Massachusetts District Court Finds Insured Cannot Recover After Breaching Voluntary Payment Provisions
On March 27, 2014, the United States District Court for the District of Massachusetts ruled that an insured cannot recover environmental remediation costs under motor vehicle garage policies, commercial general liability policies, and umbrella policies containing voluntary payment provisions, nor is the insured entitled to recover pre-tender defense costs, where the insured incurred the majority of costs before tendering notice to the insurer, thereby prejudicing the insurer’s interests. See Myers v. Travelers Indemnity Co., No. 11-40157-TSH (D. Mass. Mar. 27, 2014).
In Myers, an insured property owner sought insurance coverage for costs incurred inconnection with the remediation of environmental contamination under certain motor vehicle garage policies, commercial general liability policies, and umbrella policies (the “Policies”). While the exact wording varied to some degree, the Policies all provided that the insured would not, “except at his own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without [the insurer’s] consent.” In this case, however, the insured “not only reached an agreement [for environmental remediation] without [the insurer’s] knowledge or consent, he made substantially all, if not all, of the payments for which he seeks reimbursement” prior to providing notice of his claim.
The insured argued that he never sought consent or approval from the insurer prior to incurring the claimed damages because he was unaware that the environmental contamination might be covered. Nonetheless, the Court found that his breach “undermined the purpose of the voluntary payment clause – that of giving an insurer the opportunity to protect its interests.” “The bottom line,” the Court concluded, “is that if, because of the insured’s actions it is too late for the insurer to act to protect its interests, coverage is barred by the voluntary payment provision[s].” Because the insurer was prejudiced under the circumstances, the insured was not entitled to recover under the Policies and was barred from recovering amounts claimed as pre-tender defense costs.
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