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The Massachusetts Appeals Court recently confirmed an insurance company’s right, under both statutory law (M.G.L. c. 175, § 111D) and the terms of its policy, to resolve a disputed claim for underinsured motorist coverage through arbitration, even where the insurer waited until the conclusion of its insured’s action against the alleged tortfeasor before demanding arbitration.
In Chamberland v. Arbella Mut. Ins. Co., 91 Mass. App. Ct. 680 (2017), the insured notified Arbella of a motor vehicle accident. Arbella insured her vehicle under a policy which provided underinsured motorist coverage, and requested to be kept apprised of the litigation of the insured’s tort claim against the other driver involved in the accident. After protracted litigation, involving two jury trials and multiple appeals, the insured secured a judgment against the other driver for $340,557.02. With Arbella’s consent, the insured settled with the other driver for $100,000, the limit of the other driver’s policy. The insured then demanded that Arbella pay the balance of the judgment ($240,557.02), pursuant to her underinsurance coverage. Arbella refused, claiming it was not bound by the judgment of the trial court and was entitled to resolve issues of liability and damages through arbitration.
The insured filed suit against Arbella, seeking a declaration that she was entitled to coverage and accusing Arbella of unfair settlement practices. Arbella filed a counterclaim seeking arbitration. On cross-motions for summary judgment, a Superior Court judge ruled in favor of the insured, holding that both parties had waived their right to arbitration remedy by waiting until after the conclusion of two jury trials in the underlying tort action, that Arbella was estopped to contest the issues of liability and damages. Arbella appealed.
The Appeals Court found the motion judge’s decision to be an abuse of discretion and held that Arbella did not act inconsistently with its arbitration right. It rejected the insured’s claim that prior case law could be interpreted “to suggest that an insurer (or insured) acts untimely by waiting until the conclusion of an insured’s action against the alleged tortfeasor to demand arbitration on such a claim.” To the contrary, the Court held that Arbella’s decision to wait until the insured had finalized her settlement with the tortfeasor before demanding arbitration was entirely consistent with is contractual rights.
The Court noted, however, that either party was free to seek arbitration at any time if they were unable to agree on liability and/or damages. The implication is that, had the insured demanded payment earlier, Arbella would have been forced to decide at that time whether to demand arbitration in order to contest liability and/or damages. Thus, the decision does not grant an insurer an unqualified right to “wait and see” what the outcome of the underlying litigation will be before deciding whether to proceed to arbitration. That decision must be made when the insured asserts a demand for underinsured motorist coverage, whether the underlying tort claim has been decided or not.
The main takeaway from Chamberland is that an underinsurance carrier will not forfeit its right to contest liability and damages and proceed to arbitration simply by waiting until the underlying litigation between its insured and the tortfeasor has concluded. So long as the insured has not yet asserted an underinsurance claim, and the insurer does not explicitly waive its right to arbitration, the insurer’s right to arbitration will be preserved.
Please contact us if you have questions or concerns about claims handling or insurance coverage issues. We would be happy to help.