SJC To Consider Bad Faith Claims Against Guaranty Fund
The Supreme Judicial Court is due to hear oral argument on January 4, 2010 in the matter of Wheatley v. Mass. Insurers Insolvency Fund, SJC-10510. At issue is whether the state guarantee fund can be held liable under M.G.L. c. 176D for the sort of unfair claims settlement practices that would ordinarily subject a domestic insurer to liability under M.G.L. c. 93A. Wheatley has appealed from a ruling in the Superior Court that the fund was not "in the business of insurance" and was therefore outside the purview of Chapter 176D.
The claim in question arises out of serious personal injuries that a special needs student suffered on October 26, 2001 while attending a public elementary school in the Town of Duxbury. At the time, the Town was insured by Legion Insurance, which was put into insolvency the Pennsylvania Insurance Commissioner in July 2003. As a result, when Wheatley made a claim against the Town in August 2003, responsibility for the investigation and disposition of her liability claim was undertaken by the Massachusetts Insurers Insolvency Fund.
Wheatley alleges that the Fund never responded to her various demands, including a demand presented pursuant to M.G.L. c. 93A, ยง 9 and that it had a legal responsibility to do so as Wheatley contends that the liability of the Town of Duxbury was reasonably clear. Her bad faith claims against the MIIF were dismissed in 2008 in light of earlier rulings such as Barrett v. MIIF, 412 Mass. 774 (1992) and Poznik v. Mass. Medical Professional Ins. Assn., 417 Mass. 48 (1994) in which Massachusetts courts had declared that only conventional insurers were meant to fall within the jurisdiction of Chapter 176D.
On appeal to the Supreme Judicial Court, Wheatley has argued that 1996 amendments to Chapter 176D, which amended the definition of "person" to include the MIIF and certain joint underwriting associations, evidence an intent on the part of the legislature to treat the Guaranty Fund and JUAs as being in the "business of insurance" for purposes of Chapter 176D. Wheatley further argued that the timing of these legislative amendments clearly indicated an intent on the part of the legislature to reverse the Supreme Judicial Court's holdings in Barrett and Poznik. In light of subsequent cases in which courts have ruled that JUAs may be held liable for unfair claims practice prohibited by Chapter 176D, Wheatley argues that the same should be true as regards the MIIF.
In response, the MIIF has argued that the legislature plainly never intended to subject it to the same range of liabilities as actual insurance companies and that the Supreme Judicial Court has itself made clear that it views the MIIF as the "insurer of last resort." The MIIF emphasized in its brief that it has limited financial resources and is dependent on assessments from admitted carriers that are, in turn, passed along to policyholders. As a result, it argues that such a radical expansion of its potential liabilities should not be implied and should only result from a direct action of the legislature.
A ruling should be received from the SJC by May or June of 2010.
Note that the issue in Wheatley is whether the MIIF can be held liable for its own claimed misconduct in handling claims of a policyholder. It is far less likely that the SJC would impose liability if the issue was whether 176D liability could be imposed based on the claimed misconduct of an insurer prior to being declared insolvency.
