Jackson v. N.E. Ins. Co.

• Court: Superior Court of Maine
• Decided: November 10, 2009
• Docket: CUMcv-07-178
• Status: Unpublished

Opinion

STATE OF MAINE SUPERIOR COURT CUMBERLAND, ss. CIVIL ACTION DOCKET ..., NO: CV-07-178 - .. " .' 'l ( ..

JAMIE M. JACKSON,

Plaintiff,

v.

NORTH EAST INSURANCE ORDER CONIPANY,

Defendant

Plaintiff Jamie Jackson's Motion for Partial Summary Judgment is before

the Court, as is defendant North East Insurance Co.'s Motion for Summary

Judgment. Jackson contends that North East Insurance Co. breached its duty to

defend him in a personal injury action brought by Robert Duggan, and the only

issue left to be determined is the measure of damages. North East Insurance Co.

argues that it did not have a duty to provide Jackson with legal defense.

Jackson's Motion is granted and North East Insurance Co.'s Motion is denied.

BACKGROUND In July 2003, Colonial Auto Sales (Colonial) was the named insured under

a commercial garage policy (the "Policy") issued by defendant North East

Insurance Co. (Defendant). The Policy provided defense and indemnification for

"all sums an 'insured' legally must pay as damages because of 'bodily injury' ...

to which this insurance applies, caused by an 'accident' and resulting from

1 'garage operations' involving the ... use of covered 'autos'." Colonial's Policy

covered "any '[a]uto,"' and identified as "insured" Colonial and "[a]nyone else

while using with [Colonial's] permission a covered 'auto' [Colonial} own[s],

hirers] or borrow[s] ...." The Policy defines "garage operations" as including the

"use of ... covered 'autos."'

On July 11, 2003, plaintiff Jamie Jackson (Plaintiff) was employed as

Colonial's service writer. That evening Plaintiff and Robert Duggan entered

Colonial's showroom and took hvo motorcycles from the sales floor without

permission. The hvo men drove the motorcycles to multiple bars and became

intoxicated. Still on the motorcycles, in the early hours of July 12, 2003 the men

drove by a friend's home. Plaintiff turned to enter the friend's driveway, but in

doing so he passed in front of Duggan. Duggan did not turn, but instead drove

straight into Plaintiff causing a t-bone collision. Both men were seriously injured

in the accident.

Shortly after the accident Plaintiff was fired from his employment with

Colonial, and he signed a release of claims against Colonial. The release did not

include Defendant. Duggan served Colonial with a Notice of Claim by a letter

dated September 16,2003, which Colonial forwarded to Defendant with another

letter dated September 18,2003. Defendant acknowledged that it was aware of

Duggan's potential claims by letters dated September 24,2003, and contacted

Duggan's attorney via a letter dated October 1, 2003. Defendant did in fact

proceed to conduct a full investigation of the accident.

Duggan filed a complaint against Plaintiff on September 24, 2004 alleging

that on July 12, 2003 Plaintiff was riding a motorcycle and he negligently collided

with Duggan, causing Duggan's injuries. The complaint did not reference

2 Colonial or any of the events leading up to the accident. Plaintiff was aware of

the suit's existence, but he did not take any action in his own defense or

otherwise request legal assistance from Defendant.

In a letter dated December 14, 2004, Duggan's attorney notified Defendant

that Plaintiff had been served with the complaint on October 16, 2004, no answer

had been filed, "and default judgment [had] been answered." The letter was

accompanied by a scheduling order. Defendant received this letter on January 7,

2005. By letter dated April 8, 2005, Defendant's counsel informed Duggan's

counsel that "[Defendant] provides no insurance coverage to [Plaintiff] in

connection with the subject matter of your lawsuit." Finally, in a letter dated

August 8, 2005, Duggan's counsel informed Defendant that a damages hearing

had been scheduled for August II, 2005.

At the August 11 damages hearing a final judgment was entered against

Plaintiff in the amount of $1,754,000. Plaintiff appeared at the hearing, but did

not speak in his own defense. Before the hearing, Mark Flanagan, owner of

Colonial, and Tom Wilson, Colonial's counsel, spoke with Plaintiff and "offered

to be there on the day of." It is not clear if Flanagan or Wilson actually attended

the hearing. During the Duggan proceedings Defendant did not bring a

declaratory action to clarify its relationship with Plaintiff.

On March 30, 2007 Plaintiff filed this action against Defendant claiming

that Defendant breached its duty to defend Plaintiff against Duggan, constituting

a breach of contract and violation of 24-A M.R.S.A. § 2436-B. On June 5, 2007,

Plaintiff filed its Motion for Partial Summary Judgment on the issue of whether

Defendant breached its duty to defend. On January 9, 2009 Defendant filed its

Motion for Summary Judgment in its favor.

3 DISCUSSION

Summary judgment is appropriate where no genuine issues of material

fact exist and the moving party is entitled to judgment as a matter of law. M.R.

Civ. P. 56(c); see also Levine v. R.B.K. Caly Corp., 2001 ME 77, 9[ 4, 770 A.2d 653,

655.

1. The Comparison Test

Defendant argues that it had no duty to defend Plaintiff because his

conduct resulting in the accident of July 12, 2003 indisputably placed the event

beyond the Policy's coverage. Plaintiff correctly counters that the extrinsic facts

of the accident are irrelevant to whether Defendant had a duty to defend Plaintiff

against Duggan.

The Supreme Judicial Court has often stated that "the duty to defend is

based exclusively on the facts as alleged rather than on the facts as they actually

are." Travelers Indemnity Co. v. Dingwell, 414 A.2d 220, 224 (Me. 1980) (quoting

American Policyholders' Ins. Co. v. Cumberland Cold Storage, 373 A.2d 247, 249-50

(Me. 1977)). "If, comparing an insurance policy with an underlying complaint

there is any legal or factual basis that could obligate an insurer to indemnify,

then the insured is entitled to a defense." Maine Bonding & Casualty Co. v. Douglas

Dynamics, Inc., 594 A.2d 1079, 1080 (Me. 1991) (quoting State Mutual Ins. Co. v.

Bragg, 589 A.2d 35, 36 (Me. 1991)). "The insurer has a duty to defend if the

complaint shows any potential that the facts ultimately proved may come within

the scope of coverage provided under the policy." Id. (quoting Lavoie v.

Dorchester Mut. Fire Ins. Co., 560 A.2d 570, 571 (Me. 1989)). "Any doubt about the

adequacy of the pleadings to bring the occurrence within the coverage of the

4 insurance policy should be resolved in favor of the insured." J.A.J. Inc. v. Aetna

Casualty & Surety Co., 529 A.2d 806, 808 (Me. 1987) (citing 7C Appleman,

Insurance Law and Practice § 4683 (1979)). This broad construction of the duty to

defend ensures that an insured receives its contractual benefit of defense without

having to first prove the facts underlying the claim against which it wishes to be

defended. Dingwell, 414 A.2d at 227; accord Federated Mutual Ins. Co. v. State Farm

Mutual Automobile Ins. Co., 668 N.E.2d 627 (Ill. App. Ct. 1996).

The Policy provided coverage for accidents caused by Colonial's

employees during their permitted use of covered autos. Duggan's complaint

alleged that Plaintiff negligently collided with Duggan while the two were riding

motorcycles. The complaint is silent as to Plaintiff's employment status, the

motorcycles' ownership, or the nature of their use at the time of the accident.

Due to these ambiguities Duggan could possibly have proven that Plaintiff was

Colonial's employee, the motorcycles were covered autos, and that they were

being used with permission when the collision occurred. However unlikely this

scenario may be, it would bring the accident within the Policy's coverage. As a

consequence, Defendant did have a duty to defend Plaintiff against Duggan in

Duggan's tort action.

Defendant argues that the complaint's ambiguity should foreclose, rather

than create, the duty to defend. Relying on the Ninth Circuit case of Bowie v. The

Home Ins. Co., Defendant claims that it could not have been obliged to defend

Plaintiff because Plaintiff is only contingently covered under Colonial's policy,

and Duggan's complaint did not state any claim against Colonial. This argument

is squarely contradicted by Dingwell, in which the Supreme Judicial Court stated

that the insurer has a duty to defend "whenever the allegations show a potential

5 that liability will be established within the insurance coverage, even when the

allegations are broad, and uncertain as to specific facts ... 'even when the insurer

has knowledge of facts to the contrary.'" 414 A.2d at 226-27 (quoting Cumberland

Cold Storage, 373 A.2d at 250). Defendant's argument also misreads Bowie.

In Bowie, the two plaintiffs were former officers and directors of both the

Transit Casualty Co. (Transit) and the DMT Financial Group (DMT). Bowie v. The

Home Ins. Co., 923 F.2d 705, 705 (9th Cir. 1991). The plaintiffs were insured

expressly in their capacities as officers and directors of DMT. Id. at 708. They

were named in a lawsuit exclusively in their capacities as officers and directors of

Transit. Id. at 707. Based on the wording of the complaint, the courts concluded

that there was no possible scenario under which the allegations against the

officers and directors of Transit could give rise to a claim under DMT's

insurance, so the insurer had no duty to defend. Id. at 708.

Defendant interprets Bowie to mean that a complaint must specifically

allege that the individual being sued was acting on behalf of the primary insured

to trigger coverage. It means no such thing. In fact, Bowie merely restates the rule

of Dingwell and holds that the duty to defend is triggered if the complaint, as it is

written, could give rise to a factual scenario implicating coverage. See id. at 709

(finding that potential for liability does not exist for purposes of the duty to

defend "where a complaint could be theoretically amended to allege ... claims

covered under the policy").

Because Duggan's complaint could potentially have given rise to a claim

covered by the Policy, Defendant had a duty to defend Plaintiff in Duggan's

action.

2. Tender of Request for Defense

6 Defendant next argues that even if it had a duty to defend Plaintiff under

the comparison test, it is not liable now because Plaintiff never tendered a

request for legal assistance. Maine has never expressly required an insured to

actively request defense as a predicate to an insurer's obligation to defend, and

has not addressed the question. However, Plaintiff offers an Illinois case directly

on point. In Federated Mutual Ins. Co. v. State Farm Mutual Automobile Ins. Co., the

Appellate Court of Illinois held that "an insurer's duty to defend claims

potentiall y falling within the terms of a policy is triggered by actual notice of a

lawsuit ...." 668 N.E.2d 627,633 (Ill. App. Ct. 1996). The court found this rule

would effectuate Illinois' public policy of ensuring that insured individuals

receive their contractual benefit of defense. Id. Maine has similar public policy

goals, and the Court finds Federated Mutual's reasoning persuasive. See Dingwcll,

414 A.2d at 227.

In this case, Defendant knew of Plaintiff's accident and knew that Duggan

intended to bring a claim in October of 2003. Defendant performed its own

investigation into the events, and learned of Duggan's complaint eight months

before final judgment was entered in the case. Furthermore, Duggan's letters to

Defendant were clearly interpreted as invitations to provide Plaintiff with

defense, as evidenced by Defendant's explicit disclaimer of coverage in response.

Given that it had notice of the accident and claim, Defendant should not be able

to escape its duty to defend because Plaintiff himself did not request assistance.

3. Adequate Notice

Defendant's final argument is that its failure to defend Plaintiff should be

excused because Defendant received Inadequate notice of Duggan's suit.

Defendant claims that its obligations were discharged by Plaintiff's failure to

7 promptly notify Defendant of the accident as required under the policy.

Defendant also protests that it did not learn of Duggan's actual complaint until

January of 2005, after a default had been entered but before the final judgment.

In Maine, an insurer may escape liability for its failure to defend if it can show

"(a) that the notice provision was in fact breached, and (b) that the insurer was

prejudiced by the insured's delay. Further, the burden of proof is on the insurer

to demonstrate prejudice ... [and] [i]n general, proof of prejudice to an insurer is

a question of fact." Ouellette v. Maine Bonding and Casualty Co., 495 A.2d 1232,

1235 (Me. 1985).

There is no question that Plaintiff himself did not provide Defendant with

notice as required by the Policy. The question thus becomes whether Defendant

was prejudiced. The record shows that, as a matter of law, Plaintiff's breach of

the Policy's notice provision did not unduly prejudice Defendant. "The purpose

of a notice provision in an insurance policy is to allow the insurer an opportunity

to investigate the circumstances surrounding an accident giving rise to a claim

reasonably soon after the accident has occurred." Ouellette, 495 A.2d at 1234

(quoting the Superior Court Justice below). In this case Defendant learned of the

accident two months after it happened and was able to conduct a full

investigation. Defendant does not allege that the delay impeded its investigation,

prevented it from obtaining evidence, or precluded it from asserting material

defenses on the insured's behalf.

Defendant does argue that it was prejudiced by its late discovery of

Duggan's complaint, but the Supreme Judicial Court addressed this issue in

Michaud v. The Mutual Fire, Marine & Inland Ins. Co. and found that notice after a

default was still meaningful. In Michaud, the defendant insurance company

8 "learned for the first time of the pendency of [a] malpractice action against its

insured" eight months after default had been entered, but before any hearing on

damages. 505 A.2d 786, 787 (Me. 1986). The insurance company made no attempt

to participate in the proceedings, and later contended that the insured's failure to

provide prompt notice absolved the insurer of its duties to defend or indemnify.

Id. at 787-88.

The question on appeal was ~hether the late notice was constitutionally

inadequate because it denied the insurer of a meaningful opportunity to defend

the insured and itself, i.e. whether the late notice prejudiced the insurer's ability

to defend the action. Id. at 789-90. The Court held that the notice was adequate

because the default could have been set aside for good cause before the damages

hearing had occurred, giving the insurer a meaningful chance to intervene in the

litigation. Id. at 790. Admitting that the result might have been different if the

insurer had actually tried to participate in the defense and been denied, the

Court found that the important point in that case was the insurer's failure to

make any such attempt. Id. at 791.

Like the insurer in Michaud, Defendant learned of the action against

Plaintiff after a default had been answered but before the damages hearing and

entry of final judgment, and nevertheless failed to make any attempt to

participate in the proceedings. Given that Defendant had adequate time to

conduct a full investigation into the accident behind Duggan's case, and learned

of Duggan's lawsuit at a time when it still had a meaningful opportunity to

intervene, Defendant cannot argue that it was prejudiced by Plaintiff's failure to

comply with the Policy's notice provisions.

9 CONCLUSION

Applying the comparison test, Defendant had a duty to defend to Plaintiff

in Duggan's action because the pleadings left open the possibility that facts

bringing the accident within the Policy's coverage could have been proven at

trial. Defendant breached this duty when it refused to provide Plaintiff with any

legal defense. It is irrelevant that the Policy did not provide indemnification for

the accident based on the actual facts. Defendant's breach of its duty to defend is

not excused by Plaintiff's failure to give notice or tender a request for defense

because Defendant had actual notice of the accident sufficient to allow it to

conduct a full investigation, locate Duggan's complaint, and meaningfully

participate in the Duggan litigation.

The entry is:

Defendant's Motion for Summary Judgment is ~_ ...,..._ . tiff's Motion for Partial Summary Judgment is granted.

DATE: 4~",r.""

10 11/10/2009 MAINE JUDICIAL INFORMATION SYSTEM gmerritt CUMBERLAND COUNTY SUPERIOR COURT mjxxi013 PAGE A - ATTORNEY BY CASE VIEW JAMIE MJACKSON VS NORTH EAST INSURANCE COMPANY UTN:AOCSsr -2007-0034557 CASE #:PORSC-CV-2007-00178

SEL VD REPRESENTATION TYPE DATE 01 0000002055 ATTORNEY: LIBBY, KEVIN ADDR:95 EXCHANGE ST PO BOX 7046 PORTLAND ME 04112-7046 F FOR:NORTH EAST INSURANCE COMPANY DEF RTND 03/30/2007

02 0000009038 ATTORNEY:WALKER, LANCE E ADDR:415 CONGRESS STREET PO BOX 4600 PORTLAND ME 04112-4600 F FOR:JAMIE MJACKSON PL RTND 03/30/2007

Enter Option: A=Add, B+Sel=Browse, M=More, R+Sel=RltnEdit:

Select the EXIT KEY for page selection line. I STATE OF MAINE SUPERIOR COURT CUMBERLAND, ss. CIVIL ACTION DOCKET NO: CV-Oj-17.8 Ii Pre - utA('()- '/', I JI/ :JO!O JAMIE M. JACKSON,

NORTH EAST INSURANCE ORDER ON DEFENDANT COMPANY, NORTH EAST INSURANCE COMPANY'S MOTION TO Defendant RECONSIDER

Defendant North East Insurance Co. motions under Rule 59(e) for

reconsideration of the Court's November 10, 2009 Order granting plaintiff lamie.

Jackson's motion for partial summary judgment. The Court denies North East's

motion and writes to clarify and affirm its prior Order.

BACKGROUND

In the summer of 2003 plaintiff Jamie Jackson was employed as the service

writer for Colonial Auto Sales. One night Jackson and his friend, Robert Duggan,

took tvvo motorcycles from Colonial's showroom and went joyriding without

Colonial's permission. Both men became intoxicated and they collided while

operating the cycles under the influence. Jackson and Duggan both suffered

serious injuries in the accident.

Duggan served Colonial with a notice of claim on September 16, 2003.

Two days later Colonial forwarded this notice to defendant North East Insurance

1 Co., who insured Colonial under a commercial garage policy. North East

acknowledged that it was aware of Duggan's potential claims and was

investigating the matter. Duggan filed a complaint against Jackson on September

24,2004, and Jackson was served on October 16, 2004. Jackson did not answer the

complaint, and the court entered a default against him. On December 14, 2004,

Duggan's attorney notified North East of these developments and provided

North East with a copy of the scheduling order. North East responded with a

letter stating that its policy did not cover Jackson. Finally, on August 8, 2005

Duggan's attorney informed North East that a damages hearing had been

scheduled for August 11, 2005. North East took no action.

At the damages hearing a final judgment was entered against Jackson in

the amount of $1,754,000. Jackson appeared at the hearing, but did not speak in

his own defense. Mark Flanagan, the owner of Colonial, and Tom Wilson,

Colonial's counsel, spoke with Jackson before the hearing and offered to attend.

The record does not show that North East attempted to contact Jackson at any

time during these proceedings, and North East never sought a declaratory

judgment to clarify its relationship with Jackson.

On March 30, 2007, Jackson filed this action against North East claiming

that it breached its duty to defend Jackson against Duggan in violation of the

insurance contract and 24-A M.RS.A. § 2436-B. The parties filed cross-motions

for summary judgment and this Court ruled in Jackson's favor. The Court found

that under the comparison test, North East had a duty to defend Jackson against

Duggan's complaint. The Court also held that North East's duty to defend

Jackson was not contingent on him tendering a request for assistance. Finally, the

Court held that Jackson's failure to notify North East of the complaint did not

2 excuse North East from its duty to defend him in the action. While the notice did

come late and from a third party, these defects did not prejudice North East's

ability to defend the case.

DISCUSSION

North East now moves for reconsideration pursuant to M.R. Civ. P. 59(e)

and 60(b). The Court treats a motion to reconsider as a motion to alter or amend

a judgment. Geyerlwll1l v. United States Fid. & Guar. Co., 1999 ME 40, err 9, 724 A.2d

1258, 1260. "It is a procedural vehicle to correct a judgment where there has been

an error of law or clear error amounting to an abuse of discretion." Westbrook

Assocs. v. City of Westbrook, 1994 Me. Super. LEXIS 216 (June 3, 1994).

North East claims that the Court committed prejudicial errors on two

points. First, North East argues that the Court misinterpreted Illinois law and

erroneously failed to consider whether Jackson's failure to tender a request for

defense was a knowing and voluntary waiver of insurance coverage. Second, the

Court found that Jackson's failure to provide North East with timely notice of

Duggan's suit did not prejudice North East's ability to provide a defense. North

East contends that this finding is based on a legal error and is clearly erroneous.

1. Tender of Defense

An insurer may avoid its duty to defend "based on an insured's delay in

giving notice" if it can "show (a) that the notice provision was in fact breached,

and (b) that the insurer was prejudiced by the insured's delay." Ouellette v. Me.

BOlldillg nlld Causalty Co., 495 A.2d 1232, 1235 (Me. 1985). North East attempts to

introduce a new element to the 01lellette test, namely, whether a breach of the

notice provision expresses an insured's intent to release the insurer from its duty.

3 In Maine an insurer's duty to defend is broader than its duty to

indemnify. Tmvelers I7zdelll1lity Co. v. Dillgwell, 414 A.2d 220, 227 (Me. 1980). An

insurer must provide a defense if the allegations in a complaint could give rise to

any set of facts that would implicate coverage. Id. This broad duty discourages

insurers from defaulting on their obligations to insureds and ensures that parties

will receive adequate representation in litigation. See id. (reasoning that insured

should not "have to try the facts in a suit against his insurer in order to obtain a

defense").

In this case Duggan's complaint alleged facts that could have given rise to

a covered liability if proven at trial. As a consequence, North East was obligated

to defend Jackson unless a defect in notice excused North East under Ouellette. It

is undisputed that Jackson himself did not notify North East of the complaint or

request a legal defense. Rather, North East received notice of the complaint from

Duggan's attorney. The Court found that this notice was legally sufficient to

trigger North East's duty to defend Jackson in the action, absent a showing of

prejudice to the insurer's interests.

Maine has not conditioned an insurer's duty to defend on the insured's

tendering a request for defense, and the Court declined to create such a rule in

this case. The Court instead held that an insurer's adequate, actual notice of a

lawsuit was itself sufficient to trigger its duty to defend. This rule was articulated

by the Appellate Court of Illinois, which stated that "an insurer's duty to defend

claims potentially falling within the terms of a policy is triggered by actual notice

of a lawsuit ...." Fedemted Mutllnl IllS. Co. v. Stnte Fnnll Mutunl Automobile IllS.

Co., 668 N.E.2d 627, 633 (Ill. App. Ct 1996). The Court reasoned that a notice­

4 trigger rule is consistent with the policies underlying Maine's broad

interpretation of an insurer's duty to defend.

North East contends that Federated Mutllnl is inapposite to the facts at

hand. North East also argues that the Court's reading of Federated Mlltllnl

conflicts with other law in Illinois recognizing "the paramount right of the

insured 'to seek or not to seek an insurer's participation in a claim as the insured

chooses.'" Alct71z Ullited, Illc. v. West Belld AlIlltllnl IllS. Co., 707 N.E.2d 687, 692 (Ill.

App. Ct. 1999) (quoting hzst. LOlldoll Ullderwriters v. Hartford Fire Ins. Co., 599

N.E.2d 1311, 1316 (Ill. App. Ct. 1992), overruled by Cincinl1ati Cos. v. West Am. Ins.

Co., 701 N.E.2d 499 (Ill. 1998)). Following Alcall, North East argues that where an

insurer receives notice of a complaint from an adverse third party rather than the

insured, courts should determine whether the insured intended to waive

insurance coverage with its silence. Applying this rule to the case at bar, North

East argues that Jackson's intent remains a question of fact rendering summary

judgment inappropriate.

To begin, North East appears to misread the law of Illinois. That state

recognizes an insured's right to knowingly waive insurance coverage, or to

choose which policy applies where coverages overlap. Cillcillllati Cos., 701 N.E.2d

at 503-04. This right to "target tender" is separate from the question of whether

an insurer's duty to provide an active defense is triggered. The Supreme Court of

Illinois squarely addressed that question in Cincillllati Cos. and held that actual

notice of a suit triggers an insurer's duty to defend the case. Id. at 505. Once

triggered, the burden is on the insurer to contact the insured and ascertain

whether a defense is desired. Id. at 503-04. Allocating this duty to the insurer

fairly places the burden on the party that is "usually in a better position to know

5 the scope of the insurance contract and its duties under it," particularly where

"the insured more often than not does in fact desire the insurer's involvement."

[d. at 504-05 (citing Fedemted Mlltllnl, 668 N.E.2d at 632).

If this Court were to apply Illinois law, it would have to find that North

East's fail ure to contact Jackson or take other action on his behalf after learning of

Duggan's claim violated its duty to defend. North East's duty to defend Jackson

would have been triggered when it learned of the complaint on December 14,

2004. At that time North East had to at least contact Jackson and determine

whether he desired legal assistance. While the record does show that Mark

Flanagan and Tom Wilson contacted Jackson shortly before the damages hearing

and offered to accompany him to court, the record does not show that those men

represented North East or offered to provide legal defense.

The record also shows that Colonial instructed North East not to aid

Jackson. This would not excuse North East because Colonial was not the relevant

insured party in this case. Jackson was the insured, by virtue of the comparison

test's application to Duggan's complaint. Only Jackson could waive North East's

obligation to defend him, and the burden would have been on North East to

determine his intent to do so.

However, this Court did not apply Illinois law and is not bound to do so.

Maine has never required a party entitled to legal defense by application of the

comparison test to also request such assistance from its insurer. To the contrary,

Maine's Supreme Judicial Court has held that notice given to the insurer by an

adverse third party after an entry of default was sufficient to trigger the insurer's

duty to defend the case. A 111. HOllze Assllmllce Co. v. hzgel1eri, 479 A.2d 897, 902

(Me. 1984). In Illgcllcri a professional liability insurer sought"a declaration that it

6 [had] no duty to defend" its insured in a malpractice action. fd. at 898. The

insured had failed to notify his insurer of the malpractice claim. fd. at 901-02.

Instead, the insurer first learned about the claim from a letter sent by the

malpractice-plaintiff's attorney after an entry of default. fd. at 902.

The Law Court found that the entry of default "was merely a ministerial

act which had no preclusive effect" prior to an entry of default judgment, so the

insurer "had ample opportunity to investigate the claim and to protect its

interests" despite the late notice. fd. Absent prejudice, the Court held that notice

by a third party was sufficient to trigger the insurer's duty to defend its insured.

fd. By holding the insurer to its duty despite the insured's silence, the Court

tacitly acknowledged that an insured is presumed to desire legal defense and

does not have to tender a request to its insurer.

Following Illgelleri, courts do not inquire into the intent of an insured who

fails to notify its insurer of a claim. The insured is presumed to desire coverage

and defense. In this case, this Court found that Jackson's failure to tender a

request for legal defense did not excuse North East's failure to take action on

Jackson's behalf. This result is consistent with 1I1gel1eri and the Court declines to

overturn it on North East's motion to reconsider.

2. Prej udice

As stated above, Ouellette provides the relevant test for determining

whether a defect in notice excuses an insurer from its duty to defend. An insurer

may avoid its duty to defend "based on an insured's delay in giving notice" if it

can "show (a) that the notice provision was in fact breached, and (b) that the

insurer was prejudiced by the insured's delay." Ouellette, 495 A.2d at 1235.

7 Jackson indisputably breached the notice provision in this case, so the only

question for the Court is whether the breach prejudiced North East.

Notice provisions in insurance contracts exist to afford insurers an

adequate opportunity to investigate claims and defend their interests. See

Ouellette, 495 A.2d at 1234; Ingeneri, 479 A.2d at 902. North East was noti fied of

the accident and Duggan's potential claims two months after the event. This

early initial notice allowed the insurer to investigate the circumstances of the

accident and obtain the evidence it needed to mount a legal defense. On these

facts the Court found that Jackson's breach of the notice provision did not impair

North East's substantive ability to defend the action. The Court noted that North

East had not claimed any such substantive prejudice.

North East did, however, claim that Jackson's breach caused it procedural

prejudice by impairing North East's opportunity to present substantive defenses

to the tribunal before the entry of default. The Court found that this manner of

procedural prejudice had been addressed in Micl/nud v. Mutunl Fire, Mnrine [i

Inlmzd Insurmzce Co., 505 A.2d 786 (Me. 1986). In Michnud the plaintiff had sued a

malpractice insurer "pursuant to Maine's reach and apply statute ... seeking

insurance proceeds to satisfy a judgment" against the insured. Id. at 787. The

insurer argued thclt application of the statute in that case would violate its right

to due process because it had not received adequate notice in the underlying

malpractice case. Id.

The insurer in lv1icl/nud received notice of a potential claim against its

insured in March of 1978, but was unable to contact the insured during the

subsequent year. Id. The malpractice plaintiff filed a complaint against the

insured on April 2, 1979, and the court entered a default on June 4, 1979.ld. The

8 insurer did not learn of the complaint until February 20, 1980, six months after

the default but eight months before the damages hearing and entry of final

judgment. Jd. The insurer did not attempt to participate in the malpractice action,

which ended in a default judgment against the insured. Jd.

In the subsequent reach-and-apply action, the insurer claimed that the late

notice in the underlying suit had deprived it of a meaningful opportunity to be

heard. Jd. at 789. The insurer argued that enforcing the judgment would violate

its right to due process because it had not been allowed to defend the merits of

the malpractice claim. Jd. The Law Court rejected this argument and found that

the insurer had been given a m.eaningful opportunity to defend its interests

despite the late notice. Irf. at 790-91.

The Law Court reasoned that under M.R. Civ. P. 55(c), an entry of default

may be set aside for good cause. Jd. at 790. "Good cause" consists of "a good

excuse for the failure to answer or appear and a meritorious defense to the

action." Jd. at 790-91 (citing McNutt v. !Ol/(7IlSCIl, 477 A.2d 738, 740 (Me. 1984)). If

the insurer had attempted to intervene in the malpractice action it could have

presented the trial court with "the circumstances surrounding the occurrence of

the default and with facts supporting any defense its insured may have had to

the action." Jd. at 791. The Court noted that the insurer likely '''.'ould have

succeeded in setting aside the default given Maine's preference for judgments on

the merits. Jd. (citing Meellnll v. Snow, 652 F.2d 274,277 (2d Cir. 1981)).

This Court applied the reasoning of Micl/alld and found that Jackson's

failure to notify North East of Duggan's complaint had not prejudiced the

insurer. Like in Micl/aud, North East learned about the complaint after the entry

of default, but prior to the damages hearing and entry of final judgment. North

9 East thus learned of the litigation at a time when the default could have been set

aside on a showing of good cause, i.e. a showing of a good excuse for failing to

answer and a meritorious defense. North East had already investigated the

accident. If North East had bothered to intervene it could have presented

evidence of comparative negligence or other substantive defenses to the court.

Had it succeeded in setting aside the default, there would have been no

prejudice; had it failed, it would have firm ground to contest its obligations

under the policy.

North East did not intervene, however, and instead chose to do nothing.

This choice all but guaranteed the entry of final judgment against Jackson. Under

these circumstances, Jackson's failure to give notice of the suit did not prejudice

North East. Rather, North East's interests were prejudiced by its own choice to

leave Jackson without legal defense. Following Michaud, the Court thus found

that North East had failed to satisfy the second prong of the Ouellette test as a

matter of law and was thus not released from its duty to defend.

North East now contends that the Court erred in its analysis, and argues

that Miclwud is inapplicable because the duty to defend was not at issue in that

case. North East renews its argument that it was procedurally prejudiced by its

late receipt of notice, or alternatively that material questions of fact remain on the

issue of prejudice. The Court disagrees. \Nhile Michaud did not specifically

address an insurer's duty to defend, it did address the issue of prejudice and the

ability to put on a constitutionally adequate defense. The Law Court's rationale

in holding that late notice had not deprived the insurer of due process in lv1iclwud

equally supports this Court's finding that late notice did not prejudice North East

within the meaning of Ouellette.

10 In this case North East first learned of the potential claim one year before

any complaint was filed. It had ample opportunity to investigate the facts and

circumstances of the case, and it did in fact conduct that investigation. When

North East received notice of the complaint after the entry of default, it had the

chance to present evidence of substantive defenses to the court through a Rule

55(c) motion to set the default aside. The present situation would undoubtedly be

different had North East brought such a motion, but this Court does not need to

speculate on what might have been. The important point is that when North East

received notice of Duggan's complaint, it had an opportunity to defend both its

own interests and Jackson's. On these facts this Court cannot say North East

suffered any prejudice from the delay.

This result is supported by Illgclleri, where the Law Court did address the

prejudicial effect of a default against an insured. In Illgcllcri a malpractice insurer

first learned of a complaint against its insured through a letter from the opposing

party's counsel sent after an entry of default. Tl1gcllcri, 479 A.2d at 902. The Law

Court stated that the entry of default "was merely a ministerial act which had no

preclusive effect" prior to final judgment. Id. The Court thus held that the insurer

had "ample opportunity to investigate the claim and to protect its interests ...."

Id. The Law Court concluded that the insurer had suffered no prejudice and

consequently was not relieved of its duty to defend the insured. Id.

Like the insurer in Illgcl1cri, North East had ample opportunity to defend

both its own and Jackson's interests in Duggan's action. North East was not

prejudiced by Jackson's violation of the notice provision, and was not relieved of

its duty to provide a defense.

11 The entry is:

Defendant North East Insurance Co.'s motion to s denied.

DATE:~~OI6

12 JJ-\.M.1~ M JB.CK;:;UN v;:; NUKl'H ~B.;:;'l' .1N;:;UKl\NC~ CUMr'B.NY UTN:AOCSsr -2007-0034557 CASE #:PORSC-CV-2007-00178

01 0000002055 LIBBY, KEVIN ----'------'-----------------------­ 95 EXCHANGE ST PO BOX 7046 PORTLAND ME 04112-7046 F NORTH EAST INSURANCE COMPANY DEF RTND 03/30/2007 --------------'-----'-­ 02 0000009038 WALKER, LANCE E -----'----------------------------­ 415 CONGRESS STREET PO BOX 4600 PORTLAND ME 04112-4600 F JAMIE M JACKSON PL RTND 03130/2007 --------------- STATE OF MAINE SUPERIOR COURT CUMBERLAND, 55. CIVIL ACTION DOCKET NO: CV-07-t7~ R11 c- - Cu M- Qj<6/i7-0 10 ~/ JAMIE M. JACKSON,

Plaintiff, ORDER v.

Plaintiff Jamie M. Jackson moves for partial summary judgment entitling

to damages of $1,754,000 plus pre- and post-judgment interest, enhanced

statutory interest, attorney's fees, and costs. Defendant North East Insurance

Company cross-moves for partial summary judgment declaring that Mr. Jackson

is only entitled to recover reasonable attorney's fees in this action.

BACKGROUND The facts of this case have been developed through earlier summary

judgment proceedings. 1 In July 2003, Colonial Auto Sales was insured under a

commercial garage policy issued by defendant North East Insurance Company.

(Order of Nov. 10, 2009 at 1.) Colonial employed plaintiff Jamie Jackson as its

service writer. (Order of Nov. 10, 2009 at 2.) On the evening of July 11, 2003, Mr.

1 Facts established in one summary judgment proceeding are "deemed admitted

for all further summary judgment proceedings, both before the trial court and on appeal." Maine State Bar Association, The Maille Rilles of Civil Procedure 'with Advisory COl/lmittee Notes and Practice COllllllentary, § 56.1(II)(8)(G) (2008) (citing Pomales v. Cellliares TeI~follicn, IIlC., 447 F.2d 79,81 (1st Gr. 2006); Rogers v. Jackson, 2002 ME '140, 91 7, R04 A.2d 379, 380-81; M.R. Civ. P. 56(h)(4); D. Me. Local R. 56(e)). 1 Jackson and his friend Robert Duggan shared dinner and drinks at a restaurant,

and then stopped by Colonial's showroom so that Mr. Jackson could use the

facilities. (P1.'s Add'l S.M.F. errerr 25-26.) Colonial was closed at the time. (Pl.'s

Add'] S.M.F. err 25.)

Colonial had two motorcycles on display in its showroom. (Pl.'s Add'l

S.M.F. err 30.) When Mr. Jackson exited the bathroom, Mr. Duggan was seated on

one of the bikes and suggested that they take them out for a ride. (Pl.'s Add'l

S.M.F. 9[ 28.) One of the motorcycles was not registered, so Mr. Duggan attached

a license plate he found in his truck. (Pl.'s Add'l S.M.F. err 29.) They then took the

bikes from the showroom for a late-night joyride. (Pl.'s Add'l S.M.F. err 30.) They

did not have Colonial's express or implied permission to do so. (PI.' s Add']

S.M.F.

Without any clear plan, the men drove the motorcycles to two different

bars, drinking as they went. (Pl.'s Add'l S.M.F. err 31; Order of Nov. 10, 2009 at 2.)

By the time they arrived at the second bar, Mr. Duggan had grown concerned

that Mr. Jackson was intoxicated, inexperienced at riding a motorcycle, or both. 2

(Pl.'s Add'l S.M.F. 9[ 32.) He asked Mr. Jackson to "ease up" after watching him

do a power hold in the bar parking lot, and later stopped on the road to ask Mr.

Jackson to slow down. (Pl.'s Add'l S.M.F. 9[9I 33-34.) The two men collided

shortly thereafter. (Pl.'s Add'] S.M.F. err 35.) Both were severely injured. (Pl.'s

Add'l S.M.F.

2 The plaintiff denies this statement of material fact, but does not offer a record citation to rebut the assertion. Other denials are supported only by vague references to an entire deposition transcript, or by citations that do not actually contradict the facts asserted. Assertions and denials must be followed by citations "to the specific pagers] or paragraph[s] of identified record materia] supporting" them. M.R. Civ. P. 56(h)(4) (2009). "The court may disregard any statement" not so supported, and assertions are "deemed admitted unless properly controverted." fd. 2 Colonial fired Mr. Jackson after the accident. (Pl.'s Add'l S.M.F. err 37.) It

also obtained a release from Mr. Jackson in which he acknowledged that he did

not have permission to be on Colonial's premises after hours or to take and use

the motorcycles as he did. (Pl.'s Add'l S.M.F. errerr 38,40.) Mr. Jackson admitted to

the same in his deposition testimony. (Pl.'s Add'l S.M.F. 9I 41.)

Mr. Duggan served Colonial with a Notice of Claim by letter dated

September 16, 2003. (Pl.'s Add') S.M.F. 9I 43.) Colonial retained Attorney Thomas

P. Wilson to represent its interests. (Pl.'s Add'l S.M.F. 9f 43.) At the time of the

accident Colonial was covered by its commercial garage insurance policy with

North East. (Pl.'s Add'l S.M.F. 9144.) Attorney Wilson informed North East of

Duggan's claim by a letter dated September 18, 2003. (Pl.'s Add'l S.M.F. 9I 46.) On

October 1, 2003, North East sent a letter to Mr. Duggan's attorney to request

information and an interview with Mr. Duggan. (Pl.'s Add'l S.M.F. 9I 48.) North

East also obtained the police report of the accident and interviewed Mr. Jackson

around this time. (Pl.'s Add'l S.M.F. 149.)

Mr. Duggan filed a complaint against Mr. Jackson approximately one year

later on September 24,2004. (Pl.'s Add'l S.M.F. err 51.) The complaint did not

name or identify Colonial or North East, and omitted many of the circumstances

surrounding the accident. (Pl.'s Add'l S.M.F. ~r9I 52-53; Pl.'s June 5,2001 S.M.F.

Exh. 1.) Colonial was not served with the complC1int, and North EC1st was not

initially notified that any action had been commenced. (Pl.'s Add'l S.M.F. err 54.)

Mr. Jackson denies that he was ever served with Mr. Duggan's complaint.

(Opp. Add'l S.M.F.

was served with a summons and complaint in hand on October 16, 2004, was

filed in that suit. (Pl.'s Add'l S.M.F. 9I 56.) In her affidavit testimony, Officer Joyce

3 Hodsdon stated that she remembered serving Mr. Jackson at ills home. (Pl.'s

Add'] S.M.F. 9[58.) Whether or not he was served, Mr. Jackson was aware of the

lawsuit that autumn and did not make any attempt to defend himself. (Pl.'s

Add'l S.M.F. <"([err 67-68; Order of Nov. 10, 2009 at 3.) A default was entered

against him on December 10, 2004. (Pl.'s Add'l S.M.F. 1 70.)

During this time Mr. Jackson was busy separating from his girlfriend,

working out child-custody issues, and moving from his former home. (Pl.'s

Add'l S.M.F. err 59.) Between the time of the accident and the final resolution of

the Duggan suit, Mr. Jackson variously lived in Casco, Naples, and Kettle Cove

in Maine, before finally moving to Virginia. (Pl.'s Add'l S.M.F. 1160-63.) He

does not remember leaving any forwarding addresses. (Pl.'s Add'l S.M.F. 164.)

Despite his many moves, Mr. Jackson remained employed while the Duggan suit

was pending. (Pl.'s Add'l S.M.F. err 65.) He worked for three different employers

at various times, and at one point was self-employed in a very profitable venture.

(Pl.'s Add'] S.M.F. crr

North East was first notified of the lawsuit by a letter from Mr. Duggan's

attorney dated December 14, 2004. (Pl.' s Add'l S.M. F. 9I<]I 69-70.) The letter

included a copy of the complaint and informed North East that a default had

been entered. (Pl.'s Add'l S.M.F. (IT 70.) North East did not receive the letter until

January 7, 2005. (Pl.'s Add'l S.M.F. err 60.) On April 8, 2005, North East mailed Mr.

Duggan's counsel a letter informing him that it would not provide Mr. Jackson

any defense or coverage under Colonial's commerciJ] garage policy. (Order of

Nov. 10,2009 at 3.) Mr. Jackson never contacted Colonial or North East to request

a defense, and North East never contacted Mr. Jackson to offer one. (DeL's S.M.F.

9I 12; Pl.'s Add'l S.M.F. 9I9I 42,67.)

4 On August 9, 2005, North East received a letter from Mr. Duggan's

attorney informing it that a damages hearing had been scheduled for August 11,

2005. (Pl.'s Add'l S.M.F. 9I 71.) North East declined to represent Mr. Jackson at

the hearing. (DeL's S.M.F. 9I 18.) Mr. Jackson learned of the hearing from

Colonial. (Pl.'s Add'l S.M.F. 9I9I 72-73.) He attended the hearing himself, but did

not say anything in his own defense. (DeL's S.M.F. 9I 19.) A final judgment of

$1,754,000 was entered against Mr. Jackson on or about August 14, 2005. (Def.'s

S.M.F. 9I 20.)

Mr. Jackson filed this action against North East on March 30, 2007,

claiming that North East breached a contractual duty to defend him under

Colonial's commercial garage policy. In an order dated November 10, 2009, and

affirmed after reconsideration on January II, 201 0, this court determined that

North East had indeed owed Mr. Jackson a legal defense under the policy. The

few facts Cllleged in Mr. Duggan's complaint could potentially have proven a

claim within the insurance policy's scope of coverage, and Mr. Jackson was not

obligated to expressly request coverage where North East had actual knowledge

of the potential claim and pending suit. The fact that actual notice of the suit

came late did not excuse North East because it had conducted an eCldy

investigation into the accident and was notified in time to request that the initial

default be set aside. The parties now seek partial summary judgment on the issue

of damages flowing form North East's breach.

There are no genuine issues of material fact, so summary judgment is

appropriate if the moving party is entitled to judgment as a matter of law. M.R.

Civ. P. 56(c); scc also tCvillC Ii. RB.I<. Cnly Corp., 2001 ME 77, 9I4, 770 A.2d 653,

5 655. The cross-motions before the court ask it to clarify the legal consequences

that flow from an insurer's breach of its duty to defend. The court notes at the

outset that North East has no contrachlal duty to indemnify Mr. Jackson for

liability arising from the motorcycle incident. His drunk-driving accident on

stolen motorcycles falls weIl outside the scope of Colonial's commercial garage

policy, as Mr. Jackson himself admits. (Pl.'s Reply Memorandum dated June 23,

2010 at 2.) However, Mr. Duggan's artful pleading did make North East

contractual1y obligated to defend Mr. Jackson against Mr. Duggan's claim. North

East's failure to tender that defense was "a breach of the insurance contract, and

... normal contract damage principles apply." Elliott v, TIle Hanover Ins. Co., 1998

ME 138, (If 11, 711 A.2d 1310, 1313 (citing Polaroid Corp. v. TIle Travelers IlIdeJllJlity

Co., 6]0 N.E.2d 912, 921 (M<1ss. 1993)).

When em insurer breaches its duty to defend the insured, it is "liable to

pay such damages as will place the insured in a position equally as good as the

insured would have occupied had the insurance contract been fully and properly

performed from the beginning," Gibsoll v. Farlll Family MutlIal Ins. Co., 673 A.2d

1350, 1355 (Me. 1996). The insured has the burden of proving the actual economic

harm it suffered from the breach. TlJurston v. Contimntal CaslIalty Co., 567 A.2d

922, 925 (Me. 1989); see DowlI East Energy Corp. v. RMR, Inc., 1997 ME 148,

A.2d 417, 419 (nOll-breaching party has burden of establishing its damages). This

does not preclude the insurer from" asserting non-coverage as a defense in a

subsequent action by the insured or the insured's assignee." Elliott, 1998 ME 138,

9f 11, 711 A.2d at 1313. The above principles do not conflict so long as an insured takes

appropriate steps to defend itself after an insurer fails to provide a defense. In

6 such a case, the insured's interests are fully represented and the question of

liabili ty is resolved through the adversarial process. The breaching insurer pays

the insured's defense costs, and provides indemnity if there is liability within the

policy coverage. More challenging issues arise where an insured fails to act in its

own defense and incurs a default. The question then becomes whether and to

what extent the insured's liability is a consequential damage of the insurer's

breach, and whether non-coverage remains a viable defense.

Mr. Jackson argues that when an insurer breaches its duty to defend and

the insured then defaults, the insurer should be liable for the entire default

judgment as a consequential damage of the breach. This has an appealing logic. If

the insurer had performed its obligation to defend the insured, the insured

would not have defaulted and its liability might have been reduced or avoided.

Default is a foreseeable consequence of the failure to provide legal

representation, so the entire default judgment becomes a consequential damage

as a result. The basis of the liability becomes the breach rather than the

underlying claim, so the insurer has to pay even if it would not have had to

provide indemnity under the policy.

To support his position Mr. Jackson directs the court to the California case

of Amato v. Mercury Casualty Co., 53 Cal. App. 4th 825 (Cal. Ct. App. 1997). There,

the plaintiff was insured under a motor vehicle policy when he negligently

caused a car accident. fd. at 830. His mother-in-law was injured in the crash. rd.

She sued him for negligence, and he tendered a defense to the defendant insurer.

fd. The insurer refused to provide a defense because it said the policy did not

cover the claim. rd. At that time, however, the insurer had information that, if

true, would have brought the claim within the policy coverage. fd. The plaintiff

7 could not afford to hire defense counsel, and the court entered default judgment.

Jd. at 830. After the default, it was determined that there was in fact no coverage

under the policy. Jd. at 831.

In the plaintiff's action against the insurer, the court found that the insurer

had breached the insurance contract by failing to defend and was liable in tort

for breaching the covenant of good faith and fair dealing. [d. The court reviewed

California law on the subject, including that state's seminal case of Gray v. Zurich

[115. Co., 65 Cal. 2d 263 (1966). Gmy established California's "general rule that an

insurer that wrongfully refuses to defend is liable on the judgment against the

insured." AlIInlo, 53 Cal. App. 4th at 833. After examining Gmy and its progeny,

the court determined that "[ w ]hen the insurer refuses to defend and the insured

docs 1101 employ counsel and presents 110 defense, it Cnll be said the ensuing

default judgment is proximately caused by the insurer's breach of the duty to

defend." [d. at 834 (emph<1sis in original).

The court also refused to allow the insurer to avoid or reduce its liability

by asserting lack of coverage. It appears to have done so partially because of the

insurer's tort liability, id. at 834-35, and partially because it is well established in

C<1lifornia that "[h]aving defaulted ... the company is manifestly bound to

reimburse its insured for the full amount of any obligation reasonably incurred

by him." ld. 839 (quoting Gray, 65 Cal. 2d at 280). Mr. Jackson urges this court to

adopt the laws of California for M<1ine.

The difficulty of Mr. Jackson's position is that M<1ine has expressly parted

from California on a number of fundamental principles underpinning Allwlo. To

begin, Maine has disavowed the "tort of bad faith resulting from an insurer's

breach of its duty to act in good faith and deal fairly with an insured," Mnrquis v.

8 Far1l1 Fa1/lily Mutual Ins. Co., 628 A.2d 644, 652 (Me. 1993). Maine also rejects the

reasoning of Gray that is so essential to Amato. Unlike California, Maine assumes

that an insurer can assert non-coverage as a defense after it breaches a duty to

defend. Elliott, 1998 ME 138, err 11, 711 A.2d at 1313. To do otherwise would make

"the insurer's duty to indemnify ... coextensive with its duty to defend," a result

Maine flatly rejects. Id. Maine also limits an insured's recovery to its actual

economic damages, which the insured bears the burden of proving. Thurston, 567

A.2d at 924-925; Marquis, 628 A.2d at 650. Taken together, the result in A1l1ato is

fundamentally incompatible with Maine's principled adherence to the view that

an insurance contract is to be treated like any other. Gibso11, 673 A.2d at 1354-55;

Marquis, 628 A.2d at 652.

While rejecting A1/lato does not necessClrily shed light on how to determine

the consequential dClmClges of an insurer's wrongful fClilure to defend when the

insured incurs a default, the Law Court has not been completely silent on this

issue. In a different context, it stClted thClt an "insurer should not be liClble for an

unchallenged CIlllount judiciCllly determined after an uncontested hearing on

dClmages ... runless] the insured or the claimant cCln show thClt it is reasonable,

and only after coverage is deemed to exist." Patrons Oxford Ins. Co. v. Harris, 2006

ME 72, err 19, 905 A.2d 819, 828. The Court has also repeatedly stated "that an

unjustified refusCll to defend should be treated CIS CI breach of the insurance

contract Clnd that norffiCll contract dClmage principles appl y." Elliott, 1998 ME 138,

<]I II, 711 A.2d at 1313 (citing Polaroid Corp., 610 N.E.2d at 921); Gibsoll, 673 A.2d

CIt 1354-55; Marquis, 628 A.2d CIt 652. Under the circumstances of this case, the

doctrine of avoidClble consequences or mitigation of damClges clearly Clpplies.

GeneraJ1y, "a party who su ffers injury or loss is under Cln affirmative obligation

9 to take reasonable steps to minimize or mitigate the damages. Horton &

McGehee, Mnine Civil Remedies § 4-3(d)(l) at 69 (4th ed. 2004) (citing Wnlter v.

Waf-Mart Stores, IIlC., 2000 ME 63, err 24, 748 A.2d 961, 969-70). At a minimum this

should require the non-breClching party to attempt to answer a complaint and

make a reasonable effort to secure legCll assistance.

There is no dispute thClt Mr. JClckson's liability in this case is wholly

outside the insurance contract's indemnity coverage. It also undisputed that Mr.

JClckson did not make any effort to defend himself against Mr. Duggan's action.

Mr. Jackson protests that he did not believe he could afford legal representCltion

at the time, so he did not bother to try. The high cost of legal defense and the lack

of legal services for low-income individuals arc serious problems. However, Mr.

Jackson did not even attempt to contact an attorney, utilize the legClI assistance

resources that are available in Maine, or otherwise seek help. Perhaps more

importClntly, Mr. JClckson did not need an attorney to make an answer and bring

his si tuation to the court's attention.

Holding North East liable for Mr. Jackson's judgment would be

inconsistent with Maine precedent and unjust under the circumstances. North

East contracted with Colonial to insure its commercial garClge operCltions. Mr.

Jackson entered CoJoniCll's premises after hours without permission, stole two

motorcycles from Colonial's showroom, and crClshed one of the motorcycles

while driving under the influence of alcohol. North East has clearly established

that it has no duty to indemnify Mr. Jackson under the policy, Clnd Mr. JClckson

made no modicurn of effort to defend his own interests in the underlying action.

Making North East pay the $],750,000 judgment against Mr. Jackson would

radically expClnd the coverage that North East and Colonial bargained for. It

10 would render the duty to defend coextensive with a duty to indemnify liability

never contemplated by the actual parties to the insurance contract.

On these facts, Mr. Jackson's damages were not a result of North East's

breclch as a matter of Jaw. If North East had defended Mr. Jackson and he had

been found liable, North East would not be obligated to pay the judgment.

Unfortunately, North East did not provide that defense. If Mr. Jackson had

secured a lawyer or defended himself, North East would certainly be obligated to

pay his costs and attorney's fees, but it would not have to provide indemnity.

Mr. Jackson's utter failure to defend himself should not alter the result.

Presumably he had every incentive to make a vigorous defense, but he did not.

North East must pay the expenses Mr. Jackson incurred in defending the

underlying suit and his reasonable attorney's fees and costs in pursuing this

action per 24-A M.RS. § 2436-A (2009). [t is not obligated to pay any liability

arising from the motorcycle accident. Since Mr. Jackson did not incur any

expense in the underlying suit, his recovery is limited to his costs and attorney's

fees in this action as allowed by statute.

Plaintiff Jamie Jackson's motion for partial summary judgment is denied.

Defendant North East Insurance Company's motion for partial summary

judgment is granted.

DATE: ~~WIO Roland A. ole Justice, Superior Court

11 oJAM.J..t; M oJACK::iUN V::i NUK'l'tl t;A::i'!' .J..N::iU.K.ANCt; CUMr'AN Y UTN:AOCSsr -2007-0034557 CASE #:PORSC-CV-2007-00178

01 0000002055 LIBBY, KEVIN -----'--------------------------­ 95 EXCHANGE ST PO BOX 7046 PORTLAND ME 04112-7046 F NORTH EAST INSURANCE COMPANY DEF RTND 03/30/2007 =.::....-_--_.:...:..::..:...:..::._--.,;....;;;..;.....;;;..;;..:......::...;;;..;;..;..

02 000000903 8 _W_A.;;;;L.;..K~E_R~,.....;;;L_A....;N....;.C~E.....;;;E _ 415 CONGRESS STREET PO BOX 4600 PORTLAND ME 04112-4600 F JAMIE M JACKSON PL RTND 03/30/2007 -------------'--'--­ STATE OF MAINE SUPERIOR COURT CUMBERLAND, ss. CIVIL ACTION DOCKET NO: CV -07 -VV' . R A (. - C \.A/v/'\ - Lf/! 7,''2 0 / /

JAMIE M. JACKSON, 3­ Plaintiff, ORDER v.

NORTH EAST INSURANCE CO.,

Plaintiff Jamie M. Jackson moves for reconsideration of the court's

September 8, 2010 order declaring that he may only recover his costs and

attorney's fees in this contract action.

The court's prior orders have recounted this case's facts and procedural

history in detail, and only a brief outline will be provided here. On July 11, 2003,

Mr. Jackson took a motorcycle from his employer without permission and rode

to a number of bars with his friend, Robert Duggan. After a night of drinking, the

tvvo men collided on the road. Both were severely injured. Mr. Jackson was fired

from his employment as a result of the incident.

At the time of the incident, North East Insurance Co. insured Mr.

Jackson's employer under a commercial garage policy. On September 16, 2003,

Mr. Duggan served the employer with a Notice of Claim, and notified North East

of the claim two days later. North East investigated the accident at this time. One

year later, Mr. Duggan filed a complaint against Mr. Jackson on September 24,

1 2004. The complaint did not name the employer or North East, and omitted most

of the circumstances surrounding the accident. The employer was not served,

and North East was not notified.

A return stating that Mr. Jackson received in-hand service was filed on

October 15, 2004, and Mr. Jackson admits he was aware of the lawsuit that

autumn. He did not file an answer or otherwise attempt to defend himself, and a

default was entered on December 10, 2004. Mr. Duggan's attorney then notified

North East of the default by a letter dated December 14, 2004. North East did not

receive the letter until January 7, 2005. This was North East's first notice that a

lawsuit had been filed. On April 8, 2005, North East mailed Mr. Duggan's

counsel a letter stating that it would not provide Mr. Jackson with any defense or

coverage under his former employer's commercial garage policy. Mr. Jackson

never contacted North East.

A damages hearing was held on August 11, 2005. Mr. Jackson attended

the hearing after learning of it through his former employer, who offered to

attend with his own attorney. The record does not divulge whether the employer

did attend, but it is clear that Mr. Jackson did not speak in his own defense. A

final judgment of $1,754,000 was entered against him on or about August 14,

2005. He filed this action against North East on March 30, 2007, claiming that

North East breached its contractual duty to defend him under his former

employer's commercial garage policy.

In an order dated November 10, 2009, affirmed after reconsideration on

January 11, 2010, this court determined that North East had a duty to defend Mr.

Jackson under the policy and had breached that duty by failing to provide a legal

defense after receiving actual notice of the suit. Mr. Jackson subsequently moved

2 for summary judgment on the question of damages, arguing that North East

should be estopped from denying coverage and be liable for the entire judgment.

North Eastfiled a cross-motion for summary judgment seeking to limit Mr.

Jackson's recovery to the attorney's fees mandated by 24-A M.R.S. § 2436-B

because as an insolvent debtor he had not suffered any actual harm, because

North East did not owe him a duty of indemnity under the policy, and because

his failure to defend himself was the actual cause of the judgment against him.

On September 8, 2010, this court issued an order in North East's favor. The

court first denied Mr. Jackson's motion for summary judgment and rejected his

invitation to adopt the laws of California. Under established Maine law, ordinary

contract principles determine the consequences of an insurer's failure to provide

a warranted defense. Elliott 11. The Hallover IllS. Co., 1998 ME 138, ~I 11, 711 A.2d

1310,1313 (citing Polaroid Corp. v. The Travelers Jlldelll1lity Co., 610 N.E.2d 912, 921

(Mass. 1993)). When an insurer breaches its duty to defend the insured, it is

"liable to pay such damages as will place the insured in a position equally as

good as the insured would have occupied had the insurance contract been full y

and properly performed from the beginning." GibsOll v. Farll/ FalJ/ily Mlltllal JlIs.

Co., 673 A.2d 1350, 1355 (Me. 1996).

Since the inquiry concerns what might have happened had the contract

been performed, the insurer can assert lack of indemnity coverage as a defense

against liabili ty. Elliott, 1998 ME 138,

principle that the duty to defend is broader than the duty to indemnify. Jd. The

insured bears the burden of proving the actual economic damages caused by the

insurer's breach. Thurstoll v. COlltinelltal Casualty Co., 567 A.2d 922, 925 (Me.

3 1989). His failure or inability to pay an underlying judgment does not foreclose

the potential for such dam.age. Id. at 924 n.2.

The court then addressed the challenge of applying the above principles to

a case where the insured defaulted in the underlying suit against him, and where

the underlying judgment against him indisputably fell outside the insurance

policy's coverage. From a case in which an insurer provided its insured a defense

under a reservation of rights, the court drew the principle that an "insurer

should not be liable for an unchallenged amount judicially determined after an

uncontested hearing on damages ... [unless] the insured or the claimant can

show that it is reasonable, and only after coverage is deerned to exist. Patro/ls

Oxford I/ls. Co. v. f-Il7rris, 2006 ME 72,

that "a party who suffers injury or loss is under an affirmative obligation to take

reasonable steps to minimize or mitigate the damages" following a breach of

contract. I-lorton & McGehee, Maillc Civil RClllcdies § 4-3(d)(l) at 69 (4th ed. 2004)

(citing Wl7ltcr u. Wal-Ml7rt Storcs, [/Ie., 2000 ME 63,

While generally "[tlhe assessment of damages is the sale province of the

jury," Wood v. Bell, 2006 ME 98, err 24, 902 A.2d 843, 851, the court found that the

record in this case allowed the question to be decided as a matter of law. Mr.

Jackson's failure to make any attempt to seek assistance, avoid default, or defend

himself at the damages hearing in Mr. Duggan's suit was patently unreasonable.

This, coupled with the uncontested lack of policy coverage, precluded Mr.

Jackson from holding North East responsible for the judgment against him. Mr.

Jackson had not produced any evidence of other economic harm caused by

North East's breach, partially due to his failure to make any expenditure in his

own defense. It followed that he could not recover any other damages flowing

4 from his default following North East's breach. The court granted North East's

motion, holding that Mr. Jackson could only recover his attorney's fees in this

action as mandated by 24-A M.R.S. § 2436-B.

Mr. Jackson now moves the court to reconsider that portion of its order

granting North East's motion for SUlT1mary judgment. The court treats a motion

to reconsider (lS (l motion to al ter or amend a judgment. Geyer/in/liz v. United Stntes

Fid. ['1' GlInr. Co., 1999 ME 40, 9r 9, 724 A.2d 1258, 1260. ''It is a procedural vehicle

to correct a judgment where there has been an error of law or clear error

amounting to (In abuse of discretion." Westbrook Assocs. v. City a/Westbrook, 1994

Me. Super. LEXIS 216 (June 3, 1994). Mr. Jackson contends that the measure of

damages is a factual question that should be resolved at trial, and that the court

erred in finding that his failure to defend himself resolves the issue as a matter of

law. Whether ll. plaintiff failed to take reasonable steps to reduce his damages,

and how this should impact the total reward, are also questions that should go to

the factfinder. Additionally, in a separate letter sublTlitted after his motion Mr.

Jackson objects to the court's consideration of the doctrine of mitigation in the

first place because this is an affirmative defense that North East did not raise in

the pleadings.

While the failure to plead an affirmati ve defense general! y results in its

waiver, R.c. Moore, Illc. v. Lcs-Cnre Kitc1,cllS, IlIC., 2007 ME 138, <[ 24,931 A.2d

lORI, 10R6, if evidence relating to an affirmative defense is introduced without

objection and the opposing party is not surprised, does not object, and has the

opportunity to respond, the defense may still be permitted. Pnysoll v. COIiCll, 158

Me. 297, 301,183 A.2d 510, 512 (1962). North East has attacked Mr. Jackson's

5 failure to seek or request a defense from the start of this litigation. Initially it did

so to argue that his failure estopped him from claiming that North East had a

duty to defend him against Mr. Duggan. Of greater relevance, North East

recently asserted Mr. Jackson's failure to mitigate as a defense on the issue of

damages, and offered both evidence and argument in the summary judgment

record for support. Mr. Jackson did not object to this line of argument, and in fact

responded by arguing that financial hardship explained his initial default. He is

now estopped from objecting to North East's use of the defense.

Turning to the substance of Mr. Jackson's motion, his accusation of error is

correct in at least one respect. While it did not explicitly say so, the court's order

implies that North East's breach occurred prior to Mr. Jackson's initial default in

the underlying action. In fact, North East did not breach its contractual duty until

it refused to defend Mr. Jackson after learning of Mr. Duggan's lawsuit, which

occurred after the entry of default. While North East's inaction made it

impossible for the court to say whether the entry of default materially prejudiced

the insurer's ability to defend itself so as to excuse nonperformance, the sequence

of events cannot be ignored when determining the consequences of that

nonperformance. Wi th this in mind, the court must determine whether it

correctly granted summary judgment on the issue of damages in North East's

favor.

SU1l1mary judgment is appropriate where there are no genuine issues of

material fact and the moving party is entitled to judgment as a matter of law.

M,R. Civ. P. 56(c); see nlso Levine v. R.B.K. Cnly Corp., 2001 ME 77, 9[ 4, 770 A.2d

653, 655. The existence of actual economic damages is a prima facie element of

any claim for breach of contract. Thursto7l, 567 A.2d at 924-25. Mr. Jackson failed to place any evidence of damages in the summary judgment record other than

the entire underlying judgment against him. He did not claim injury to his credit

rating or other collateral costs, sec Tlllirstoll, 567 A.2d at 924, and did not attempt

to show how North East's active participation would have altered the outcome.

Instead, he argued that the entire judgment amount was itself a consequence of

North East's breach, implying that he would have incurred no liability if North

East had intervened after his initial default.

North East argued in its motion that Mr. Jackson was not entitled to the

automatic award of the underlying judgment for two reasons. First, the award

wos bosed on events falling well outside the insurance policy's coverage and

North East had no duty to provide indemnity. Second, Mr. Jackson had failed to

show that the judgment reflected actual economic harm caused by the breach, or

had itsclf caused him actual harm. Mr. Jackson did not attempt to introduce

evidence rebutting these claims in his reply. I

While there is no evidence that Mr. Jackson ltas lIot been damaged, he

bears the burden of affirmatively showing that he has suffered actual economic

harm. The only damage that Mr. Jackson claims to have suffered is the $1.754

million judgment for which he "remains personally responsible" and which

allegedly came into being as "a natural conseCluence of North East's breach of the

duty to defend ...." (CompI. (I[err 27-28.) The question then becomes: Can the

entire amount of an underlying judgment be recovered as a "consequential

damage" caused by an insurer's breach of its duty to defend where: the insured

did not appear and took no steps to defend himself; the insurer did not have

I Mr. Jackson now professes to have an expert witness ready to testify on the

issue of economic harm if the question is allowed to go to trial. 7 notice of the suit until after the entry of default; and the judgment falls outside

the insurance policy's indemnity coverage?

The present case is materially different from one in which an insurer

wrongfully declines to defend its insured before an entry of defaul t. In such a

case, the insured is often an actual party to the insurance contract who expects to

receive the benefit of a legal defense in exchange for the payment of a premium.

A default and default judgment follow, arguably as foreseeable consequences of

the insurer's breach. Here, Mr. Jackson had no reasonable basis to rely on North

East for assistance and did not do so. He was never a party to the insurance

contract, never paid a premium to North East, and had no expectation of

coverage. Upon being sued, he did not request a defense and defaulted. North

East did not learn that an action had been filed and that it might be at real risk of

incurring liabili ty until after the entry of default. While its refusal to defend Mr.

Jackson ultimCltely did breClch North East's contract with his former employer,

this breach did not cause Mr. JClckson's defCluIt. 2

With Mr. Jackson essentially having admitted to liClbility through his

default, the factual question remains whether North East's failure to intervene

after the default was a substantial factor causing the judgrnent against him. The

court could plausibly find as a matter of law that it was not. Mr. Jackson did not

introduce any evidence or argument to show that North East could have set the

default aside, and he has not claimed that the judgment would have been

2 This raises the conundrum left from the earlier determination that North East did have a duty to defend Mr. Jackson. Under a straightforward application of the "eight-corners" test, North East clearly had a duty to defend Mr. Jackson as an "insured" under his employer's policy. However, a breach of the duty to defend is treated like a breach of contract, and North East never had a contract with Mr. Jackson. Its contract was with Mr. Jackson's former employer, who faces no liability and had no connection with Mr. Jackson's actions. 8 entered for a lesser amount vvith North East's involvement. In sum, he has not

shown that North East's breach, rather than Mr. Jackson's own default, was the

cause of the judgment. This is what North East argued in its motion for summary

judgment.

Mr. Jackson did not meet his burden of production. He only claimed tIle

full amount of the Duggan judgment as damages. North East moved for

SU111111ZlfY judgment on the ground that he had no evidence to show that he

would have avoided the full Duggan judgment had North East provided him a

defense when it learned of the suit's existence, and that he had not claimed any

lesser damages. Mr. Jackson did not respond with any cvidencc to rebut North

East's ch{lllenge, {lnd has thus failed to establish a sufficient c{lusallink between

North East's bre{lch and Mr. Jackson's alleged damages. See Addy v. Jenkins, [/Ic.,

2009 ME 46, 919r 14-15, 969 A.2d at 935, 939-40 (plainti ff's f{li lure to present

sufficient cvidcnce of causation warrimted grant of summary judgmcnt in

defend{lnt's favor).

DATE, ~ ltJ I \

9 01 000000205 5 ~L...;;.I_B~B"';'Y.L.l_K....;.E~V.;.....:;.IN~ _ 95 EXCHANGE ST PO BOX 7046 PORTLAND ME 04112-7046 F NORTH EAST INSURANCE COMPANY =.D,;: ;E.: . F ...;R:...:.T::..;N;.;.;D~___..;0;..;3::...:/_=3;..;0;.:./_=2:....:0:....:0;...;.7

02 0000009038 .:. ;.W: .;:A,;: ;L; , ; K:; ;.ER;;. ;.L. .1...;L:;;;.A;,;;;N:.:.C.::.;E~Eo:-- _ 415 CONGRESS STREET PO BOX 4600 PORTLAND ME 04112-4600 F JAMIE M JACKSON ~P,;::;L -....:R:.:.T::...;N;.;.;D~--,0:;..;3;..:/_3:;..;0:;..;/...;;2:;..;0;,..;0;..;..7