The U.S. Court of Appeals for the First Circuit has limited liability of the insurance company of a Massachusetts restaurant/bar where a woman was injured following a brawl.
The issue in Graf v. Hospitality Mut. Ins. Co. was not whether the facility was negligent in providing security or whether that resulted in the plaintiff’s injuries. That was established during a previous lawsuit where the patron sued the restaurant directly, resulting in a $500,000 judgment in her favor.
Boston personal injury lawyers understand the issue in this action was to what extent the bar’s insurance company was liable for $112,000 in prejudgment interest against the owner and an employee of the facility.
The insurance company denied it had liability for the pre-interest portion of the damages, asserting the restaurant’s insurance policy limited injury claims to a maximum of $500,000 per person, per incident.
The plaintiff responded by filing a writ of attachment against the owner’s liquor license in an effort to force either the insurer or the owner to pay the excess judgment. She was granted this writ (which is a legal order to seize an asset for a certain purpose). Without its liquor license, the restaurant/bar couldn’t operate, so the owner acted quickly in seeking payment from the insurer for the cost of a bond to lift the order. The plaintiff sought a similar result.
The cost of this bond was roughly $115,000. The insurer insisted it was not liable for anything over $500,000, which was the maximum of the restaurant’s insurance policy.
The restaurant owner then sought to enter into a settlement agreement with the plaintiff: If she would agree to discharge the writ of attachment against the liquor license, he would assign all rights of compensation against the insurer to her. She agreed.
She then filed a lawsuit against the insurer in Massachusetts state court, though that lawsuit was later removed to federal court.
From there, a magistrate sided with the insurer in finding that $500,000 was the total amount available for recovery under the policy. Requiring the insurer to pay any more, the magistrate reasoned, would violate the terms of the insurance policy, to which the insurer had agreed.
The patron appealed, but the U.S. Court of Appeals affirmed the magistrate’s decision.
The court relied on Massachusetts case law to reach its conclusion. First, there was the 1990 ruling in Hazen Paper Co. v. U.S. Fid. & Guar. Co., which held that if there is more than one plausible interpretation of insurance policy language, the insurer is entitled to the benefit of the interpretation that favors it.
The policy requires the insurer to pay all sums up to the policy limit, with no other obligations unless explicitly provided for under the supplementary payment section of the contract. That section indicated the insurer would cover the cost of bonds to release attachments – but only for bond amounts that are within the insurance limit. The policy expressly states, “We do not have to furnish these bonds.”
The plaintiff argued the bond should be paid because the amount – $115,000 – was below the $500,000 policy limit. However, the court determined the policy was clear this was not the intent, and that even if it was subject to interpretation, the interpretation that favored the insurer would be the one recognized.
It’s important to note the plaintiff here didn’t “lose.” She still walked away with $500,000 in damages. Still, the case is a cautionary tale regarding the protections insurers enjoy in this state, and a reminder to be careful when entering contract agreements that release one party or another from liability.
If you are injured in an accident in Massachusetts, call Jeffrey Glassman Injury Lawyers for a free and confidential appointment — (617) 777-7777.
Graf v. Hospitality Mut. Ins. Co., June 11, 2014, U.S. Court of Appeals for the First Circuit
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