Insurance Industry Prevails in Significant Rhode Island Supreme Court Decision

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The Rhode Island Supreme Court has decided that insurance carriers who face competing claims for limited policy amounts should only be penalized if they fail to use reasonable care in resolving the competing claims. The law firm of Zelle, McDonough & Cohen, LLP represented Travelers Insurance Company in achieving this victory.

The Rhode Island Supreme Court’s July 12 decision in DeMarco v. Travelers Insurance Company (2008-334) is a resounding victory for the insurance industry. As described in the Rhode Island Supreme Court's Decision, the DeMarco case involved a high speed car crash in which two passengers, Wayne DeMarco and Paul Woscyna, were seriously injured. Travelers insured the driver, Leo Doire, and his company Virginia Transportation Corp., under a liability policy with a one million dollar limit. Both Mr. DeMarco and Mr. Woscyna sued Mr. Doire and Virginia Transportation. The cases presented the thorny problem faced by liability insurers when there are multiple claimants and insufficient policy limits to fully compensate them for their injuries. Travelers was represented by the law firm of Zelle, McDonough & Cohen, LLP.

The Court describes how although Mr. Woscyna agreed to settle for $450,000, Mr. DeMarco refused to settle for anything less than the full $1,000,000 policy limit. Travelers rejected Mr. DeMarco’s settlement demand, because paying the limit to Mr. DeMarco would have left Mr. Doire and his company without any protection against the claim by Mr. Woscyna. Mr. DeMarco proceeded to trial, believing Travelers would be liable for the full amount of the judgment based on its refusal to accept his demand for the $1,000,000 policy limit. A jury found in favor of Mr. DeMarco and he was awarded more than $2.8 million.

As set forth in the Rhode Island Supreme Court's Decision, following the trial, Mr. DeMarco accepted a payment of $550,000 from Travelers and provided Mr. Doire and Virginia Transportation with a full release of all liability. Mr. DeMarco then filed a claim against Travelers, assigned to him by Mr. Doire, claiming that the Travelers was strictly liable for the entire amount of the judgment and interest based on Travelers’ rejection of his $1,000,000 settlement demand.

The DeMarco’s claims against Travelers were based on the rule espoused by the Rhode Island Supreme Court in Asermely v. Allstate Insurance Company, 728 A.2d 461 (R.I. 1999) that when an insurer has an opportunity to settle a case within the limit of the insurance policy and declines to do so, “it does so at its own peril.” In a major blow to the Rhode Island plaintiffs’ bar, the Supreme Courts clarified that the “Asermely Rule” does not impose strict liability on an insurer that rejects an offer to settle within limits. Rather, it held that a reasonable care standard must be applied to determine whether an insurance company is liable for any amount in excess of its policy limit when it has rejected an offer to settle within the policy limit.

Anthony Zelle, of Zelle McDonough & Cohen in Boston (http://www.zelmcd.com) represented Travelers. According to Mr. Zelle, the Supreme Court’s explication of the reasonableness standard for imposing extra-contractual liability on an insurer confirms that Rhode Island law is consistent with every other state that measures an insurer’s conduct based on the reasonableness of its efforts to protect its policyholder. Mr. Zelle noted that the Supreme Court’s holding properly balances the interests of plaintiffs, insurers, and their policyholders in the difficult cases that involve multiple claimants and insufficient limits.

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Anthony Zelle
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