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McLaughlin v. American States Insurance Co.

Appeals Court of Massachusetts, Middlesex

August 12, 2016

DANIEL McLAUGHLIN & another [1]
v.
AMERICAN STATES INSURANCE COMPANY.

          Heard: May 19, 2016.

         Civil action commenced in the Superior Court Department on February 21, 2008.

         The case was heard by Paul D. Wilson, J.

          John F. Brosnan (James E. Harvey, Jr. with him) for the defendant.

          Matthew N. Kane for the plaintiffs.

          Present: Kafker, C.J., Cohen, & Green, JJ.

          GREEN, J.

         After the well installed by Shaun Harrington began pumping salt water through the plaintiffs' (McLaughlins) irrigation system, causing extensive damage to their landscaping, the McLaughlins sought recovery from Harrington and his insurer, the defendant, American States Insurance Company (ASIC). Both denied liability, and the McLaughlins eventually filed an action against Harrington and two others.[2] After the McLaughlins obtained a judgment in their favor against Harrington, they commenced this action against ASIC, claiming unfair insurance settlement practices. A judge of the Superior Court entered judgment against ASIC, and awarded the McLaughlins damages based on the legal expenses they incurred in prosecuting their suit against Harrington, but declined to award multiple damages as permitted by the statute. See G. L. c. 93A, § 9(3). On the parties' cross appeals, we conclude that the judge correctly determined that ASIC failed to conduct a reasonable investigation of the McLaughlins' claim, and that it failed to make a reasonable offer of settlement after liability of its insured became reasonably clear. We also discern no error of law or abuse of discretion by the judge in his refusal to award the McLaughlins multiple damages. However, we conclude that the judge erred in his failure to award the McLaughlins damages based on the loss of use of the funds ASIC should have offered in settlement once Harrington's liability became reasonably clear.

         Background.

         We summarize the written findings of fact entered by the judge in his detailed and thorough memoranda of decision.[3]

         In 2003, Assurance was nearing completion of construction of a home for the McLaughlins in Osterville. The home is on a peninsula, surrounded on three sides by salt water bodies connected to Nantucket Sound. The project included a substantial landscaping installation. Incident to the landscaping, Assurance subcontracted Waterworks to install a multizone irrigation system, to be served by a well.[4]Waterworks, in turn, subcontracted Harrington to drill the well.

         Harrington drilled the well in April, 2003, in the only location on site that his drilling rig would fit, approximately 110 feet from the shoreline. Though local ordinances required him to obtain a municipal permit before drilling a well, Harrington did not apply for a permit. In addition, though State regulations required him to submit a well completion report to the Department of Environmental Management immediately upon drilling the well, Harrington did not do so until after the dispute underlying this lawsuit arose.

         After drilling the well, Harrington tested the water it produced by tasting it. Satisfied that it tasted fresh, and that the well produced water at a rate more than adequate to meet the requirements of the irrigation system, Harrington considered his work complete and left the site.[5]

         From his experience, Harrington was aware that wells on Cape Cod drilled close to sea water might turn from fresh to salt water, by means of a phenomenon known as "upconing."[6] In such circumstances, as fresh water is pumped out of the well, salt water is drawn in to replace it. Eventually, the supply of fresh water is exhausted or largely infiltrated by salt water, and the well thereafter produces salt water. Though Harrington was concerned about the possibility that upconing could eventually occur in the McLaughlins' well, he did not advise Waterworks or the McLaughlins of the possibility. Prudent practice of well drillers on Cape Cod in 2003, in circumstances of wells drilled near salt water bodies, was to test the water produced by the well at regular intervals after drilling, but Harrington did not do so and did not advise Waterworks or the McLaughlins that they should.

         Decorative and ornamental landscaping plantings were installed in May and June, 2003, at a cost of approximately $185, 000. In July and August, 2003, the plantings began to show signs of distress. In late August, after trying unsuccessfully to reverse the damage by adjusting the watering schedule, the McLaughlins discovered that the damage was caused by salt water produced by the well and pumped through the irrigation system.

         Upon identifying the cause of the damage, the McLaughlins asked Assurance to submit a claim to Harrington's insurer for the damage caused by salt water produced from the well Harrington had drilled. Assurance submitted a claim to Harrington's insurance agent on October 22, 2003, and the claim reached ASIC on November 3, 2003. As submitted by Assurance, the claim included an invoice for plants killed by salt water as of that time, in a total amount of $28, 224.62. The claim form submitted to ASIC by Harrington's agent indicated that Harrington did not believe he was at fault.

         ASIC assigned Debra Dresner as claims adjuster to handle the McLaughlins' claim. Dresner wrote to Rachel McLaughlin at the address of her primary residence in Connecticut on November 4, 2003, asking her to contact Dresner as soon as possible. When Dresner received no response, she sent a second letter on November 11, 2003, again asking Rachel McLaughlin to contact her. On November 5, 2003, Dresner telephoned the nursery whose invoice accompanied the claim, requesting a "legible copy" of the invoice. The nursery responded promptly, and the requested copy arrived on November 10.

         On November 5, 2003, Dresner also called Harrington and took a recorded statement from him. In his statement, Harrington described the transition of the well from fresh to salt water as an "act of God." Harrington also advised Dresner that a certified hydrogeologist had done a conductivity test when Harrington installed the well. See note 5, supra. When Dresner asked if the hydrogeologist had prepared a report of the test, Harrington said that he believed so and would find out. Dresner wrote to Harrington later that day, requesting all paperwork he had relating to the loss and specifically requesting a copy of the report prepared by the hydrogeologist.

         At the time she received the claim, Dresner had authority to settle claims up to $10, 000 and was required to inform her supervisor of any claim for a larger amount. Though the McLaughlins' claim was for more than $28, 000, Dresner did not inform her supervisor of it.

         Dresner thereafter took no further investigative or other action on the McLaughlins' claim until January 26, 2004, when the McLaughlins' insurance agent left a voice mail message inquiring about the claim status. Dresner called the agent back that day; during their conversation, the agent gave Dresner the McLaughlins' telephone number. Dresner called and spoke to Rachel McLaughlin, who expressed concern over the length of time the claim process was taking and attempted to correct various factual assertions Harrington had made to Dresner. On January 26, 2004, after the telephone call, Dresner documented the call, sent a confirmation letter to Rachel McLaughlin, and sent a letter to Harrington requesting documents, including a document from the hydrogeologist, and contact information for Waterworks. ASIC took no further action until the McLaughlins' agent called ASIC on February 19, 2004.

         On that occasion, Dresner was out of the office and another claims adjuster, Julio Maisonette, handled the call. Maisonette adopted an aggressive and hostile approach toward the McLaughlins' agent, to the extent that the agent asked to speak to his supervisor (a request Maisonette refused). Rachel McLaughlin called Maisonette the following day. During that call, Maisonette stated that, in his view, Harrington was not liable for the damage because the well was pumping fresh water when Harrington completed his work and Harrington had no reason to believe it would eventually begin pumping salt water. Maisonette expressed his view that ASIC would not be liable if the well pumped fresh water even for only one day; Rachel McLaughlin responded with her disagreement with that position. Maisonette also suggested that other causes might have led to the damage to the plantings, including an unusually harsh winter, and observed that he did not even have evidence that the plantings were dead. When Rachel McLaughlin replied that she had lost approximately $72, 000 in plants, Maisonette responded that he had only one invoice, for $28, 000, and invited Rachel McLaughlin to send additional documentation of her losses. In response to Rachel McLaughlin's request for an explanation of ASIC's failure to send a field claims adjuster to the site, Maisonette said that ASIC had no intention of doing so. Rachel McLaughlin threatened to hire an attorney to press her claim.

         Despite her frustration with her conversation with Maisonette, Rachel McLaughlin promptly followed up by sending to him another copy of the earlier $28, 000 invoice, along with a second invoice for additional damaged plantings in the amount of $37, 475.24. In addition, she included thirty-two photographs, depicting "before and after" conditions, together with a two-page letter explaining what each photograph depicted.

         Two weeks later, on March 5, 2004, the McLaughlins' agent called Dresner to express frustration again with the manner in which the McLaughlins' claim was being handled. Following that call, Dresner called Harrington to ask about the hydrogeologist report he had promised, and Harrington advised her that he was still waiting for it. Dresner also gave her supervisor, Ralph Tedesco, a "heads up" that Rachel McLaughlin was unhappy with the handling of her claim in Dresner's absence. Tedesco reviewed the file and criticized Dresner for not bringing the claim to his attention earlier, since it exceeded her settlement authority. Tedesco suggested several lines of investigation for Dresner to pursue, including whether there is a way to prevent salt water infiltration of a well in close proximity to the sea, and whether Harrington had warned Waterworks or the McLaughlins about the risk of salt water infiltration. As a more experienced ...


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