Oil spill spurs coverage dispute
Shirley Gilbody owned property that was insured under a homeowners policy with Bunker Hill Insurance Company. In 2003, G.A. Williams & Sons, Inc., installed an oil tank on the property and, at all relevant times, was Gilbody’s oil service company. Williams held a commercial general liability policy with International Insurance Company of Hannover, Ltd. The policy covered Gilbody’s property as an insured location.
In April 2012, an oil spill occurred on Gilbody’s property. Bunker Hill paid $262,894.05 for full remediation of the property under a reservation of rights. Pursuant to a declaratory judgment action, Bunker Hill sought compensation from Hannover for damage to Gilbody’s property. 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. The judge determined that each insurer would bear 50% of the cost of remediation of Gilbody’s property. Under a declaratory judgment, Hannover reimbursed Bunker Hill for 50% of the remediation cost.
In 2012, Bunker Hill, as subrogee to its insured, Gilbody, filed suit against Williams for negligence, breach of contract, and violation of the Massachusetts Oil and Hazardous Material Release Prevention and Response Act. After trial the jury rendered a negligence verdict in favor of Gilbody in the full amount of the cost of the remediation of the property, $262,894.05. Williams then filed a motion to offset the amount of damages in the negligence action by the amount that Bunker Hill had received pursuant to Williams’s 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 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 was entered in the full amount of the jury verdict. Williams appealed.
On appeal, the court held that the damage award was the result of an error of law and ordered modification of the judgment to reflect the offset. Because Bunker Hill paid for the remediation of its insured’s damaged property, the court said, it was entitled to seek subrogation for the payments it made to Gilbody. Bunker Hill argued that because it paid the full amount of the remediation, $262,894.05, it was entitled in subrogation to that amount in the negligence action.
Bunker Hill also asserted that no offset was 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 policy that did not imply fault on the part of the insured; consequently, the court said, the collateral source rule precluded an offset in the present action. Although the court agreed that Bunker Hill was entitled to subrogate its claim, it said an offset was required under these facts.
By claiming that the insurance payment for the property remediation pursuant to the declaratory judgment was collateral because it was based on the policy that covered Gilbody as an insured, the court noted, Bunker Hill argued that the nature of the payment was collateral to the damage award in the jury verdict that found Williams negligent. Because Williams, not Gilbody, procured the Hannover policy to cover Gilbody’s property, the court said there was no unfairness in allowing Williams to offset the damage award by the amounts paid by Hannover.
The court held that the payment from Hannover for Gilbody’s property remediation under Williams’s policy was from the same source as the negligence damages assessed against Williams and was not collateral to Williams. Williams was entitled to an offset in the amount of the payment from Hannover to Bunker Hill for the remediation of Gilbody’s property.
The court held that the judgment of the trial court was 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 was affirmed.
Bunker Hill Insurance Company v. G.A. Williams & Sons, Inc.-Appeals Court of Massachusetts-December 13, 2018-No. 17-P-1625.