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Kelly v. Liberty Insurance Corp.

United States District Court, D. New Hampshire

May 18, 2018

Brendan Kelly
Liberty Insurance Corp., d/b/a Liberty Mutual



         This insurance coverage case requires the court to determine whether a named insured validly rejected uninsured motorist coverage. The dispute arises from a motor vehicle accident in which plaintiff Brendan Kelly was seriously injured. Kelly, an employee of Plum Creek Timber Co., was driving a company truck when an oncoming vehicle crossed a double-yellow line and caused a head-on collision. After collecting the liability insurance policy limit from the other driver's insurance carrier, Kelly sought underinsured motorist (UM) coverage under an umbrella policy defendant Liberty Mutual issued to Plum Creek. New Hampshire law requires that umbrella policies include UM coverage unless rejected by the named insured. See N.H. Rev. Stat. Ann. § 264:15. Liberty Mutual denied the claim on the basis that Plum Creek had expressly rejected UM coverage. Claiming that Plum Creek's rejection is invalid under New Hampshire law, Kelly filed a petition for declaratory judgment seeking coverage under the Liberty Mutual policy. See N.H. Rev. Stat. Ann. 491:22. This court's subject matter jurisdiction is premised on diversity of citizenship. U.S.C. § 1332.

         After granting partial summary judgment to Liberty Mutual on plaintiff's claim that New Hampshire law required Liberty Mutual to attach Plum Creek's written rejection of UM coverage to the policy, [1] the court held a one-day bench trial on the remaining issue of whether the Plum Creek representative who executed the rejection form was properly authorized to do so. The parties each submitted proposed findings of fact and rulings of law, pre-trial briefs, as well as a jointly-submitted statement of agreed facts and a timeline of events. Relying on these materials, the court makes the following findings of fact and rulings of law, see Fed.R.Civ.P. 52(a), resulting in judgment for Liberty Mutual.

         I. Findings of fact[2]

         A. Underlying accident and insurance

         1. In December 2013, plaintiff Kelly, a Plum Creek employee driving a truck Plum Creek owned, was en route to a job site when a vehicle driven by George Motard crossed into Kelly's lane of travel and struck Kelly's truck head-on, killing Motard and injuring Kelly. The New Hampshire State Police determined that Motard was entirely at fault for the collision.

         2. At the time of the collision, Progressive Casualty Insurance covered Motard under a policy containing a $100, 000 auto liability limit. Progressive tendered its policy limits to Kelly.

         3. Plum Creek carried its primary auto liability insurance through ACE American Insurance Company ("ACE"), with auto liability limits of $1, 000, 000.

         4. The ACE policy provided UM coverage with limits of $1, 000, 000. ACE tendered its policy's UM coverage limits, minus credit for the payment from Progressive, to Kelly.

         B. Liberty umbrella policy

         5. At the time of the collision, Plum Creek was also insured under a Commercial Liability Umbrella policy issued by Liberty, ("the Liberty policy") with effective dates of June 1, 2013 to June 1, 2014.

         6. Kelly is an "insured" under the Liberty policy because he was acting within the scope of his employment for the named insured, Plum Creek, at the time of the accident, and because he was using a "covered auto" with Plum Creek's permission.

         7. The Liberty Policy provides auto liability umbrella coverage with limits of $5, 000, 000 for each occurrence and a $5, 000, 000 general aggregate.

         8. Kelly sought UM coverage under the Liberty policy. As part of his claim, he submitted medical records and bills showing the serious and permanent injuries that resulted from the collision. The bills exceeded $440, 000.

         9. Liberty denied Kelly's claim for coverage under the Liberty Policy because Plum Creek had rejected UM coverage.

         10. A "New Hampshire Excess Uninsured Motorists Coverage Selection or Rejection Form" was not attached to the Liberty Policy.

         C. Authority for rejecting UM coverage

         1. Lisa Duetsch

         11. Lisa Duetsch signed the UM rejection form on behalf of Plum Creek.

         12. Duetsch began working at Plum Creek in January of 2005. In 2008, she assumed the title of Manager, Risk & Insurance. Plum Creek provided Duetsch with an office in its corporate offices in Montana where Duetsch met with Plum Creek's insurers and insurance brokers.

         13. Plum Creek also provided Duetsch with a company email address, which she used to communicate with insurers and insurance brokers. The email address and her business cards included her title.

         14. Duetsch executed UM coverage forms on behalf of Plum Creek so as to reject coverage annually from 2005 to 2015.

         15. On May 30, 2013, Duetsch completed and signed the New Hampshire UM selection/rejection form, rejecting UM coverage. Duetsch likewise rejected UM coverage in Florida, Louisiana and West Virginia. Duetsch completed and signed UM coverage forms for the same states the previous year.

         16. Duetsch's supervisor, Kent Jones, issued Duetsch delegation of authority memoranda throughout her employment. The memoranda authorized Duetsch to sign "contracts, agreements, statements" including "Auto Ul/Underl forms." Duetsch regularly referred to the delegation memoranda to ensure she was acting within the scope of her authority.

         17. On or about June 1, 2005, Jones verbally instructed Duetsch to complete the UM forms associated with Plum Creek's casualty insurance policy renewals. Jones reviewed the forms before Duetsch sent them to Plum Creek's insurer(s). During a scheduled weekly meeting with Duetsch the following year, Jones verbally instructed Duetsch to complete the UM forms. He indicated that he was comfortable not reviewing them, given Duetsch's demonstrated comprehension of Plum Creek's intent to reject UM coverage, as well as the accuracy of the prior years' forms. Until Jones updated the delegation of authority memorandum explicitly to grant Duetsch authority to complete the UM forms, she always notified Jones of her intent to complete the UM forms and received his verbal authority to do so. After Jones updated the delegation memorandum, Duetsch informed Jones of the status of her completion of these forms during their scheduled meetings.

         18. Based on conversations with Jones, Duetsch understood that Plum Creek wished to reject UM coverage in states in which it was permitted to do so because Plum Creek had already secured insurance coverage for its employees in the form of workers' compensation insurance.

         19. Duetsch understood that the delegation of authority memoranda she received, together with Jones's verbal instructions, authorized her to reject UM coverage where permitted by law.

         20. Duetsch understood that Jones was aware of her execution of UM forms because it was one of her job responsibilities for over 10 years.

         21. Duetsch understood that failure to reject UM coverage on behalf of Plum Creek would have been inconsistent with Plum Creek's judgment and with Jones's instructions.

         22. Duetsch and Jones met annually with Plum Creek's primary casualty insurer's underwriter. During these meetings Duetsch and the underwriter discussed the execution of the UM rejection forms in Jones's presence.

         2. Kent Jones

         23. Kent Jones began working at Plum Creek in May of 1999 as a Resource Accounting Manager.

         24. In 2001, Jones assumed the role of Director of Accounting-Shared Services, Manufacturing and Risk Management. He reported directly to David Brown, Plum Creek's Vice President and Chief Accounting Officer.

         25. Brown authorized Jones to decide whether to accept UM coverage on behalf of Plum Creek.

         26. Beginning in 2002, and based on Jones's understanding of Plum Creek's past practice and his own professional judgment, Jones annually rejected UM coverage on behalf of Plum Creek in each state in which such rejection was permitted.

         27. Thereafter, Jones delegated the responsibility of executing UM rejection forms to Lisa Duetsch. Jones furnished Duetsch with a written delegation of authority memorandum.

         28. Jones maintained similar memoranda in his files delegating authority to Duetsch for the years 2004, 2005, 2007, 2010, 2011, 2012, 2013, 2014 and 2015. He updated them as needed.

         29. The delegation of authority memorandum in effect in May 2013 stated in paragraph five that the Risk Manager, Duetsch, was authorized to sig\n "contracts, agreements, statements" including "Auto Ul/Underl forms."[3]

         30. When Jones first assigned Duetsch the responsibility of executing UM coverage selection/rejection forms on behalf of Plum Creek, he verbally instructed Duetsch to reject such coverage where permitted by law.

         31. In Jones's view, Duetsch's failure to reject coverage would have been a direct deviation from Jones's instructions and would have reflected poorly on Duetsch's performance.

         32. Jones was aware that Duetsch rejected UM coverage on behalf of Plum Creek in each of the years in which she was authorized to do so.

         33. Jones was aware of Duetsch's execution of the UM coverage forms because an electronic file so indicating was placed in a shared access folder, and because the invoice or premium cost for the Liberty policy reflected a cost which did not include uninsured or underinsured motorist coverage for any of the four applicable states.

         3. David Brown

         34. In 2012 and 2013, Brown was Plum Creek's Vice President and Chief Accounting Officer. He began working for Plum Creek in 1994. Brown earned Bachelor's and Master's Degrees in accounting, and Master's Degrees in Business and Taxation.

         35. Between 1994 and 2016, Brown held multiple titles with Plum Creek, including Controller; Vice President, Controller; Vice President, Controller (Chief Accounting Officer); and Vice President and Chief Accounting Officer. Regardless of his title, in Brown's view, he was responsible for the Plum Creek's accounting. Brown retired following Weyerhaeuser's acquisition of Plum Creek in 2016. He was never on the Plum Creek Board of Directors (the "board").

         36. During the relevant time period, the Plum Creek Board of Directors elected Brown to the position of Vice President and Chief Accounting Officer. Brown signed Plum Creek's Form 10-K filing with the United States Securities and Exchange Commission ("SEC") in his capacity as Vice President and Chief Accounting Officer.

         37. Plum Creek was the largest private landowner in the United States, deriving revenue from selling trees, manufacturing wood products, selling and/or developing its land, and mineral rights. Brown understood that, as a publicly-traded company, Plum Creek was subject to oversight by the SEC.

         38. As Plum Creek's Vice President and Chief Accounting Officer, Brown's primary job responsibility was to oversee the Company's annual disclosure of financial information in order to meet various SEC requirements. He worked with various accountants, attorneys, and board members to make sure "we got it right."[4]

         39. Brown was also responsible for internal controls at Plum Creek. Those controls included protocols and practices to prevent material misstatements in earnings reports and to ensure that all material transactions were properly approved in accordance with the requirements of Plum Creek's Board of Directors. The board and Chief Financial Officer ("CFO") David Lambert gave Brown these responsibilities.

         40. After implementation of the Sarbanes-Oxley Act of 2002, the SEC issued guidance to public companies regarding internal controls. The SEC directed management of public companies to focus on verifying that all accounting transactions were properly recorded and executed in accordance with delegations of authority. Delegations of authority were specifically included in the SECs definition of proper internal controls.

         41. Brown spent approximately 25 percent of his time ensuring that Plum Creek had proper internal controls in place and approximately 75 percent of his time ensuring that "the numbers were correct."[5]

         42. Based on his knowledge of federal regulations governing public companies and his educational and professional experience, Brown understood that adequate internal controls over financial reporting, specifically those intended to ensure all material transactions are properly authorized, required that Plum Creek have adequate delegations of authority in place.

         43. Beginning in approximately 2004 and continuing through the relevant time period, Plum Creek's Audit Committee met nine times per year. Brown attended each meeting. Brown provided the committee with an update on his responsibilities related to financial reporting, including internal controls and delegations of authority.

         44. At all relevant times, Brown understood that his authority came from his direct superior, CFO Lambert.

         45. CFO Lambert delegated to Brown the primary responsibility of ensuring that "all of the accounting was correct" for the Company.[6] Brown also understood that, based on the BOD Delegation of Authority, he had a "specific level of authority for certain transactions that he was allowed to approve. "[7]

         46. Brown had different levels of financial authority depending on the category of payment involved, and he maintained a file to review whenever he was asked to approve a payment in order to ensure the payment was within his authority.

         47. Brown met weekly with his direct supervisor, Lambert. During these meetings, Brown discussed "basically anything and everything that [Brown] thought was important to [Lambert] relating to financial reporting, " which included accounting for transactions, the annual audit, internal controls, and personnel-related matters.[8]

         48. Brown was Kent Jones's direct supervisor. Insurance was within Jones's job description and the ...

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