-: SJC 13563.
Jeffrey Frank Coberly et al
versus the Commerce Insurance Company.
-: Okay, Attorney McCullough, whenever you're ready.
-: Good morning, thank you Madam Chief Justice
and Associate Justices.
May it please the members of the court,
I'm Kevin McCullough and I represent
the appellants in this matter.
This case is before this court on Direct Appellate review
following the dismissal from the trial court
and allowance of the appellee's motion to dismiss.
The question in this case,
and the issue in this case is whether part four
of the standard 2016 Massachusetts Automobile Insurance
policy provides coverage
for inherent diminished value IDV damages
for third party claimants.
And the answer to that question is that it does.
Part four of the 2016 policy as drafted
and subsequently approved by the Commissioner of Insurance,
does not exclude IDV damages.
Moreover, if the Commissioner of Insurance attempted
to exclude IDV coverage from part four of the policy-
-: Is that really true though?
Because this isn't the same as McGilloway
because we have specific language in this
standard form policy
that specifically references tangible property.
How could that necessarily not exclude IDV damages?
-: There's two parts to the answer, your Honor.
The first part is in considering the McGilloway
and the track that McGilloway took to get to this court,
it's important to consider the timeline of the 2016 policy.
The insurance companies were fighting
and disputing IDV as covered under part four
under the 2008 policy.
The 2016 policy was enacted while
that same fight was still going on.
And the changes that were made and authored, I'm sorry,
and authorized by the commissioner of insurance
were taking place in an effort to strengthen that fight
by the insurance companies.
But the 2016 policy was enacted four years
prior to me standing before this court
under the 2008 McGilloway case.
And I'd submit to the court that the language in part four
of the 2016 policy and specifically the otherwise required
by law language is intentional.
And that is, that answer had not
yet been addressed when they drafted the 2016 policy.
This is not a situation where the McGilloway case came down
and then the changes were made
to the 2016 policy subsequent to McGilloway.
The track and the timeline
of this issue is important here, your Honor.
And that is when the 2016 policy-
-: But if I could interrupt you, counsel,
why isn't the language the importance?
I understand the history maybe
of some interest if the language were less than clear,
but the language says that it only covers tangible property
and then to be even clear,
it says the amount we will pay does not include any
decreased value or intangible loss.
-: The language actually has three sentences
in that paragraph, judge-
-: Right but we're focusing on the ones that I just read,
why isn't that the end of the story?
-: Because of the words unless otherwise required by law.
-: So what law requires inherent diminution
and value to be covered.
-: This policy could have been written the same way
that it was with the exception
otherwise required by law saying we're waiting to find out
what the McGilloway court does.
That's why that language is-
-: McGilloway was dealing with
a different version of the policy.
-: McGilloway was dealing with first
and foremost whether or not diminished value
was a recognized and recoverable damage
here in Massachusetts up until that time,
that had never been considered and decided.
-: Not as a general matter within the context
of the standard policy at the time.
So it it isn't apples to apples
because it's very different language.
-: I'd like to answer the question
and that is the reason why there is coverage on the 2016
policy is because the Commission of Insurance
has exceeded its authority.
There's no dispute from the appellants that the Commission
of Insurance has authority to oversee the drafting
and changing of a policy and allow exclusions.
But that authority is not full autonomy.
The Commissioner of Insurance must comply
and make changes that are consistent with
and don't conflict with current statutory law
and common law.
And in this situation, the Commissioner of Insurance
did exceed that authority.
And the reason for that is MGL chapter 90, section 34.0.
Every policy of property damage liability insurance shall
provide, the insurer will pay on behalf of the insured.
All sums the insured shall become legally obligated to pay
as damages because of injury to destruction of property.
-: That can't mean you pay whatever,
I mean you have all kind,
I mean you have policy caps, right?
-: We do judge. Yes. -: We're only gonna
pay damages up to this amount right?
-: Absolutely. -: That's not a violation
of the stack.
I mean, is that, can the insurance
commissioner not allow that?
-: That actually is within the following couple
of sentences of what I was reading is that
the insurance, there are caps and policy limits
on the various sections of the policy.
That is not an issue.
-: But the insurance commissioner doesn't require every
insurance company to pay all damages
for everything, right?
-: No, but the insurance commissioner does require
for this case that the insurance company under part four
pay for all damages that may be recoverable in tort
up to the applicable policy limit.
Judge: Does it say that?
-: It says legally obligated to pay.
I thought that traditionally that was construed
to mean under the policy.
-: It does not. Judge, no.
-: I mean, and why not?
What does an insurer have
to pay other than what's specified under a policy?
-: What an insurer has to pay is dependent upon which section
of the policy we're evaluating here.
And that's why there is-
-: The parameters of the obligation
are defined by the policy, correct?
-: Correct. -: Okay so why isn't that what
legally obligated to pay means?
-: Because the policy and the provisions flow
from the statutory law,
and 90-34.0 starts out with third party damages,
which would be part four, and then it goes into collision
and limited collision,
which would be part seven.
-: But it doesn't say anything about the types of damages
you are seeking here, these IDF damages.
-: Well, respectfully judge, it does, when it says
legally obligated to pay as damages
because of injury to a destruction, all sums
the insured shall become legally obligated to,
and if you look to the 2016 policy, the policy acknowledges
that with the second sentence,
the amount we will pay is the amount the owner
of the property is legally entitled to collect
through a court judgment or settlement
for the damaged property.
That by definition says we're gonna cover our policy holder
for tort damages that they may cause.
Now this very court in McGilloway has held-
-: But are you claiming that these damages are tort damages?
-: Absolutely your Honor. -: Tort damages
to the property?
-: Yes, your Honor and that was decided
by this court in McGilloway; the McGilloway court found
and held that inherent diminished value is a tort damage.
We previously have held
that the term property damage can include intangible damage
such as the diminution in value of tangible property.
That was this court in the McGilloway decision.
-: I see a distinction between diminution in value
and tort damages.
But it may be a distinction without a difference.
-: Diminution in value is a component of tort damages.
When I say tort damages
and when the policy says they're gonna cover their insured
for any damages legally entitled to be collected
through judgment or settlement,
inherent diminished value is a damage
that would be pursued in court in recoverable.
Putting aside whether or not this court decides
that the part four
of the 2016 policy covers diminished value,
a tort victim in Massachusetts following the McGilloway
decision has every right to file a lawsuit
against an at fault driver
and seek compensation
for the diminished value lost in the car.
-: That not what's happened here though.
Your clients did not sue the insureds.
-: Correct. -: Right?
Instead you're proceeding directly against
the insurance company on a breach of contract theory.
-: Correct. -: Not a tort theory, a breach
of contract theory claim.
And the question I think is as a result,
what are the contract damages
to which you're entitled on that breach of contract claim?
And that would be informed
or not governed by the terms of the insurance policy? No?
-: Absolutely. Absolutely. -: Okay.
-: We are suing the insurance company
as a third party beneficiary for the insurance contract,
the insurance policy.
And we are subject to- -: What is your legal authority
for that proposition?
That you are a third party beneficiary
of the insurance policy.
Why don't you have to go get a judgment against the insured
first and then reach and apply the insurance, if any?
-: Because in this situation, your Honor,
the appellees have accepted liability for the collision
and have already processed the claims.
The appellees have made payments
to the victims in this case, Coberly and Seaver,
for the property damage to their vehicle.
They've started their obligations under that contract
owed to the third party beneficiaries
Seaver and Coberly.
There's partial performance on that contract in a situation
where a third party beneficiary to a contract interacts
with the contracting party and they start that contract
and they evaluate the claim, they accept liability
and they make payment.
The only fight now is what are the damages
that are recoverable?
The question of whether or not there's a contract.
Judge: Well, there would also be the amount right?
-: Exactly.
-: Right so why doesn't that though support the notion
that you would need to go get all
of those disputes resolved first in a contract
against the insured, have it reduced to a judgment
and then go take that judgment and seek to reach
and apply the insurance proceeds to it.
Because right now no one knows what they might be.
-: The difference here is that the partial performance,
and I would agree with the court under the hypothetical
that if Mr. Coberly was in a car accident
with a Commerce insured
and Commerce denied liability
or Commerce did not pay for Mr. Coberly's
property damage, we would have
to pursue the insurance company directly.
But in this situation,
the appellee accepted liability for the collision.
They acknowledged that there was coverage,
they made payment to Mr. Coberly for some of his damages,
and now he's seeking recovery of additional damages.
The fight here is not over who's at fault or liability.
It's not a fight over the coverage for property damage.
It's the components of property damage.
-: Sure but we have said that a third party
does not become a third party beneficiary
to a contract until they hold the judgment.
Attorney: That's the Flattery case your honor
and is not that case. -: So how do we,
how do we get around that here?
-: The fact that there's partial performance
on the contract, the fact that Commerce has already
made payment.
-: See, to me it seems that what you're really looking
for is a declaratory judgment, not a breach
of contract claim, a declaratory judgment as to the meaning
or the scope of the insurance policy.
Whether the insurance policy covers these IDF damages.
-: You're exactly right, your Honor.
And that was exactly the issue
before this court in May of 2021, under the same theory
of a breach of contract.
And the agreement was under the policy language
of part four of the 2008 policy.
This is that same exact case,
except it's the language in the 2016 policy, which had been
enacted four years prior to the McGilloway decision.
So the mechanism that brings us here today
is the same mechanism
that brought us here in the McGilloway case.
And it's the same claim
and the same type of claim where there was acceptance
of liability, there was a processing of a claim
and partial payment of the claim.
-: So let's just go to the end then, if you agree
with me that what you're really seeking is in this suit
is a form of declaration as opposed to contract damages,
but a form of declaration as to meaning of the contract,
then are you actually pursuing in this case your breach of,
in this appeal, the breach of contract claim?
Or are you pursuing the declaratory judgment claim?
-: We are pursuing the breach of contract claim.
We're not pursuing the declaratory judgment
claim with this case.
We're here because the language in part-
Judge: So what would be the relief?
-: The relief would be a ruling that the Commissioner
of Insurance has exceeded his authority when he enacted
and approved exclusions in the policy that were inconsistent
and directly in conflict with MGL chapter 90-34.0
and the McGilloway decision.
-: Okay there would be no damages awarded in this case.
-: If I win at this level, the case will be remanded
and we will seek to prove those damages at the Trial Court.
-: Okay. To my mind, you're only seeking a declaration.
-: We're seeking the inherent diminished value damage,
money damages that are being denied based upon a portion
of the policy that the appellants believe
has gone too far with the commissioner of insurance.
The terms and wording that were added to the 2016 policy
when they used terms like, we won't pay
for intangible property, we won't pay for loss in value.
Those intangible prop, intangible damage
and inherent diminished value damages
are recognized tort damages.
This court held that.
So the fact that chapter 90-34.0 requires the policy
to cover and indemnify the insured
and pay a tort victim's tort damages,
that's why we're here, judge.
Judge: It says up to 5,000.
-: That's the compulsory limit. -: So it's not gonna
be everything.
And then you acknowledge
that the commissioner can include exclusions.
Why can't the commissioner exclude
inherent diminished value?
-: Because of chapter 90-34.0?
It says that you can't and it's up to 5,000,
but that 5,000 is the compulsory limit.
-: Is there a case?
Can you cite one case where an insurance commissioner
has granted a similar kind of exclusion
and that was found to be
violation of their authority?
'cause there are no cases in your brief as far
as I can tell, making that point.
-: There actually are judge.
-: Which one? -: This court...
-: 'cause your brother's gonna stand up
and argue that it's standard for the insurance commissioner
to allow exclusions.
That's what you bought.
And you can, I mean there's,
so I would just like a case that goes the other way
that I can look at, so that I can say,
"Oh, that was an ultra vires exclusion."
I'm sure there are some but you don't cite any,
so we're gonna have to go back and do it ourselves.
-: Yeah, judge and and I don't have a case cite
for that in front of me, but the issue of
the insurance commissioner can enact exclusions
and policy limitations
that's not the fight that the appellants have.
It's when those exclusions conflict
with the statutes and the common law here in Massachusetts.
-: You're just overreading that sentence there that says,
you know, consistent with law.
But there are permissible exclusions allowed all kinds
of permissible exclusions.
So I just don't get what you're arguing.
-: There are permissible exclusions like authorized use,
who's gonna use the vehicle
and when will we provide coverage?
What will the vehicle be used for?
Exclusions on business or livery.
Those are exclusions.
But when there are exclusions that limit
or reduce the statutory damages,
I think it's very important that when the-
-: Counsel you keep going back to the statutory part
and I still struggle with this
because the term in the McGilloway part four
was broader than in part four of the 2016.
In McGilloway the term just said property damage,
and so it would subsume the IDV values,
which is why we came out the way we came out.
But this is different
because the language you point to is sandwiched
in the paragraph that starts off
by saying we only cover tangible property,
and it ends the paragraph
by saying we don't cover intangible stuff like this.
So, how do we get around that?
If we go back to Justice Wolohojian's point,
this is tethered to the terms
in the recovery under the contract.
So we're talking about very different contract language.
-: I appreciate the question and I think judge,
the ultimate question and language to be evaluated here is
that second paragraph in chapter 90-34.0.
And if this court finds that
intangible damage is not by definition
a recoverable damage under the policy, we lose.
If this court finds that a decrease in value
to a vehicle following a collision is not the type
of damage as defined within the second paragraph of 34.0,
we lose, what I'm saying to this court is
the wording of the second paragraph in 34.0.
And when it says all sums in insured shall become legally
obligated to pay.
If I go to court today on behalf
of a client seeking intangible damage
or diminished value damages, I can recover that.
There's nothing stopping me from recovering that.
So if this court finds that- -: From the insured?
-: From the insured. -: Sure.
But that's a different question from whether you can recover
it from the insurer.
-: Understood, I was making the first point to get
to my second point, which is there's no case law
in Massachusetts that defines an intangible damage
or diminution in value as not covered
under the language of 34.0.
-: And with that I'm gonna say thank you.
Okay Attorney Apjohn?
-: May it please the court, Nelson Apjohn
for the appellate, Commerce Insurance Company.
With me this morning is my partner Eric Magnusson.
I'm actually going to reverse things
as to what I was going to start.
I'm gonna start with 34.0.
Because there was a fair amount of time spent on that
and what was left out of that argument,
plaintiff focused a lot with respect
to the second paragraph of 34.0
and 34.0 is set forth on page 25 of our brief.
I direct the court's attention
to the first paragraph at 34.0
and the final sentence, which is not
mentioned on oral argument.
It's not mentioned in the briefing,
but it's mentioned in our briefing.
And the final sentence defines
what property damage liability insurance is
under the statute.
And it says that property damage liability insurance is
insurance containing provisions as prescribed
by this section 34.0.
Among such other provisions, including conditions,
exclusions and limitations as the commissioner may approve.
So by definition, property damage liability insurance
includes the conditions,
limitations and exclusions approved by the commissioner.
There were three trial courts that looked at this language.
Plus the First Circuit, Judge Kazanjian Bello,
Judge Casper and Judge Burroughs in the Federal Court
all decided that the language under 34.0 permitted
the exclusion here as did the First Circuit.
And the plaintiffs don't deal with that at at all.
That gives explicit permission
to define property damage liability insurance
to include exclusions.
And I note that there are at least eight other exclusions
in part four in its entirety that are part of part four.
So it's nothing unusual to have an exclusion
by the commissioner with respect to
the coverage of part four.
And that brings me back to the first argument, which is-
-: Before you leave 34.0,
I take it there are times,
although not cited in your brother's brief,
where the exclusions are impermissible right?
There are cases where certain exclusions
are not allowed right?
-: I'm not aware of it applying to exclusion.
I know the general agency principle
that if it's unreasonable or arbitrary,
it will not be upheld.
But of course with respect to the interpretations
of the statute deference,
although not, it's not controlling, it's typically given
to the Commissioner of Insurance
with respect to the relevant statutes.
But I'm not aware of a specific exclusion being found
to be unreasonable or arbitrary.
-: Have we found, have we had any cases where we've
concluded that the commissioner acted ultra vires
as with respect to the last sentence of the first paragraph
of section 34.0?
-: I'm not aware of any, your Honor.
But with respect to part four, I think there was,
during the course of the argument there was an intermingling
of the word damage and damages.
And I think that words are important.
Part four, the policy is quoted on page 18
of our brief on page 22,
there's a chart comparing the difference in language
between 2016 and 2008.
And the initial sentence was changed to we will pay
for damage or destruction to tangible property.
The trial court below focused on
that language distinguished the 2016 policy
from the 2008 policy.
And as Justice Georges suggested, if we go
to Judge Casper's opinion in the Morella case,
which is in our addendum, she points that as well.
She says the 2016 coverage is limited to damage
or destruction of tangible property.
Whereas the 2008 policy broadly states
that third party coverage includes paying damages
to someone else whose auto
or property is damaged in an accident.
Again, this point was ignored by the plaintiff with respect
to the briefing and I think an oral argument as well.
So part four clearly excludes recovery
with respect to inherent diminished value claims.
And that is termed to be an intangible loss
in the McGilloway case,
and unless otherwise required by law
not argued in oral argument,
the plaintiff in its,
or the appellant in his brief suggests
that applies to common law.
It doesn't apply to common law, it applies to statutes
and regulations that govern
what an insurance policy has to contain.
And the reason for that is if you say it applies
to common laws was suggested the exclusion is meaningless
because if the intangible loss is not
recoverable at common law, there's no reason
for an exclusion, the exclusion has to kick in
where it's recoverable at common law
but excluded under the policy.
Of course there's a familiar contract interpretation rule
that every word and phrase
of a contract should be given meaning
and none should be treated as surplusage
if any other construction is rationally possible.
The argument of Coberly and Seaver ignores
that principle altogether.
We talked about 34.0,
and there was a statement during oral argument
that Commerce admitted to liability that is incorrect.
Commerce specifically denied liability in its 93 A response
to the plaintiff or to the appellant.
And that response letter was referred
to in the second amended complaint in paragraph 104.
And where the general conclusions
of a complaint are contradicted or inconsistent
with the document incorporated by reference in a complaint.
It's the specific language of the document
that controls not the general conclusions.
And that's a Ninth Circuit case, Finjan Holdings.
But of course the construction given
to the Massachusetts rules will be the same
as the federal rules absent a significant difference in
content or significant reasons to the contrary.
There's also an independent ground
to uphold the dismissal of the complaint in this case.
And the argument was raised below
but not reached by the trial court
given the contract interpretation.
And that was, the point is that
there is no judgment here against the insured
and the motion to dismiss course can be upheld
by this court on any ground, even if not considered
by the trial court.
Other than in Chapter 93 A,
there is no direct right of action
against the third party claimant.
There is no direct right of action
by a third party claimant against an insurance company
absent a valid judgment against the insured.
-: I'm sorry counsel, just remind me.
Did you raise that issue in McGilloway?
-: No, your Honor. -: Okay.
How how do you want us to deal with this now?
So we've taken the case,
there's an important issue out there, which is the legality
of the Insurance commissioner's standard language.
But we have no judgment. What do you want us to do?
-: What I would like to do is win on appeal.
(group laughing)
-: On the merit. -: Very bold.
-: Put it straight.
(Judge laughing)
-: Okay. -: That's very strange.
-: Yes, I know. -: Most people come here
wanting to lose on appeal.
-: Either ground I would be happy with,
but there's no independent right
of an action against the-
-: You don't want, you don't care if this is
clarified or not.
-: As I said, either ground was supported dismissal.
-: Would you need a prior judgment if,
because there are a couple of different claims.
There's the breach of contract claim.
There's a chapter 93, chapter 176 D claim,
although they're not raising any argument
on appeal about those.
-: That's correct. -: And then there's
the declaratory judgment claim.
Do you have a view on whether a prior judgment is necessary
to pursue the declaratory judgment claim?
-: Yes because if a complaint fails to state
of claim upon which relief can be granted,
the trial court is in power
to dismiss the declaratory judgment count as well.
And of course there was no appeal from
that dismissal in the lower court.
So it's not even, it's been waived as I think under
the rules of this court,
if you don't raise it in your, and argue it in your brief.
So that's been waived already with respect
to the declaratory judgment.
As the 93A, we are not contending
that there's no direct right of action
against the insurance company under 93 A
there is by statutory.
My argument only goes to contract.
-: Right so then if it were 93 A,
we could still, I don't know how this would work,
I'm just spinning things out here,
which maybe I shouldn't do right from the bench.
But the issue under 93 A might be, might still require
an interpretation of the policy language.
-: It would because there would be no duty to settle a case
where there was no underlying line.
-: Exactly. So it could just come in through there.
-: Yes and I would say the dismissal of the 93 A
counts also were not appealed
from the judgment below.
So we're really only dealing
with the contract claim here.
And that does require a direct right of act
or a judgment against the insured.
And the court held that in the Rogan case in 1940,
that's been termed to be Black Letter Law
in Massachusetts since 1940.
The court interpreted the two statutes,
chapter 175 sections 112 and 113 as a legislative mechanism
for pursuing a insurance company directly.
And both statutes require a judgment against the insured.
As to this third party beneficiary, the Flattery case,
which was mentioned by the appellant.
That case specifically said,
apply to a third party judgment holder
having a third party beneficiary right
with respect to the contract.
But again, that was a judgment holder in that case.
And that's not the situation here.
You still need a judgment even under the third
party beneficiary rule.
-: So just to clarify, the only claim that was appealed
was the breach of contract?
-: That's correct, your Honor. -: Thank you.
-: And I would say there's no reason to change that.
And this was of course also looked at by the First Circuit
and the judge, we heard about partial performance,
but as Judge Sailor said in the Martins versus Mutual case,
he said there's a big difference
between an insurance company routinely paying a third party
claim based on an assessment of their insured's liability
as opposed to considering liability
or conclusively establishing the insured's liability
and the scope of that liability
by simply making a settlement offer.
-: Are you, I'm sorry to go back to this again.
When you say the only thing they've appealed is the breach
of contract claim, that's not based on the notice
of appeal, is it?
It's based on the fact of appellate waiver.
Attorney: The briefing, your Honor, yes.
-: The Appellate Waiver. Okay.
-: And going back again to that principle, with respect
to paying a portion of a claim,
that's not an admission of liability.
The First Circuit recognizes there's obvious difference
between being obligated to make a settlement payment
or a settlement offer
and somehow conceding that your insured is liable
for everything with an unlimited scope.
In fact, in Massachusetts it would put the insurance company
really in an untenable position because between 93 A
and 176 D, the insurance company has an obligation,
reliability is reasonably clear to make a prompt, fair,
and equitable settlement offer to the plaintiff.
And by doing that, by complying
with the statute doesn't mean you agree
to every claim that arises out of an accident.
Think of a slip and a fall case,
you pay the medical expenses,
there's no argument over that.
And next thing you know, there's a claim
for a permanent impairment.
Those are two different things.
You deal with one claim at a time.
In fact, the 176 D really requires you to deal
with one claim at a time in a sense.
If something is reasonably clear liability-wise,
it's something that needs to be paid
or something least a settlement offer has to be made.
Now, would you suggest that there's gonna be a change
to Mass law And that is something given the statutes in
Massachusetts under 175, 112 and Section 113,
it really something that should be left
to the legislature.
As far as the 93 A claim and the declaratory judgment,
I'll simply rest on our brief on that.
They were not raised before this court,
but there is also independent reasons why the 93 A
claim would not survive 'cause I believe,
as we suggested we're correct with respect
to the contract interpretation.
That certainly is a plausible interpretation.
Three trial courts have upheld it.
The First Circuit has upheld it.
So what I'll do is conclude there and say,
we ask that you enter an affirmance of the judgment below.
And I thank you for your time.