DiMarzo v. American Mutual Insurance

O’Connor, J.

(concurring). The evidence did not warrant a conclusion that American Mutual waived the defense of noncooperation or that it was estopped to rely on it. Therefore, I do not agree with the court’s statement that there was evidence that American Mutual made a $2,800 offer “knowing that it had waived the defense of noncooperation and had failed to exercise a valid reservation of its right to disclaim liability.” Supra at 99. The court’s conclusion in this regard deviates substantially from established case law, and improperly restricts the right of an insurer to deny coverage to an insured who has disappeared.

The result reached by the court is correct. The jury found that MacDonald failed to cooperate, but did not spec *110 ify when the noncooperation occurred. Their finding was justified by evidence that MacDonald failed to attend the jury trial after American Mutual had employed the services of a deputy sheriff who was unable to locate him for the service of a subpoena. A finding of noncooperation before that time, however, was not warranted. The company’s letters to an address at which the company knew MacDonald did not reside, requesting MacDonald to attend a deposition and to attend the master’s hearing, were not enough to constitute diligent, good faith efforts to secure MacDonald’s attendance, and thus were not enough to establish MacDonald’s failure to cooperate at that time. Imperiali v. Pica, 338 Mass. 494, 498-499 (1959). As a consequence, until the jury trial, the defense of noncooperation had not been established, and the company owed MacDonald an obligation to settle DiMarzo’s tort claim within the limits of the insurance coverage if it had an opportunity to do so. The company had such an opportunity at the master’s hearing and thereafter, long before MacDonald’s noncooperation was established. The company’s failure to settle during this time was a breach of its obligation under the insurance contract, causing loss to MacDonald for which the company properly should be held liable. MacDonald’s subsequent noncooperation did not interrupt the chain of causation. Therefore, I agree with the result reached by the court.

While I agree with the result, I disagree with the court’s holding that American Mutual forfeited the defense of noncooperation. In addition to the facts set forth in the main opinion, certain uncontroverted testimony of MacDonald is relevant to this issue. MacDonald testified that he lived at 430 Warren Avenue, Brockton, at the time the accident occurred. In June, 1972, he entered the Plymouth house of correction, where he remained a prisoner until 1973. After his release he resided in numerous places in Plymouth, in Quincy, on Cape Cod, in Rhode Island, and in Brockton. At no time did MacDonald notify the post office of his changes of address. After MacDonald left the house of correction he did not want to be found or bothered by anyone. Mac *111 Donald was aware of DiMarzo’s action against him in April, 1972, when he received American Mutual’s letter advising him of the writ in excess of his policy limits. He knew where to communicate with American Mutual but did not do so at any time after DiMarzo’s action was brought.

American Mutual should not be held to have forfeited its defense of noncooperation before the time of the jury trial. Until that time, it did not even have the defense. This court has never held that an insurer is precluded from disclaiming on account of the noncooperation of its insured because it did not disclaim, or reserve its right to do so, before the noncooperation occurred. To require disclaimer whenever the insurer is on notice that the insured might not cooperate in his defense, as the main opinion appears to require, places an unwarranted burden on insurers.

Furthermore, American Mutual did nothing after MacDonald’s noncooperation was established which operated as a waiver of the noncooperation defense or estopped the company from relying on it. 1 The general rule is that “[a] company knowing that it possesses sufficient grounds to disclaim cannot pursue the trial to a conclusion and then, an adverse result having been reached at the trial, disclaim liability.” Polito v. Galluzzo, 337 Mass. 360, 365 (1958). Salonen v. Paanenen, 320 Mass. 568, 572 (1947). Daly v. Employers Liab. Assurance Corp., 269 Mass. 1, 5 (1929). This rule is based on estoppel or waiver, Salonen v. Paanenen, supra at 572 , Phillips v. Stone, 297 Mass. 341, 344 (1937), and is a rule of fairness. Salonen v. Paanenen, supra.

Fairness requires that an insurer that has continued to defend an insured after a material breach of a cooperation requirement, in circumstances reasonably leading the in *112 sured to refrain from protecting himself in reliance on the insurer’s protection, be estopped from withdrawing that protection. See Daly v. Employers Liab. Assurance Corp., supra at 4-5. However, where, as here, an insured violates his contractual duty to cooperate and is neither misled by the insurer to rely on its continued protection, nor harmed in any other way, the insurer is not estopped from relying on noncooperation as a defense. Peters v. Saulinier, 351 Mass. 609, 615 (1967). Salonen v. Paanenen, supra at 573-574 . Phillips v. Stone, supra at 344-345 . Sheehan v. Commercial Travelers Mut. Accident Ass’n, 283 Mass. 543, 551-552 (1933). “In order to work an estoppel it must appear that one has been induced by the conduct of another to do something different from what otherwise would have been done and which has resulted to his harm and that the other knew or had reasonable cause to know that such consequence might follow. . . . ‘The law does not regard estoppels with favor, or extend them beyond the requirements of the transactions in which they originate.’” Lunt v. Aetna Life Ins. Co., 261 Mass. 469, 473 (1928), quoting from Boston & Albany R.R. v. Reardon, 226 Mass. 286, 291 (1917). There was no evidence that MacDonald cared about his defense, was induced to forgo it, or that he otherwise was harmed by American Mutual’s conduct after his noncooperation. The only reason that an insurer must notify an insured of its reservation of the right to disclaim liability is to avoid the unfairness that exists when the insurer misleads the insured into relying on the insurer’s protection. Where there is no unfairness, because there is no misleading or reliance, there is no reason for estoppel. Here there was no unfairness in providing continued representation after MacDonald’s noncooperation was established.

Waiver is the intentional relinquishment of a known right. Rose v. Regan, supra at 229. Sheehan v. Commercial Travelers Mut. Accident Ass’n, supra at 552. The company’s conduct after MacDonald’s noncooperation was established does not permit the inference that it intended to relinquish its right to disclaim. Id. at 552-553. With the *113 possible exception of Rose v. Regan, supra, this court has never held an insurer to have waived a noncooperation defense in circumstances not requiring estoppel, and in Rose v. Regan, inequity to the insured was the basis of the decision. In that case, writs were served on the insured by leaving the summons at the insured’s former residence. The insured did not know of the service. He subsequently received notice of his defaults but he did not notify the insurer. Upon learning of the defaults through plaintiff’s counsel, the insurer filed appearances and answers and caused the defaults to be removed. The court held that “the insurer’s general appearance . . . made a significant and irrevocable change in [the insured’s] position. ... If the return was false [the insured] would have had an action against the sheriff to the extent of his damage. . . . But the general appearance gave a basis of jurisdiction other than the return and rendered the return inconsequential. Thus [the insured’s] only possible right over, other than against the insurer, was taken away. . . . The insurer had sufficient knowledge in respect of [the insured’s] breach of condition to justify a disclaimer or reservation of rights .... The insurer, nevertheless, exercised dominion over the case at an important point without disclaiming liability or reserving rights. Protection of its position and [the insured’s] did not make imperative a general appearance without an attempt to reach [the insured].” Id. at 226-227. The court in Rose v. Regan distinguished the case before it from Phillips v. Stone, supra, “not only because of the absence of a threshold reservation, as at least implied in the Phillips case, but also because of the irrevocable change in [the insured’s] rights which resulted from the insurer’s action.” Id. at 228. The insured in Rose v. Regan was not misled by the insurer, so estoppel did not apply, but the court held the insurer barred from disclaimer because of “the inequity of the result [loss of indemnity from either the insurer or the sheriff] even though there was no conscious intent to waive rights.” Id. at 229.

*114 In the present case the insured suffered no such loss or inequity. Our cases hold that an insurer may disclaim coverage in the event of material noncooperation by its insured unless, by its conduct, the insurer causes a significant and irrevocable change in the position of the insured, or leads the insured to rely exclusively on the insurer’s protection when he might otherwise have protected himself. There is no evidence that MacDonald was misled to rely on American Mutual’s protection, or that American Mutual’s exercise of dominion over the case caused MacDonald to be hurt in any way. If American Mutual had withdrawn its defense of MacDonald, the case would have proceeded to judgment in any event. There is no evidence that American Mutual’s defense influenced the judgment adversely to MacDonald’s interests. Thus, the insurer’s conduct did not make a significant and irrevocable change in the insured’s position, as occurred in Rose v. Regan, and fairness did not require that the noncooperation defense be forfeited. Although the result reached by the court in this case is correct, it is not correct to say that American Mutual waived its defense of noncooperation and failed to exercise a valid reservation of its right to disclaim liability.

DiMarzo had the burden of proving MacDonald’s cooperation or that American Mutual had waived or was estopped to rely on his noncooperation. Peters v. Saulinier, 351 Mass. 609, 614 (1967). Rose v. Regan, 344 Mass. 223, 229 (1962). Friedman v. Orient Ins. Co., 278 Mass. 596, 599 (1932). It is not relevant whether American Mutual was prejudiced. Rose v. Regan, supra at 226 . Polito v. Galluzzo, supra at 365 .