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Capitol Specialty Insurance Co. v. Higgins

United States District Court, D. Massachusetts

August 26, 2016




         Capitol Specialty Insurance Corporation (Capitol) moves to dismiss nine counterclaims brought by Kailee Higgins on behalf of herself and PJD Entertainment of Worcester, Inc., d/b/a Centerfolds II (PJD) in this protracted insurance coverage dispute. The counterclaims relate to Capitol's handling of Higgins's tort claims against PJD, which she brought in an effort to recoup damages for serious injuries that she suffered in a motor vehicle accident after leaving PJD's establishment. Although Capitol ultimately paid Higgins the remaining limits under PJD's liquor liability insurance policy, Higgins alleges that Capitol engaged in unfair settlement practices while handling her claim, and that she incurred damages as a result.

         The parties filed a slew of motions relating to Higgins's counterclaims, which are the only claims that remain in this suit. Higgins also seeks to vacate my order on a previous summary judgment decision, which I issued in September of 2015. For the reasons set forth below, Capitol's motion to dismiss (Docket No. 78) and Higgins's motion to strike (Docket No. 87) are denied as moot. Capitol's motion for summary judgment (Docket No. 88) is denied as to counts III, IV, and V, and granted as to counts I, II, VI, VII, VIII, and IX. Higgins's cross-motion for summary judgment (Docket No. 91) and Capitol's motion to strike (Docket No. 109) are denied. Higgins's motion to vacate (Docket No. 93) is denied.


         During the early morning hours of November 28, 2010, Higgins was severely injured in a car accident. The accident occurred after she left her shift as a dancer at Centerfolds II, an adult club owned and operated by PJD. She alleges that she was served and permitted to consume alcohol during her shift and that she was intoxicated at the time of the accident. She was twenty years old at the time.

         PJD was insured under a liability policy issued by Capitol, which included two different coverage forms: a Commercial General Liability Coverage Form (CGL Form) with a limit of $1, 000, 000; and a Liquor Liability Coverage Form (LL Form) with a limit of $300, 000. The CGL Form was subject to a liquor liability exclusion, which eliminated coverage for:

"Bodily injury'' or "property damage" for which any insured may be held liable by reason of:
(1) Causing or contributing to the Intoxication of any person;
(2) The furnishing of alcoholic beverages to a person under the legal drinking age or under the influence of alcohol; or
(3) Any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages.

(Docket No. 90-10 at 50.)

         PJD promptly notified Capitol of Higgins's accident, and Capitol retained Norfield Associate, Inc. (Norfield) to conduct a limited investigation of the potential claim. PJD's insurance policy was an “eroding limits” policy, meaning that Capitol bore the costs of claims investigations that occurred before a suit was filed against the insured, whereas the costs of investigation and defense incurred after the filing of a lawsuit would be deducted from the limits of the policy. As part of its limited investigation, Norfield sought information from the Worcester Police Department and the Licensing Commission. Norfield also interviewed Richard McCabe, who was a manager at Centerfolds and a part-owner of PJD.

         On December 28, 2010, Norfield provided Capitol with a written summary of its investigation, including the following information provided by McCabe:

The insured [McCabe] notes that following the incident all workers were interviewed by both the insured and the Worcester Police Department and they universally asserted that Ms. Higgins had not consumed any alcoholic beverages during the evening in question. More specifically, the insured noted that they have the same detail officer, “Dave, ” working every Saturday evening and he did not recollect seeing Ms. Higgins consume any alcoholic beverages on the evening in question.

(Docket No. 90-4 at 3.) Under a section of the report titled “remarks, ” Norfield listed future investigatory actions that it would take, including interviewing McCabe and the bartender on duty, developing a list of potential witnesses, mapping out potential routes taken by Higgins, and continuing contact with the Worcester Police Department. However, upon receipt of Norfield's report, Capitol's Senior Claims Specialist, Michael Wedwick, determined that the information obtained to date was sufficient. Norfield issued a final report dated January 25, 2011, confirming a telephone call with Wedwick on January 11, 2011, during which Wedwick had instructed Norfield to close its investigatory file.

         Nearly one year later, on February 3, 2012, Higgins's then-counsel sent a letter of representation to PJD, stating that Higgins would seek damages as a result of the accident. Higgins's counsel described PJD's purported liability as follows:

While at Centerfolds, Ms. Higgins was served and permitted to consume alcohol to the point where she became intoxicated. During the early morning hours of November 28, 2010, Ms. Higgins was assisted to her vehicle by the agents, servants, or employees of Centerfolds after which she drove off. The alcohol served to Ms. Higgins at Centerfolds caused her to be impaired, and this impairment caused her to be involved in a serious motor vehicle accident shortly after leaving the parking lot of Centerfolds.

(Docket No. 90-6 at 1.) Higgins's counsel further alleged that PJD was aware that Higgins was underage. PJD forwarded this letter to Capitol. Wedwick construed the letter as presenting a liquor liability claim premised on the service of alcohol by PJD. He responded to Higgins's counsel by letter on February 13, 2012, denying PJD's liability:

We respectfully deny any and all liability on the part of our insured for your client's injuries. Our insured denies that they served alcohol to your under aged client and they are not responsible for the injuries sustained by your client when she was involved in a motor vehicle accident.

(Docket No. 90-7 at 1.)

         Within weeks after PJD received Higgins's letter of representation, PJD also advised Capitol of an affidavit of Christine Zbikowski, who was employed by PJD as an entertainer. Zbikowski stated that she had been contacted by Higgins's attorney, and that both Higgins and her attorney had told her that she would be given $10, 000 if she signed an affidavit stating that the staff at Centerfolds had served Higgins alcohol while knowing that she was underage and intoxicated. Zbikowski informed Higgins's counsel that she had not seen Higgins drinking or being served alcohol. Zbikowski then completed an affidavit for PJD.

         On February 22, 2013, Higgins filed suit against PJD in Worcester Superior Court, seeking damages relating to her injuries from the accident. Higgins alleged in her complaint that the staff at PJD had served her to the point of intoxication; that she was obviously intoxicated; that an employee escorted her to her vehicle; and that she drove away and was involved in an accident as a result of her intoxication. Her complaint included two causes of action: negligence and gross negligence. The complaint was accompanied by an affidavit, in which she stated that she was intoxicated when she got into her car on the night of the accident.

         Capitol interpreted the allegations in Higgins's complaint as asserting a liquor liability claim triggering coverage under the LL Form. On May 28, 2013, Capitol advised PJD that it had retained counsel to defend it “in the liquor liability claim” filed by Higgins. (Docket No. 90-12 at 1.) This letter further advised PJD that the applicable policy included $300, 000 in liquor liability coverage. On May 24, 2013, Capitol retained attorney Jeffrey Stern to defend PJD. In the email assigning the defense of PJD to Stern, Wedwick wrote: “Please accept this assignment to defend our insured, only, in the liquor liability suit filed against them in the Worcester Superior court.” (Docket No. 90-11 at 1.)

         Stern conducted an investigation and provided multiple reports to Capitol in 2013. During his investigation, he obtained a copy of the District Attorney's report, which indicated that Higgins had used cocaine and marijuana within twenty-four hours of the accident. The District Attorney's report also included witness statements from PJD's employees, each of whom had said that they had not witnessed Higgins drinking alcohol on the night of the accident. In Stern's final report to Capitol, he predicted that PJD's liability “could be as high as $2-3, 000, 000, ” and that the likely verdict range based on the information gathered to date was at least $500, 000-$1, 000, 000. (Docket No. 91-26 at 3.) He noted that “[t]here clearly would be some element of comparative fault here, ” based on the facts that Higgins was intoxicated; that her blood had tested positive for marijuana; and that, according to Zbikowski, Higgins and her attorney had offered to bribe a witness. (Docket No. 91-26 at 3.) Stern recommended waiting until after Higgins's deposition to offer her a settlement.

         Higgins was deposed on December 9, 2013. Immediately after the deposition, Stern advised Capitol to tender the policy limit available under the LL Form because, in his opinion, it was more likely than not that a jury would believe Higgins's testimony that she had been drinking at Centerfolds before the accident. Although Stern advised Capitol that Higgins appeared credible in her deposition, he later testified that he did not consider PJD's liability to be “reasonably clear” as that term is defined in Mass. Gen. Laws ch. 176D, § 3(9). He explained during his deposition:

The evidence of a bribe, if believed, and I would see no reason to think that this witness made that up, is the sort of evidence that could absolutely be so toxic as to completely undercut a plaintiff's case. . . . [T]he nature of the comparative negligence is not of the momentary-lapse-of-judgment variety but of a protracted series of misjudgments. . . . And, [ ] still a lot of factual disputes, some of which we never, you know, which we never got to evaluate, never talked about, a bunch of witnesses; if the case had gone forward, there would have been, you know, interviews of other waitresses and so forth.

(Docket No. 90-13 at 126.)

         After receiving Stern's recommendation, Wedwick shared the information with his supervisor, who authorized Stern to tender the remaining limits available under the LL Form after deducting the costs of any unbilled expenses. On December 10, 2013, Stern had a phone conversation with Higgins's counsel, in which he stated that Capitol was offering the remaining limits of the LL Form-approximately $285, 000-in exchange for a release of all claims against PJD.

         On December 27, 2013, Higgins's counsel wrote to Wedwick and demanded payment of $1, 300, 000-the combined total of the CGL Form and the LL Form. Higgins's counsel acknowledged that Stern “ha[d] communicated to our office that the limit of the Liquor Liability coverage ($300, 000) would be offered by [Capitol], but the General Liability coverage ($1, 000, 000) was being disputed.” (Docket No. 90-19 at 4.) By letter dated February 10, 2014, Capitol responded to Higgins's demand by ...

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