Bunker Hill Insurance Co. v. G.A. Williams & Sons, Inc.

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17-P-1625 Appeals Court

BUNKER HILL INSURANCE COMPANY1 vs. G.A. WILLIAMS & SONS, INC.2

No. 17-P-1625.

Norfolk. October 9, 2018. - December 13, 2018.

Present: Meade, Sullivan, & McDonough, JJ.

Damages, Mitigation, Remittitur. Insurance, Homeowner's
insurance, Amount of recovery for loss, Subrogation.
Subrogation. Practice, Civil, Damages.

Civil action commenced in the Superior Court Department on
August 12, 2013.

The case was tried before Rosalind H. Miller, J.;
postverdict motions to offset the jury award and for attorney's
fees and costs were heard by her; and judgment was entered by
her.

Scott E. Regan for the defendant.
Anna K. Bennett for the plaintiff.

MEADE, J. The defendant, G.A. Williams & Sons, Inc.

(Williams), appeals from a judgment entered in Superior Court

1 As subrogee of Shirley Gilbody.

2 Doing business as Williams Coal & Oil Co.
2

following the denial of its motion to offset the jury award in

this tort action brought against it by Bunker Hill Insurance

Company (Bunker Hill), as subrogee of Shirley Gilbody, with the

remediation costs paid by its insurer to Bunker Hill pursuant to

an earlier declaratory judgment action. The motion judge

determined that the earlier payment was from a collateral source

and, as such, was not required to be offset against the jury

verdict. Judgment entered against the defendant in the full

amount of the jury verdict. Because the source of the offset

was not collateral to the defendant, we determine that the

defendant's motion for offset of damages should have been

allowed, and we modify the judgment accordingly.3

Background. This case arises from an oil spill on property

owned by Shirley Gilbody and insured by a homeowner's insurance

policy purchased by her and issued by Bunker Hill. Williams

installed an oil tank in Gilbody's home in 2003 and, at all

material times, was the oil service company for Gilbody. The

oil spill occurred in April, 2012. Williams had purchased and

paid the premiums for an insurance policy with International

Insurance Company of Hannover, Ltd. (Hannover). The parties do

3 The judge's order also determined that Bunker Hill was
entitled to its attorney's fees and costs pursuant to G. L.
c. 21E, and judgment entered accordingly. Because Bunker Hill
was the prevailing party at trial, we do not disturb the
judgment as it applies to the attorney's fees and costs. See
G. L. c. 21E, § 4A (d).
3

not dispute that the policy was in effect at all times material

to this case. The Hannover policy covered, as an insured

location, the property owned by Gilbody.

When the oil spill occurred, Gilbody notified her insurer,

Bunker Hill. Bunker Hill paid for the full remediation of the

property, $262,894.05, under a reservation of rights. Pursuant

to a declaratory judgment action, Bunker Hill sought

compensation from Hannover for damage to the insured location,

Gilbody's property. In that declaratory judgment action, a

Superior Court judge determined that both the Bunker Hill policy

and the Hannover policy covered Gilbody's property, that each

policy contained "other insurance clauses," and that these

clauses were mutually repugnant. See Mission Ins. Co. v. United

States Fire Ins. Co., 401 Mass. 492 (1988). The judge

determined that each insurer would bear fifty percent of the

cost of remediation of Gilbody's property. A declaratory

judgment entered, and Hannover reimbursed Bunker Hill for fifty

percent of the cost of remediation, $131,447.03.

In 2012, Bunker Hill, as subrogee to its insured, Gilbody,

also filed the present action against Williams for negligence,

breach of contract, and violation of G. L. c. 21E (negligence

action).4 After trial, the jury rendered a negligence verdict in

4 The breach of contract count was dismissed at the
commencement of trial.
4

favor of Gilbody in the full amount of the cost of the

remediation of the property, $262,894.05.5 Williams then filed

its motion to offset the amount of damages in the negligence

action by the amount that Bunker Hill had received pursuant to

Williams's insurance policy with Hannover in the declaratory

judgment action, $131,447.03.

Bunker Hill sought entry of judgment for the full amount of

the jury verdict arguing that the payment to it from Hannover on

the declaratory judgment was made pursuant to the remediation

coverage in Williams's insurance policy that insured Gilbody

and, therefore, was a payment from a source collateral to the

judgment in the negligence action against Williams. The judge

agreed with Bunker Hill and determined that because the claims

were "analytically different," the collateral source rule

applied and precluded an offset. Judgment entered in the full

amount of the jury verdict.

Discussion. "The measure of damages is a question of law

reviewed de novo on appeal, see Burke v. Rivo, 406 Mass. 764,

764-765 (1990) (proper measure of damages recoverable in tort is

question of law), but the amount of damages awarded is a factual

issue reviewed on appeal under an abuse of discretion standard.

See Bartley v. Phillips, 317 Mass. 35, 43 (1944)." Twin Fires

5 The jury also found a violation of G. L. c. 21E.
5

Inv., LLC v. Morgan Stanley Dean Witter & Co., 445 Mass. 411,

424 (2005). Here, we determine that the damage award in this

case is the result of an error of law; we order the modification

of judgment to reflect the offset. See Brown v. Leighton, 385

Mass. 757, 758 (1982) ("counsel agreed that whether the

defendant was entitled to credit toward any verdict to the

extent of the plaintiff's recovery against a third party was a

question of law").

"When an insurer settles a claim and thereby acquires a

subrogation right, whether by agreement or by operation of law,

it succeeds to any right of action that the insured may have

against a third person whose negligence or wrongdoing caused the

loss, and may recover the loss from that person on a pro tanto

(to the extent of its payment) basis." Apthorp v. OneBeacon

Ins. Group, LLC, 78 Mass. App. Ct. 115, 119 (2010), citing New

England Gas & Elec. Ass'n v. Ocean Acc. & Guar. Corp., 330 Mass.

640, 659 (1953); Liberty Mut. Ins. Co. v. National Consol.

Warehouses, Inc., 34 Mass. App. Ct. 293, 296-297 (1993).

Because Bunker Hill paid for the remediation of its insured's

damaged property, it is entitled to seek subrogation for the

payments it made to Gilbody. Apthorp, supra. Bunker Hill

argues that because it paid the full amount of the remediation,

$262,894.05, it is entitled in subrogation to that amount in the
6

negligence action.6 Bunker Hill also asserts that no offset is

required because the payment from Hannover was not in relation

to any negligence on the part of Williams -- it was for property

remediation under a section of the insurance policy that did not

imply fault on the part of the insured; consequently, the

collateral source rule precluded an offset in the present

action. Although we agree that Bunker Hill is entitled to

subrogate its claim, an offset is required under these facts.

As a general rule, "a tortfeasor's liablity to an injured

person shall not be reduced by the amount of compensation

received by the injured person pursuant to an insurance policy"

(quotation omitted). Short v. Marinas USA Ltd. Partnership, 78

Mass. App. Ct. 848, 857 (2011). "In terms of operation, the

collateral source rule has both a substantive aspect that

relates to the law of damages, and an evidentiary component that

governs what types of evidence may be admitted in evidence at

6 However, "the insurer is prevented from obtaining a
windfall, because its recovery from the third party is pro
tanto, with any additional recovery belonging to the insured"
(emphasis supplied). Apthorp, supra. In the appellee's brief
and at oral argument, counsel for Bunker Hill asserted that any
excess recovery would remain with Bunker Hill, and not with
Gilbody. In light of our conclusion, we need not reach the
issue. We do note that payment of both the insured's negligence
damages and Gilbody's remediation costs would require
Hannover/Williams to pay 150 percent of the remediation costs, a
counterintuitive result that is not required by the collateral
source rule and would punish Williams for having the foresight
to purchase a policy that covered not only its own negligence
but the property of its customer, Gilbody.
7

trial." Law v. Griffith, 457 Mass. 349, 355 (2010).7 This case

relates to the substantive aspect of the rule as it concerns

whether the rule applies to an offset of insurance proceeds paid

to Bunker Hill as Gilbody's homeowner insurer. "One line of

cases applies the 'benefit of the bargain' rationale of the

collateral source rule; that is, 'the plaintiff who contracts

for insurance with his or her own funds should receive that

benefit' without the other party using it to offset a claim for

expenses" (citation omitted; footnote omitted). Brady v.

Citizens Union Sav. Bank, 88 Mass. App. Ct. 416, 421 (2015).

By claiming that the insurance payment for the property

remediation pursuant to the declaratory judgment is collateral

because it is based on the insurance contract that covered

Gilbody as an insured, Bunker Hill argues that the nature of the

payment is collateral to the damages award in the jury verdict

that found Williams negligent. In support of this argument,

Bunker Hill relies on Boyle v. Zurich Am. Ins. Co., 472 Mass.

649 (2015); Law, 457 Mass. 349; Short, 78 Mass. App. Ct. 848;

7 The judge here correctly kept the information regarding
the payment from the jury. "The rationale behind this so-called
'collateral source rule' is that receipt of such income does not
lawfully reduce the plaintiffs' damages, 'yet jurors might be
led by the irrelevancy to consider plaintiffs' claims
unimportant or trivial or to refuse plaintiffs' verdicts or
reduce them, believing that otherwise there would be unjust
double recovery.'" Scott v. Garfield, 454 Mass. 790, 800-801
(2009), quoting Corsetti v. Stone Co., 396 Mass. 1, 17 (1985).
8

and Palochko v. Reis, 67 Mass. App. Ct. 103, 108 (2006).

However, that reliance is misplaced. Because Williams, not

Gilbody, procured the Hannover policy to cover Gilbody's

property, there is no unfairness in allowing Williams to offset

the damage award by the amounts paid by Hannover. As discussed

below, the cases relied on by Bunker Hill are factually distinct

from the facts of this case.

In Boyle, the plaintiff sought damages for injuries

sustained by the plaintiff when a tire exploded in a tire shop

owned by C&N Corporation (C&N). The plaintiffs, Boyle and his

wife, sued C&N, whose insurer, Zurich American Insurance Company

(Zurich), refused to defend the lawsuit against its insured.

Id. at 650. After C&N defaulted in the lawsuit and then

negotiated a settlement of damages with the Boyles that included

an assignment of rights against Zurich, the Boyles sued Zurich

for a failure to settle their individual claims after liability

had become reasonably clear, and for a breach of the duty to

defend C&N. Id. The Boyles settled with Zurich on their

individual claims against it and released Zurich from any claims

they had in their individual capacities. Id. at 652. On the

remaining claim for Zurich's breach of the duty to defend, the

judge determined that Zurich breached its duty but also

determined that the settlement amount the Boyles received

pursuant to their release of the claims in their individual
9

capacities would be deducted from the damages awarded for the

breach of the duty to defend that Zurich owed C&N.8 Id. at 653.

On appeal, the Supreme Judicial Court held that this offset was

error because "[t]he crux of the Boyles' individual claims was

that Zurich had wronged them as third-party beneficiaries of

C&N's policy by failing to settle the Boyles' suit when

liability had become reasonably clear. This wrong . . . is

analytically independent of the wrong that supported C&N's claim

against Zurich (assigned to the Boyles) -- i.e., Zurich did not

provide C&N with a defense." Id. at 663. Thus, the claims

asserted by the Boyles were two distinct claims, effectively by

two distinct plaintiffs: the claims asserted by them

individually for the injuries sustained that Zurich did not

settle when liability was reasonably clear, and the claims

asserted as assignees of C&N for Zurich's failure to defend it

in the lawsuit filed by the Boyles. The holding in Boyle is

inapt to our facts.

Bunker Hill's argument that Short, 78 Mass. App. Ct. 848,

applies is also without merit. In Short, the plaintiff sued the

marina where his boat was stored when a fire on an adjacent boat

8 The Boyles also raised a claim for violation of G. L.
c. 93A. The judge determined, and the Supreme Judicial Court
agreed, that the Boyles were not entitled to c. 93A damages
because, as the judge found, there was no evidence of an unfair
or deceptive act on Zurich's part.
10

spread to his boat.9 Id. at 849. Short also sued the owner of

the boat where the fire started and the insurance broker for

that boat owner, Old Harbor Insurance Agency (Old Harbor), for

failure to procure adequate liability insurance for the owner,

"a negligent act which allegedly prevented Short, as a third-

party beneficiary, from receiving compensation." Id. Short

settled with Old Harbor. Id. In a similar claim, Short sued

his own insurer and insurance broker for failure to obtain

sufficient insurance on his own boat. He settled with his

insurance broker and was successful in his coverage litigation

against his insurer. His insurer reserved its subrogation

rights against the other boat owner. Id.

The marina sought to offset the amounts Short had received

from his broker and from Old Harbor. This court held that the

settlement from Short's broker was "to compensate Short for the

expense incurred to establish coverage and obtain insurance

proceeds; this is clearly a separate cause of action and seeks

damages separate from those caused by the fire. The judge was

correct in declining the request for offset." Id. at 858. The

payment from Short's broker was based on his contract with the

broker and his insurer, negotiated by and with the premiums paid

by Short.

9 Ultimately, Short obtained a judgment against the marina
for $83,250 in damages. Short, 78 Mass. App. Ct. at 851.
11

The payment from Old Harbor was on a different footing as a

payment from a noncollateral source. "[T]he purpose of [Old

Harbor's] payment to Short was essentially compensation for the

damage caused by the fire. Thus it was error to fail to offset

the plaintiff's recovery by that portion of the . . . settlement

attributable to such damages." Id. at 859. The payment from

Old Harbor was required to be offset from the plaintiff's

recovery because the payment was from the insurance broker of

one of the tortfeasors, on behalf of that tortfeasor, in

compensation for the damage its customer caused the plaintiff.10

The rule discussed in Short does not assist Bunker Hill.

Bunker Hill's reliance on Palochko, 67 Mass. App. Ct. 103,

is similarly misplaced. In Polochko, the defendant's workers

caused an oil tank to fall over and seep oil onto the

plaintiff's property. Id. at 104-105. The plaintiff received a

payment toward the clean-up costs from his own insurer. Id. at

108. The defendant sought to have the negligence damages

assessed against him reduced by those payments. There, relying

on Buckley Nursing Home, Inc. v. Massachusetts Comm'n Against

Moreover, as noted in Short, "[w]hen evaluating whether a
10

source is collateral, our determination depends upon 'the
purpose and nature of the . . . [payments]' and not merely . . .
their source. Russo v. Matson Nav. Co., 486 F.2d 1018, 1020
(9th Cir. 1973), quoting from Gypsum Carrier, Inc. v.
Handelsman, 307 F.2d 525, 534 (9th Cir. 1962)." Id. at 859
n.12.
12

Discrimination, 20 Mass. App. Ct. 172, 183 (1985), this court

held that "[a]s a general rule, a tortfeasor's liability to an

injured person shall not be reduced by the amount of

compensation received by an injured person pursuant to an

insurance policy." Polochko, supra, quoting Buckley, supra.

Because the payment here was made pursuant to the coverage

available as a result of Hannover's policy covering Gilbody's

property, Bunker Hill maintains that the insurance payment it

received by way of the declaratory judgment does not reduce the

damages assessed pursuant to the negligence judgment. This

reasoning is faulty, however, because Gilbody did not contract

for the remediation coverage provided by the Hannover policy,

Williams did.

Furthermore, Bunker Hill's reliance on Law, 457 Mass. 349,

does not assist its claim. As stated in Law, "The purpose of

the collateral source rule is tort deterrence. The tortfeasor

is required to compensate the injured party for the fair value

of the harm caused, and is not to benefit from either

contractual arrangements of the injured party with insurers or

from any gifts from others intended for the injured party." Id.

at 355. The Hannover policy was purchased by Williams and

insured Gilbody's property. The Hannover policy paid a

contribution to the remediation of Gilbody's property pursuant

to the declaratory judgment, and Bunker Hill received the
13

benefit of that payment. The benefit received by Bunker Hill on

behalf of Gilbody was not from a policy purchased by her for her

own protection. See id. (defendant is "not to benefit from

. . . contractual arrangements of the injured party with

insurers"). Rather, it came from a policy purchased by the

tortfeasor, Williams.

In the final analysis, the payment from Hannover was a

payment from the same source as the tortfeasor because the

compensation received by Bunker Hill was from a source with

which the wrongdoer, not the homeowner, contracted.11 Here,

neither Gilbody nor Bunker Hill contracted for, or paid for, the

property remediation coverage provided by Hannover to Gilbody's

property. That coverage was extended through the Hannover

policy purchased by and with premiums paid by Williams. See,

e.g., Arthur v. Catour, 216 Ill. 2d 72, 79 (2005) (damages

received by plaintiff from defendant not decreased by amount

11 Compare, e.g., Reilly v. United States, 863 F.2d 149, 165
n.13 (1st Cir. 1988) (the collateral source rule "generally
allows recovery against a wrongdoer for the full amount of
damages even though the injured party is also compensated for
some or all of the same damages from a different source
independent of the tortfeasor [and whose payment, therefore, is
'collateral' to him]"). Compare also Overton v. United States,
619 F.2d 1299, 1306 (8th Cir. 1980) ("The rule permits recovery
against a wrongdoer for the full amount of damages even though
the plaintiff is also compensated from a different source (such
as an insurance company) which is 'wholly independent' of the
wrongdoer and whose payment is therefore collateral to his");
Helfend v. Southern Cal. Rapid Transit Dist., 2 Cal. 3d 1, 6
(1970).
14

plaintiff received from insurance proceeds where defendant did

not contribute to payment of insurance premiums); 22 Am. Jur. 2d

Damages § 405 (2013) ("The 'collateral source rule' provides

that a payment made to an injured party as compensation for

injuries from a source wholly independent of the tortfeasor

should not be deducted from the damages that the plaintiff would

otherwise collect from the tortfeasor" [emphasis added]).

Similarly, "[a] payment made by one acting for a tortfeasor to

someone whom the tortfeasor has injured is a credit against the

tortfeasor's liability. Such payment may come under an

insurance policy maintained by the defendant, whether made under

a liability provision or without regard to liability" (emphasis

added; footnote omitted). Id. at § 400.

Conclusion. Where Williams has established that it

purchased an insurance policy from Hannover that provided

coverage for Gilbody's premises as an insured location, and that

policy paid to Bunker Hill on behalf of Gilbody the amount of

$131,447.03 for remediation of the property after the oil spill,

we hold that the source of the payment from Hannover for

Gilbody's property remediation under the policy issued to

Williams is from the same source as the negligence damages

assessed against Williams and is not collateral to Williams.

Williams is entitled to an offset in the amount of the payment
15

from Hannover to Bunker Hill for the remediation of Gilbody's

property.

The judgment is to be modified by reducing the award of

damages by $131,447.03 and by also reducing the award of

prejudgment interest to correspond with the modified damage

award. As so modified, the judgment is affirmed.

So ordered.