Rass Corporation v. The Travelers Companies, Inc.
90 Mass. App. Ct. 643
| Mass. App. Ct. | 2016Background
- Rass Corporation (insured) settled a New Jersey suit brought by IAM (Tulshian) alleging misappropriation of trade secrets, trade libel/trade disparagement, and defamation stemming from an e-mail by Rass's principal, Jaggi, to a Trader Joe’s buyer. Rass paid $175,000 to settle without insurer contribution.
- Rass had a commercial general liability policy from Travelers covering libel/defamation and disparagement of goods/products/services; trade secrets claims were not covered. Travelers was notified of the suit three months after filing.
- Upon notice Travelers agreed to defend under a reservation of rights, disclaimed coverage for trade secrets, retained outside counsel Mishky but unilaterally reduced Mishky’s hourly rate from $275 to $200. Mishky continued to defend and reported mixed assessments of exposure.
- On the eve of trial IAM reduced its demand and extensive settlement negotiations occurred; Travelers offered small contributions conditioned on waiver of Rass’s rights, which Rass rejected before settling for $175,000.
- Rass sued Travelers for breach of contract (indemnity and unpaid reasonable fees) and violations of G. L. c. 93A based on unfair claim settlement practices; at bench trial the judge allocated $140,000 of the settlement to covered e-mail claims, awarded $25,000 for unpaid attorney-fee difference, found a c. 93A violation but denied multiple damages and cut Rass’s requested attorney’s fees by half.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Duty to pay pre-notice defense costs | Rass: Travelers must pay defense costs incurred before notice | Travelers: no obligation to pay costs incurred before insurer received notice | Held: Travelers not obligated to pay prenotice defense costs absent prejudice; summary judgment for Travelers affirmed. |
| Duty to indemnify / allocation of settlement | Rass: entire $175k settlement should be indemnified because e-mail claims (covered) drove settlement | Travelers: trade secrets claim not covered; e-mail claims either not covered disparagement or were so defensible that allocation should favor noncovered claims | Held: Court found e-mail gave rise to covered disparagement and defamation claims; allocated $140,000 (80%) to covered claims and $35,000 to trade secrets. |
| Defense reservation & counsel rate dispute | Rass: Travelers’ unilateral rate cap and refusal to pay reasonable fee breached duties and harmed Rass | Travelers: reserved rights, disclaimed trade-secrets coverage, and declined to pay pre-notice fees; paid reduced rate during defense | Held: Travelers’ reservation did not constitute a breach of duty to defend; but Travelers owed Rass the difference between $275 and $200 (awarded $25,000) for reasonable fees. |
| G. L. c. 93A liability and damages | Rass: Travelers’ low offers, conditioning contribution on waivers, and refusal to pay reasonable fees were unfair/93A violations warranting multiple damages and full fees | Travelers: conduct was not willful/knowing; conduct was within reasonable dispute | Held: Trial court properly found violation of c. 176D/c. 93A (unfair claim settlement practices) but did not abuse discretion in denying multiple damages; attorney’s fees award reduced substantially for overbilling and frivolous filings. |
Key Cases Cited
- Boyle v. Zurich Am. Ins. Co., 472 Mass. 649 (Mass. 2015) (late notice and insurer duties to defend discussed)
- Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117 (Mass. 1991) (summary judgment standard; notice timing and insurer liability)
- Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747 (Mass. 1993) (effect of breach of duty to defend and shifting burden)
- Travelers Ins. Co. v. Waltham Indus. Labs. Corp., 883 F.2d 1092 (1st Cir. 1989) (allocation of settlement between covered and uncovered claims)
- Allmerica Fin. Corp. v. Certain Underwriters at Lloyd's, London, 81 Mass. App. Ct. 674 (Mass. App. Ct. 2012) (remand for allocation between covered and noncovered claims)
- Continental Cas. Co. v. Canadian Universal Ins. Co., 924 F.2d 370 (1st Cir. 1991) (insured’s burden to prove settlement allocated to covered claims)