Mass. Court Says Arbitration Allowed in Underinsured Motorist Claim Suit

The Massachusetts Appeals Court has ruled that Arbella Mutual Insurance Co. did not engage in unfair settlement practices by demanding arbitration in a lawsuit involving an underinsured motorist claim.

In the case, Heather Chamberland vs. Arbella Mutual Insurance Company, plaintiff Heather Chamberland pursued civil action against Dylon Maiorano, the other driver involved in a July 2007 accident in which she was injured.

Maiorano’s vehicle was insured under a policy issued by Liberty Mutual Insurance Co., and Chamberland eventually obtained a settlement in the amount of Maiorano’s policy limits.

Her underinsurance carrier, Arbella Mutual Insurance Co., was not a party to the civil action but did consent to the settlement. Chamberland then sought underinsured motorist coverage from Arbella, and Arbella invoked arbitration.

A Superior Court judge initially found Arbella’s request for arbitration was untimely and should be waived. Arbella appealed, and the Appeals Court eventually reversed the decision in its latest ruling.

After Arbella was notified of the accident, it confirmed in writing Chamberland’s underinsurance coverage limits under the Arbella policy were $250,000 per person and $500,000 per accident.Chamberland sued Maiorano and won in the second trial, with the jury concluding the accident was caused by Maiorano’s negligence and Chamberland was entitled to damages. Maiorano appealed.

While Maiorano’s appeal was pending, Chamberland, with Arbella’s consent, reached a settlement with Maiorano and Liberty Mutual, in which Liberty Mutual agreed to pay her the full $100,000 in bodily injury coverage available under Maiorano’s policy. In exchange, Chamberland released Maiorano and Liberty Mutual from all claims and acknowledged Maiorano did not admit liability. The parties did not correspond until more than three years later when Chamberland’s attorney notified Arbella of the judgment against Maiorano.

Chamberland then claimed the issues of liability and damages had been resolved by the judgment against Maiorano and demanded payment of the balance of the judgment pursuant to the underinsurance coverage provision in the Arbella policy.

Arbella refused, stating it was entitled to resolve issues of liability and damages through arbitration.

Chamberland initiated this case against Arbella, claiming she is entitled to the remaining underinsurance coverage limits and Arbella engaged in unfair settlement practices. Although Arbella filed a counterclaim, it was initially dismissed by the Superior Court motion judge. The motion judge granted a required offset of $100,000 for the bodily injury coverage Chamberland recovered under Maiorano’s insurance policy and declared Arbella liable to Chamberland for $131,565 in underinsurance coverage.

However, Massachusetts automobile insurance policies are required to comply with all applicable statutory provisions and be in a form approved by the Commissioner of Insurance, according to the Appeals Court decision document. Resolution of a claim for uninsured motorist benefits – both liability and damages – is required through an agreement between the insured and the insurer, or by arbitration if they fail to agree, the document stated.

The motion judge in the Superior Court decision believed Arbella wasted judicial time and effort by taking a “wait and see” approach while Chamberland’s action against Maiorano played out, the Appeals Court document stated.

However, Arbella was not a party to the litigation between Chamberland and Maiorano. Because of this, the Appeals Court found Arbella couldn’t fairly be charged with wasting judicial time and effort because it waited for Chamberland’s action against Maiorano to conclude. When Chamberland finalized her settlement with Maiorano and Liberty Mutual and demanded the underinsurance limits of the Arbella policy, Arbella demanded arbitration.

With this in mind, the Appeals Court reversed the Superior Court’s previous ruling, finding that although a significant amount of time had passed before Arbella’s demand for arbitration, it didn’t act inconsistently with its statutory and policy-based rights to arbitrate.

The matter was remanded to the trial court for appointment of an arbitrator and for further proceedings on Chamberland’s claim that Arbella engaged in unfair settlement practices in violation of Massachusetts law.