Know the Limits of Your Insurance Coverage

In the case of Vermont Mutual Insurance Co. v Poirier (Massachusetts Supreme Judicial Court no. SJC-13209, July 6, 2022) Paul Poirier and Jane Poirier operated a disaster restoration business. The business was insured under a general commercial liability insurance policy. The policy covered “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’,” a standard liability insurance policy provision.

Phyllis Maston sued the Poiriers, contending that the Poiriers' business activities caused her injury. The court described the relevant facts as follows:

[D]uring the term of the policy, Douglas and Phyllis Maston hired the Poiriers' company . . . to clean up a sewage spill in their basement . . . [W]orkers removed contaminated material, cleaned the basement, and applied disinfectants. Although they warned Phyllis to stay out of the basement while they applied the products, they did not warn her that being in the basement could be dangerous until the disinfectants dried. Phyllis continued cleaning the basement in the days following the application of the disinfectants. Shortly after, she developed ongoing respiratory problems, which her doctors determined was caused by exposure to chemicals that were used in [the] cleaning products.

Ms. Maston's lawsuit alleged breach of contract, negligence, and violation of G. L. c. 93A * based on breach of the implied warranty of merchantability and breach of the implied warranty of fitness for a particular purpose. Shortly before trial Ms. Maston waived her contract and negligence claims and proceeded to a [judge] trial on the c. 93A claim alone.

* G. L. c. 93A prohibits “unfair or deceptive acts or practices in the conduct of any trade or commerce.” The statute additionally provides that a prevailing party shall “be awarded reasonable attorney’s fees and costs . . .”

As relates to Ms. Maston's c. 93A claim, Massachusetts law provides that those engaged in business imply that the goods they offer are "fit," that is, will perform as intended (this is referred to as the implied warranty of merchantability). If the goods are promoted as capable of accomplishing a particular task(s) or outcome(s), the goods must actually be so capable (this is referred to as the implied warranty of fitness for a particular purpose). * A breach of warranty is also a violation of G.L. c. 93A.

* For instance, a wet-dry vacuum must be capable of collecting water. If the vacuum is advertised as capable of collecting a particular volume of water over a specific time, it must be so capable.

The trial judge found that Poiriers committed a breach of the implied warranty of merchantability (subjecting them to liability under G.L. c. 93A), though did so unknowingly and unintentionally. The judge determined that Ms. Maston suffered diminished earning capacity, medical expenses, and pain and suffering in an amount totaling $267,248.

Because Poiriers were responsible under G. L. c. 93A, the judge additionally assessed attorney’s fees in the amount of $215,328 and costs of litigation in the amount of $15,447. Poiriers appealed to the Massachusetts Appeals Court. The Appeals Court affirmed the trial court outcome and imposed further (appellate) attorney’s fees of $21,600 and (appellate) costs of $1,970, for a total $236,928 in fees and $17,417 in costs.

The insurer paid Ms. Maston $696,669, which represented her damages and the costs assessed (and legal interest on both), but did not include attorney’s fees (or legal interest on the attorney’s fees). The insurer then sued Poiriers, seeking a determination that the policy did not include coverage for attorney’s fees (that is, that the policy required the Poiriers to satisfy from their own wealth any award of attorney’s fees (here $236,928 plus legal interest)). The trial court concluded that the policy included coverage for attorney’s fees assessed against an insured (that is, Poiriers prevailed in the trial court). The insurer appealed.

The issue on appeal was whether the attorney’s fee award amounted to “damages because of bodily injury,” the Poiriers contending that the bodily injury was the cause of the attorney’s fee award: without the bodily injury no attorney’s fees would be awarded.. The Massachusetts Supreme Judicial Court concluded differently, reasoning damages because of bodily injury are compensation for physical or emotional--but not economic--harm.

In the final analysis, the Poiriers were found to have acted innocently, that is, they did not knowingly or intentionally cause harm. Persons obtaining insurance for their innocent wrongs expect that that insurance will cover the resulting harm--but these expectations can be mistaken. In this instance the Poiriers will be responsible to Ms. Maston in an amount likely in excess of $600,000 (and will have additionally incurred their own attorney’s fees is seeking to establish insurance coverage).

The moral of the story: Even innocent wrongs by a business with liability coverage can result in significant, uninsured losses. Businesses might inquire of their insurance agent if additional coverage is available to cover these business liabilities.

On-Line Terms of Service

Two recent cases address on-line arbitration clauses expressed in a terms of service: Starke v. SquareTrade, Inc., No. 17-2474-CV (2d Cir. Jan 10, 2019) and Sultan v. Coinbase, Inc., No. 18-934 (FB)(ST) (E.D.N.Y. Jan 24, 2019).

An on-line arbitration clause generally requires that disputes be resolved at arbitration (rather than at court) and such clauses usually are included in a terms of service that a customer accepts by “clicking” agreement to the terms. (It has sarcastically been said that the best place to hide something is in a terms of service.)

In Sultan v. Coinbase, Inc. a federal district court concluded that an arbitration clause in an online consumer contract was enforceable. The court described that determining the enforceability of an arbitration clause required the court to “look to the design and content of the relevant interface to determine if the contract terms were presented to the offeree in [a] way that would put her on inquiry notice of such terms.” Factors the court considered important were that the user interface had a “minimalist layout and no distractions,” the terms of service were presented above the “Create Account” button and were presented “simultaneously to enrollment,” and that the user was required affirmatively to click a box certifying that she agreed to the terms. While the court did enforce the arbitration clause, the case demonstrates that the enforceability of an on-line arbitration clause or terms of service requires the customer be reasonably made aware of such terms--as further explored in another recent case Starke v. SquareTrade, Inc. 

In Starke v. SquareTrade, Inc., a federal Appeals Court concluded that an arbitration clause was not enforceable because the consumer did not have reasonable notice of and indicate an assent to the clause. In Starke, the arbitration clause was included in link in a post-sale email sent to the consumer. The court concluded the consumer did not have reasonable notice of the arbitration provision. The court pointed to: (1) SquareTrade did not direct the consumer’s attention to the “terms and conditions” hyperlink that contained the arbitration clause, (2) the post-sale email sent to the consumer was “cluttered” and did not direct the consumer’s attention to the “terms and conditions”, (3) the clutter featured various graphics that distracted the reader from the hyperlink. The court noted: “The placement of the ‘Terms & Conditions’ hyperlink in the email makes it hard to escape the inference that SquareTrade hoped the reader’s eye would be drawn elsewhere.” With respect to the general rule that a party is bound by a contract he or she signs (or otherwise assents to), the court stated: “Starke, like any other offeree, had a duty to read the terms of the contract presented to him . . . [But] the duty-to-read principle still require[s] that the offeree be put on notice of the existence of [the] contract terms before it can be said that he has assented to them . . . [T]he duty to read does not morph into a duty to ferret out contract provisions when they are contained in inconspicuous hyperlinks.”