Opinion ID: 3154700
Heading Depth: 2
Heading Rank: 1

Heading: The Morrison Exemption for Self-Insureds

Text: In Morrison, the SJC considered the contours of Chapter 93A and Chapter 176D in the context of a suit brought by a Toys R Us (Toys) patron who was injured while shopping at a Toys store. 806 N.E.2d at 388-89. After the Superior Court entered 3 In her report and recommendation, the magistrate judge concluded that the Estate bore the burden of proof under Chapter 176D to demonstrate that Supervalu was engaged in the business of insurance. See Bingham v. Supervalu Inc., No. 13-11690-IT, 2015 U.S. Dist. LEXIS 42925, at  (D. Mass. Feb. 20, 2015). Because the Estate appears to concede the point, we assume -- without deciding -- that the magistrate judge's conclusion was correct. - 8 - summary judgment for Toys on grounds that it was not in the business of insurance, the Appeals Court of Massachusetts reversed. See Morrison v. Toys R Us, Inc., Mass., 797 N.E.2d 405 (Mass. App. Ct. 2003). On further appellate review, the SJC reinstated the judgment of the Superior Court, finding that Toys was indeed not in the business of insurance. Morrison, 806 N.E.2d at 388. We rehearse the factual background as described by the SJC, augmenting where necessary with the Appeals Court's somewhat more robust account.4 After she had been injured by a falling sign at a Toys location in Massachusetts, the plaintiff brought suit against Toys R Us, Inc., Massachusetts, a wholly-owned subsidiary of Toys, seeking damages of $250,000. Morrison I, 797 N.E.2d at 406-07. Toys had a policy whereby it handled claims of less than $1,000,000 made against itself or its subsidiaries through a central risk management department. Morrison, 806 N.E.2d at 389. Toys, through the risk management department, made the plaintiff a series of exceedingly low offers, all of which she rejected. Id. At trial, the jury returned a $1,200,000 verdict for the plaintiff based on her significant injuries.5 Morrison I, 797 N.E.2d at 406-07. 4 We cite to the Appeals Court's decision as Morrison I. 5 This figure was later reduced by remittitur. Morrison I, 797 N.E.2d at 407. - 9 - The plaintiff then brought a separate suit alleging that Toys had violated Section 176D by failing to promptly, fairly, and equitably resolve her claim against the Toys subsidiary. Morrison, 806 N.E.2d at 389. In affirming the Superior Court's entry of summary judgment for Toys on grounds that it was not in the business of insurance, the SJC found that Toys was self-insured, meaning that it assum[ed] [its] own risk, instead of transferring it to a third-party insurer by means of purchasing insurance coverage. Id. at 390 n.1. Focusing on the fact that Toys administered, negotiated, and settled claims made only against itself, or one of its subsidiaries, the SJC reasoned that Chapter 176D cannot legitimately be extended to a self-insurer . . . which had no contractual obligation to settle the plaintiff's claim and is not otherwise regulated by the Commonwealth for insurance activities. Id. at 389, 391. We find the Estate's attempts to distinguish Morrison unpersuasive because these attempts overlook critical factual parallels between the two cases. In Morrison, as here, the plaintiff brought suit against a subsidiary retailer responsible for injuries occurring on the retailer's premises. In both cases, the subsidiary's parent company undertook to resolve the claim directly with the claimant, rather than rely on insurance provided by a third party. Toys, as a matter of practice, attempted to negotiate and resolve claims for less than $1,000,000 made against - 10 - itself and its subsidiaries. Supervalu had a similar practice whereby it negotiated and resolved uninsured claims made against its subsidiaries through a centralized risk management system. Then, in both cases, the plaintiff brought a subsequent suit alleging that the parent company was in the business of insurance. The SJC has recognized that the hallmarks of companies engaged in the business of insurance include making profit driven business decisions about premiums, commissions, marketing, reserves and settlement policies and practices, assuming the risk of losses suffered by third parties, Poznik v. Mass. Med. Prof'l Ins. Ass'n, 628 N.E.2d 1, 3 (Mass. 1994), and settling claims pursuant to a contractual obligation to do so, Morrison, 806 N.E.2d at 391. As in Morrison, none of those factors are present here. Supervalu did not sell insurance policies to its subsidiaries; it handled claims only for itself and its subsidiaries and therefore did not assume risk on behalf of unaffiliated third parties; and, Supervalu was not under a contractual obligation to settle claims with the Estate or with any other claimant. True, as the Estate notes, Supervalu spread risk among its subsidiaries and paid claims out of a central account, much like a typical insurer. But this merely underscores the fact that Supervalu qualifies as self-insured because, like the parent company in Morrison, Supervalu opted to bear the full risk of loss stemming from uninsured claims made against itself and its - 11 - subsidiaries. See id. at 390 n.1 (The term 'self-insured' is a manner of referring to a decision not to be insured by a third party when one has the financial means . . . to satisfy claims or judgments imposing liability for wrongful conduct.). For all of these reasons, we concur with the district court that Morrison is controlling and that Supervalu is properly characterized as a selfinsurer exempt from regulation under Chapter 176D. B. Captive Insurers and Third-Party Administrators The Estate next contends that Supervalu should fall within Chapter 176D's purview by virtue of functioning in a manner similar to a captive insurer and a third-party administrator. We conclude that neither shoe fits. Captive insurers are insurance companies owned by another organization whose exclusive purpose is to insure risks of the parent organization and affiliated companies[.] Lemos v. Electrolux N. Am., Inc., 937 N.E.2d 984, 989 (Mass. App. Ct. 2010) (quoting Mass. Gen. Laws ch. 175, § 174G). The Estate's suggestion that Supervalu is properly viewed as a captive insurer cannot survive a basic reading of this statutorily-prescribed definition. As an initial matter, Supervalu was not owned by another organization; it was the parent company to Shaw's and its other subsidiaries, and there is no record support for the conclusion that Supervalu's purpose (let alone its exclusive purpose) was to insure its affiliates. Furthermore, for reasons we have described, - 12 - Supervalu did not operate as an insurance company in that it did not issue insurance policies for profit and was not contractually obligated to settle claims. Cf. Lemos, 937 N.E.2d at 987-90 (finding that a captive insurer could not evade its statutory duties imposed by [Chapter 176D] where the captive insurer had, inter alia, issued insurance policies to its parent company in exchange for a premium and had the exclusive right to resolve claims on the parent company's behalf). Simply put, no reasonable reading of Lemos or Mass. Gen. Laws ch. 175 would support the conclusion that Supervalu should be regulated as a captive insurer. The Estate next contends that Supervalu is in the business of insurance by virtue of functioning like a third-party administrator by resolving claims on behalf of its subsidiaries. In advancing this argument, Supervalu principally relies on Miller v. Risk Mgmt. Found. of Harvard Med. Insts., Inc., 632 N.E.2d 841 (Mass. App. Ct. 1994). There, the plaintiff brought a medical malpractice claim against a Harvard-affiliated hospital. Id. at 842-43. The hospital was insured by a Harvard-owned insurance company, and malpractice claims against the hospital were assessed and negotiated through a separate Harvard-owned risk management provider. Id. at 844. In a separate suit brought under Chapter 93A and Chapter 176D, the plaintiff alleged that the risk management provider had unlawfully stymied his attempts at settlement, despite obvious liability. Id. In concluding that - 13 - the risk management provider was liable under Chapter 93A, the Appeals Court of Massachusetts found that, as claims negotiator and potential settler, [the risk management provider] has been interposed between the insurer [] and the claimant, and nothing seems more appropriate than to apply to it the standards of fair dealing expressed in [Chapter 176D]. Id. at 846. The Estate's reliance on Miller cannot withstand scrutiny. For one thing, in the underlying litigation, Supervalu was not interposed between an insurer and the Estate; indeed, as we have said, Supervalu was self-insured for the first $2,000,000 of potential liability facing any one of its subsidiaries. See Morrison, 806 N.E.2d at 391 (The significance of the holding of the Appeals Court in the Miller case is that an insurance company cannot evade its statutory duties imposed by [Chapter 176D] by delegating its work.). What is more, unlike the risk management provider at issue in Miller, Supervalu did not purport to act on behalf of an insurer that had a contractual obligation to pay claims. Rather, Supervalu was under no duty to settle claims made against Shaw's or its other subsidiaries.6 See id. (The Miller decision simply 6 The Estate points to record evidence which it suggests establishes that Supervalu may have acted as a claims administrator for one or more subsidiaries that it did not wholly own. We do not view this evidence as establishing a dispute of material fact regarding whether Supervalu was in the business of insurance because there is no evidence that Supervalu bore the risk of loss - 14 - cannot be read to impose an affirmative claim settlement duty on the risk management department of Toys, when none could be imposed on Toys itself.). In sum, we share the view of the district court that Supervalu did not function as a captive insurer, nor did it function as a third-party administrator, and thus it should not be regulated as such. C. Supervalu's Ownership of Risk Planners Finally, the Estate contends that Supervalu was in the business of insurance by virtue of owning Risk Planners, an insurance agency. During the pendency of the underlying state court litigation, Risk Planners was one of Supervalu's subsidiaries. It is undisputed that Risk Planners was wholly uninvolved in the litigation between the Estate and Shaw's. Risk Planners did not insure either Shaw's or Supervalu, and it had no role in adjusting, negotiating, or litigating the Estate's claim. Nevertheless, the Estate's argument is not entirely without merit. Take, for example, a hypothetical parent company that has a number of subsidiaries in different sectors, including one that operates an airline. By virtue of owning a subsidiary airline, no one could reasonably dispute that the parent company is, by some measure, for these entities, that it adjusted claims on their behalf pursuant to a policy of insurance, or that it was obligated to settle claims made against these entities. See Morrison, 806 N.E.2d at 391; Poznik, 628 N.E.2d at 3. - 15 - in the airline business. So too, one might fairly conclude that Supervalu was in the business of insurance by virtue of owning an insurance agency. It is an entirely different proposition, however, to suggest that a parent company is independently subject to all of the laws and regulations that govern the operation of its individual subsidiaries. For example, it would defy logic to suggest that our hypothetical parent company is itself subject to aviation regulations, even though those regulations would plainly apply to its subsidiary airline. What is more, the Estate's suggestion that Supervalu was in the business of insurance by virtue of owning an insurance agency that had nothing to do with the subject litigation contorts Chapter 176D's well-established policy underpinnings. As we have said, Chapter 176D was enacted to curb abuses that might result from an insurer's exclusive right to control litigation stemming from policies that the insurer has sold for profit. Morrison, 806 N.E.2d at 390. Here, there is no such concern because Risk Planners neither sold relevant coverage, nor had any control over the litigation between Shaw's and the Estate. Thus, Supervalu's ownership of Risk Planners does not support the conclusion that it was in the business of insurance for purposes of Chapter 176D. - 16 -