but acknowledged exceptions to protect reasonable expectations. Lumbermens argued that Roe established a new legal rule and that its prior reliance on existing law justified non-retroactivity. The court noted that the Roe decision did not alter the pre-existing law.

The appellate courts have established that a common carrier's standard of care is exceptionally high, akin to that of an insurer. A carrier is liable if a passenger is harmed due to the negligence or intentional misconduct of its employee. The Supreme Judicial Court has ruled that an injury must have a causal link to the use of a motor vehicle to be deemed related to its ownership, maintenance, or use. The injury to Paolucci arose from his use of a common carrier, and the ruling in Roe v. Lawn is viewed as a logical extension of established principles rather than a novel rule. Lumbermens disclaimed its obligation to defend or indemnify YCN regarding the Paolucci case on February 27, 1987. If this disclaimer breached their contract, YCN had six years from that date to assert claims, but it did not act within this period. Lumbermens contends that YCN's claims for reimbursement of legal costs incurred before Roe v. Lawn are barred by the statute of limitations. YCN argues that Lumbermens waived this statute by agreeing to pay defense costs after July 8, 1993, despite the limitations period having lapsed. The ruling indicates that partial payment can constitute a waiver of the statute of limitations. The motion judge found that Lumbermens did not act in bad faith in denying coverage before July 8, 1993, a conclusion that the appellate court affirms. It was determined that the insurer's denial was based on a reasonable, albeit incorrect, legal interpretation. The agreement for judgment from October 31, 1996, is upheld. The definition of "accident" in the policy included assault and battery unless directed by the insured, which was not the case here. YCN’s counsel finalized the dismissal of the Paolucci case in September 1994. Lumbermens’ claim that material facts prevented summary judgment in favor of YCN is dismissed since the matter was submitted on stipulated facts. Additionally, Lumbermens relied on the First Circuit's decision in Aetna Cas. Sur. Co. v. United States Fid. Guar. Co., which did not consider relevant Massachusetts cases regarding common carriers, highlighting a significant factual distinction in the cases cited. The statute of limitations issue was raised but not addressed in the judge's order.