Graf v. Hospitality Mutual Insurance, 956 F. Supp. 2d 337

Background

Plaintiff (assignee of Torda & Sons, Inc.) obtained a $500,000 verdict plus $111,124.26 pre-judgment interest in prior state-court litigation and secured an attachment on Torda’s liquor license for $115,000 to cover that interest.
Torda requested its insurer, Hospitality Mutual (Defendant), pay for a bond to discharge the attachment; the insurer refused, asserting the pre-judgment interest exceeded policy limits.
Parties executed a settlement resolving the $500,000 judgment (paid by Defendant) and assigning Torda’s rights to Plaintiff; Plaintiff reserved rights to pursue the insurer for pre-judgment interest and related bond costs.
Plaintiff sued as assignee for breach of contract and violations of Mass. Gen. Laws ch. 93A and ch. 176D, alleging the Policy required Defendant to pay the cost of a bond to release the attachment.
The Policy provides a $500,000 per-person limit for "Damages" (expressly including pre-judgment interest) and a Supplementary Payments clause that states the insurer will pay the "cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance."
The magistrate judge granted Defendant’s Rule 12(b)(6) motion, concluding the Policy unambiguously did not obligate the insurer to pay bond costs where the bond amount related to pre-judgment interest that exceeded the $500,000 limits already allocated to the judgment.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether insurer must pay pre-judgment interest directly	Pre-judgment interest is a covered "Damages" item under the Policy and thus payable	Pre-judgment interest, though defined as "Damages," exceeded the $500,000 policy limit already allotted to the judgment, so insurer need not pay it	Insurer not required to pay pre-judgment interest directly because it exceeded the policy $500,000 limit
Whether insurer must pay cost of bond to release attachment	Section 1(C)(2) obligates insurer to pay cost/premium of bond even if bond relates to interest beyond limits	Section 1(C)(2) limits payment to bond amounts "within the applicable limit of insurance," so insurer need not pay bond costs for amounts exceeding the $500,000 limit	Insurer not required to pay cost of bond because the bond amount related to interest beyond the policy limits
Whether "applicable limit of insurance" is ambiguous or creates a separate bond limit	Argues "limits of insurance" in Supplementary Payments could be read to create a separate $500,000 cap for bonds or require payment of premium regardless	Policy must be read as a whole; "applicable limits" refers to the overall Limits of Insurance and is not ambiguous	Court found the Policy unambiguous: Supplementary Payments do not expand or create a separate indemnity limit for bonds
Whether statutory unfair/deceptive-practices claims survive if contract claim fails	93A and 176D claims arise from insurer’s refusal to pay bond costs and thus are viable	If the contract imposes no duty, statutory claims fail because they are premised on the alleged contractual breach	Court dismissed statutory counts because they all rested on the failed contract theory

Key Cases Cited

Albright v. Oliver, 510 U.S. 266 (constitutional pleading standard and Rule 12(b)(6) context)
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading plausibility standard)
Ashcroft v. Iqbal, 556 U.S. 662 (pleading plausibility standard applied)
Trans-Spec Truck Service, Inc. v. Caterpillar Inc., 524 F.3d 315 (incorporation of documents referenced in complaint)
Metropolitan Life Ins. Co. v. Cotter, 464 Mass. 623 (insurance-contract interpretation as question of law)
Mission Ins. Co. v. U.S. Fire Ins. Co., 401 Mass. 492 (construe policy as whole; no overemphasis on parts)
Surabian Realty Co. v. NGM Ins. Co., 462 Mass. 715 (interpret policy language in usual and ordinary sense)
Fratus v. Republic W. Ins. Co., 147 F.3d 25 (insurer’s obligation to pay post-judgment interest under supplementary payments)