Appeals Court Decision Reopens Door To Lawsuit Against New Bedford-Based Insurance Agency
The Flagship Insurance Agency of New Bedford will have to face a lawsuit that it might have thought it avoided. A Superior Court ruling dismissed an insured’s second suit against Flagship as being barred by claim preclusion. However, the Appeals Court reinstated the lawsuit by reversing the Superior Court decision.
SurTan Manufacturing Co. and its owners, Richard and Steven Surabian (Collectively, “the Surabians”), initially brought a lawsuit against American European Insurance Company (AEIC), third-party adjusters, public adjusters, and Flagship Insurance Agency in 2018, seeking damages related to a fire that caused extensive damage to its property.
Flagship responded to the Surabians’ suit with a motion to dismiss. Rather than opposing Flagship’s motion, the Surabians filed a voluntary dismissal “without prejudice.”
In 2019, after deposing Brian Breton, an executive vice-president of Flagship, the Surabians sought to amend their complaint to add Flagship and Mr. Breton as defendants. However, the court denied the motion to amend as being untimely as the case’s tracking order for amendments had expired.
Nine days after the denial of their motion to amend, the Surabians filed a new lawsuit against Flagship and Mr. Breton (Collectively “Flagship”), alleging various wrongdoings related to the handling of their insurance claims.
Flagship moved to dismiss the Surabians’ second lawsuit on the grounds of claim preclusion which bars claims that have already been litigated or could have been litigated in a prior case.
The Surabians opposed Flagships’ motion to dismiss and requested consolidation with their prior lawsuit. In March 2021, the Superior Court granted Flagship’s motion to dismiss, finding that the denial of the Surabians’ dismissal and the denial of their motion to amend their first suit barred the Surrabians’ second suit under the doctrine of claim preclusion.
On appeal, the Appeals Court reinstated the Surabians’ second lawsuit against Flagship, ruling that claim preclusion did not apply under Massachusetts law to the facts in this case.
The Surabians’ underlying fire loss and claim handling dispute
SurTan is a joint venture in Massachusetts that designs, manufactures, and sells leather goods and apparel. They operated a manufacturing and retail facility at 1230 Route 28, South Yarmouth, Massachusetts, until February 23, 2016, when a non-suspicious fire caused extensive damage to the property’s structure and contents.
The Surabians had purchased a commercial property policy with The American European Insurance Company (AEIC) through Flagship with effective dates from October 18, 2015, through October 18, 2016.
Brian Breton, an executive vice president of Flagship, sold insurance to the Surabians since 1995. He would, at least, annually visit the property to review documents and inventory, discuss additional insurance products, and renew their policies.
Following the fire, the Surabians retained a public adjuster to assist with their insurance claim against AEIC and reported the loss to AEIC and Flagship. Steven Surabian requested Mr. Breton’s assistance in collecting under the Policy, but Mr. Breton declined as the Surabians had already engaged a public adjuster.
Flagship agrees to assist in the Surabians’ claims
On March 25, 2016, the Surabians’ business consultant and Steven Surabian, met with a Flagship account executive at their office to discuss the extent of the Surabians’ losses and the coverages provided under the Policy. They also reported additional claims for the theft of $300,000 worth of inventory and the loss of $800,000 worth of stock due to mold from fire suppression activities. The account executive confirmed that these claims had not been submitted by the public adjuster and assured them that Flagship would submit them to AEIC.
Mr. Breton becomes more involved in the Surabians’ claims against AEIC
In September 2017, the Surabians requested a meeting with Mr. Breton at their temporary location to discuss the coverage of the policy and how to resolve the unpaid claims. During the meeting, Mr. Breton promised to contact AEIC’s senior claims manager and arrange a meeting between the Surabians, AEIC’s senior claims manager, and AEIC’s third-party claims adjuster, to address the Surabians’ claims before the two-year limitations period of the Policy expired.
The Surabians’ demand for reference and AEIC’s nonstandard policy releases
By January of 2018, almost two years had passed without payment on the fire loss, the Surabians sent AEIC a written demand, pursuant to G.L. c. 175, § 99, to submit the Surabians’ $747,305 building loss appraisal and its other claims submitted in January 2017 and February 20I7, to statutory reference.
The same day, after receiving the reference demand, AEIC told Mr. Breton that it had approved payment of the building loss claim in the amount of $458,627.67 and the Surabians’ “extra expense” claim in the amount of $60,653.
AEIC failed to pay or dispute the Surabians’ additional personal property claims submitted in January 2017 and February 2017. However, AEIC’s independent adjuster drafted a nonstandard policy release that conditioned AEIC’s payment of the building loss claim and the extra expense claim upon the Surabians, fully releasing all other claims, including their post-fire theft claim and inventory loss mold claim.
Mr. Breton allegedly reviewed the policy releases for the Surabians. However, according to the Surabians, he did not inform them that executing the policy releases would release any and all claims they may have had against AEIC and all other covered claims under their property policy with AEIC.
Mr. Breton also allegedly falsely told the Surabians that their discharged public adjuster had a lien on all payments issued under the policy and encouraged the Surabians to execute AEIC’s policy releases.
The Surabians did not sign the policy releases.
The Surabians’ first lawsuit against its insurer, the insurer’s adjuster, the public adjuster, and Flagship
On February 20, 2018, the Surabians brought a lawsuit against AEIC, its third-party adjusters, their public adjuster, and Flagship regarding their insurance claims and AEIC’s unfair claim practices.
When Flagship answered the Surabians’ suit with a motion to dismiss, the Surabians elected to file a voluntary dismissal “without prejudice” of the claim against Flagship.
The denial of the Surabians’ motion to add Flagship back into the Surabians’ suit against AEIC
On November 5, 2019, the Surabians’ conducted a deposition of Mr. Breton as an executive vice president of Flagship in their original lawsuit. Based on this deposition, the Surabians moved for leave to amend their complaint on December 9, 2019, to rejoin Flagship as a defendant.
The motion was made prior to any summary judgment or other pretrial motion deadline. However, on March 18, 2020, the Superior Court judge hearing the motion to amend denied the Surabians’ motion as untimely based on the time the case had been pending and the tracking order deadline having passed for amending the Surabians’ lawsuit.
The Surabian’s new lawsuit against Flagship
Nine days later, on March 27, 2020, the Surabians filed a new lawsuit against Flagship and Mr. Breton, asserting substantially the same claims they had sought to assert through their motion to amend in the prior action.
Flagship’s insureds’ new complaint against the agency and its producer
The new complaint the Surabians filed against Flagship and Mr. Breton asserted various causes of action in six counts:
Count I: Breach of third-party beneficiary contract.
Count II: Negligence and breach of fiduciary duty.
Count III: Fraud, deceit, and misrepresentation.
Count IV: Negligent infliction of emotional distress.
Count V: Breach of the implied covenant of good faith and fair dealing.
Count VI: Violation of G.L. c. 93A.
These counts alleged various wrongdoings related to the defendants’ handling of the Surabians’ insurance placement and insurance claims following a fire that caused extensive damage to their property.
Count, I asserted that Flagship and Breton breached a third-party beneficiary contract by failing to secure adequate insurance coverage for the Surabians. Count II alleged negligence and breach of fiduciary duty, claiming that the defendants failed to provide proper advice and acted in their own interest rather than in the Surabians’ best interest. Count III alleged that the defendants engaged in fraud, deceit, and misrepresentation by making false promises and misrepresentations regarding insurance coverage and claims handling. Count IV asserted that the defendants’ actions caused the Surabians to suffer emotional distress. Count V alleged quasi-contract and breach of the implied covenant, claiming that the defendants received benefits without fulfilling their corresponding obligations. Finally, Count VI alleged a violation of G.L. c. 93A, which is a Massachusetts consumer protection law, claiming that the defendants engaged in unfair and deceptive practices in their handling of the Surabians’ insurance claims.
In response to the Surabians’ lawsuit, Flagship again moved to dismiss, claiming the denial of the Surabians’ motion to amend after it had once dismissed its case against Flagship was res judicata ( a final decision). The Surabians opposed the motion to dismiss and cross-moved to consolidate their action with their still pending prior action against their insurer, AEIC.
After a hearing on January 19, 2021, the Superior Court allowed the Flagship’s ‘ motion to dismiss based on the denial of the Surabians’ motion to amend, precluding any new lawsuit based on the same claims.
The Surabians appealed.
The Appeals Court’s decision reversing the dismissal in favor of the Flagship
The Appeals Court reversed the dismissal of the case brought by the Surabians against Flagship based on the application of claim preclusion after the Surabians were initially denied permission to add Flagship and Breton as defendants in their original lawsuit.
The court’s reasoning in this decision focused on whether “claim preclusion” applied, which would prevent the Surabians from bringing a new lawsuit against Flagship and Breton after being denied permission to add them as defendants in the original lawsuit.
Claim preclusion in its classic formulation requires three elements to be met:
Final Judgment on the Merits: There must be a final judgment on the merits in the prior adjudication. A final judgment is one that conclusively resolves the case and precludes any further litigation of the same issues.
Same Parties or in Privity: The party against whom preclusion is asserted must have been a party to the prior adjudication or in privity with a party to that adjudication. Privity refers to a relationship between parties that is close enough to justify treating them as if they were the same party.
Same Issue: The issue in the prior adjudication must be identical to the issue in the current adjudication. This means that the same cause of action, claim, or issue must have been litigated in the prior adjudication and that the current claim must arise out of the same transaction or occurrence.
In this case, the court found that claim preclusion did not apply because there was no final judgment on the merits of the original action, which is the first element required to be met. The Surabians had voluntarily dismissed their first lawsuit against Flagship “without prejudice,” and such a voluntary dismissal is not a final judgment.
The court also noted that the Federal cases on which Flagship and Breton relied were factually distinguishable from this case.
Those cases involved situations where a plaintiff sought to add new claims against a defendant already in the case but was denied permission to do so. In those cases, the denial of permission to amend was given preclusive effect under Federal law, even before the entry of a final judgment. However, in this case, the Surabians sought to add new claims against defendants who were no longer parties to the original action, and thus the classic formulation of the Federal approach to claim preclusion did not apply.
20 Days to apply for further appellate review to the Supreme Judicial Court
The Massachusetts Appeals Court is an intermediate appellate court. The ultimate judicial authority resides with the Supreme Judicial Court. Parties dissatisfied with an Appeal Court’s decision may apply for further appellate review. However, the allowance of any further appeal is discretionary with the Supreme Judicial Court.
Under the Massachusetts Rules of Appellate Procedure, Flagship will have until April 20, 2023, to apply for further appellate review.
Agency Checklists will keep you posted
Agency Checklists will monitor this case and keeps its readers posted as to any further developments.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Connect with me directly, by calling me at 617-598-3801.
