A Massachusetts federal court dismissed a coverage lawsuit against a liquor liability insurer, holding that the “supplementary payments” clause in its policy did not require the carrier to furnish a bond to discharge an attachment against the insured’s liquor license. The court agreed that, because the carrier had already paid out its entire limit of liability, it had no obligation to pay either pre-judgment interest or the cost of the bond. The case is an excellent example of a court construing unambiguous policy terms under controlling Massachusetts law. A copy of the decision in Graf v. Hospitality Mutual Insurance Company, No. 13-30070-KPN (D.Mass. Jul. 26, 2013), is available here.
The case arose out of an underlying personal injury claim brought by a restaurant patron, where the jury returned a plaintiff’s verdict for $500,000. The restaurant had a liquor liability insurance policy, which paid its $500,000 limit to satisfy the judgment. The carrier balked, however, at providing additional indemnification for roughly $111,000 in accumulated pre-judgment interest. The injured plaintiff, therefore, attached the restaurant’s liquor license. The insured and the plaintiff subsequently demanded that the insurer pay the cost of a bond to discharge the attachment. The insurer declined, and this coverage litigation ensued.
After careful review of the insurance policy, the magistrate judge dismissed the coverage suit, finding that there was not a viable claim. There was no dispute that the carrier had paid its limits to satisfy the judgment, or that the carrier had honored its contractual obligation under the policy’s supplementary payments provision to pay post-judgment interest outside of limits. Rather, the dispute was whether the policy’s supplementary payments clause obligated the insurer also to pay for the bond sought here, where the relevant clause said: “We [the insurer] will pay with respect to any claim or ‘suit’ we defend the cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance.” The insurer took the position that, since the requested bond sought to discharge an attachment for an amount of pre-judgment interest in excess of the already-paid limit, the bond amount was not within the applicable limit.
The court found that the policy’s language was unambiguous. Since both the face amount of the bond (for which the carrier would have had to post collateral) and any premium for the bond (which it was argued that the insurer should have to pay) would be in excess of the policy’s limit of liability, the court concluded that the policy did not require that the carrier provide the bond under the facts presented. The court also found that an alternative argument – that the supplementary payments section of the policy obligated the carrier to pay the cost of a bond to release an attachment, as long as the bond amount itself was not more than a separate $500,000 limit – was entirely unsupportable under the terms of the policy.
In summary, the judge carefully applied the terms of the policy to the legally distinct categories of pre-judgment and post-judgment interest.