Dennis Pinto was diagnosed with dementia in 2007. His family contracted with R. Squared Enterprises, Inc. (R. Squared) to provide nonmedical support services to him. R. Squared assigned Kimberly Pereira to work with Pinto starting on October 17, 2007. The following day, Pereira drove Pinto to a restaurant for lunch in an automobile that Pinto’s wife owned. While at the restaurant, Pereira consumed alcohol, allegedly became intoxicated, and drove negligently afterwards. She crashed the automobile into a tree and Pinto suffered serious injuries. R. Squared had hiring policies in place that required background checks on prospective hires, including their criminal and driving records. Based on those policies, Pereira should not have been hired because she had been convicted in two previous alcohol-related offenses.

Pinto's family sued Pereira, R. Squared, and others associated with R. Squared. The suit was later amended to include R. Squared's principals, Robert and Raquel Mullaney, as defendants. The claims included negligence against Pereira, liability for Pereira's negligence against R. Squared and the Mullaneys, and negligent hiring, training, supervision, or retention against the R. Squared defendants and Sandra Smith.

R. Squared was the named insured under a business automobile policy issued by Pilgrim Insurance Company (Pilgrim). The policy included coverage for automobiles owned by others. It was undisputed that this policy covered Pereira while she used Pinto's wife's automobile. The policy also provided that anyone qualified as an insured if he or she was “liable for the conduct of [another] ‘insured’ ... but only to the extent of that liability.”

R. Squared also held a commercial general liability policy with First Specialty Insurance Corporation (FSIC). It covered liability for bodily injury to third parties that resulted from accidents in general but it contained an automobile exclusion. It also contained a severability clause that stated that coverage applied “[s]eparately to each insured against whom claim is made or ‘suit’ is brought.” Every R. Squared defendant was an insured under this policy.

FSIC disclaimed coverage and declined to defend the suit. However, it paid some of Smith's defense costs under a reservation of rights. Pilgrim provided a defense for the R. Squared defendants and settled the Pinto suit in April 2010 within the $1 million policy limit. All claims by the Pintos were dismissed with prejudice in May 2010. Pilgrim paid the settlement, which was not allocated among the various claims. FSIC did not contribute to it.

FSIC filed suit against Pilgrim in March 2010. It sought a declaration that it did not have an obligation to defend or indemnify the R. Squared defendants and, as a result, that Pilgrim did not have a right to contribution or subrogation from FSIC. Soon after settling the Pinto suit, Pilgrim filed opposing counterclaims for equitable contribution and subrogation. On cross motions for summary judgment, the motion judge ruled in favor of FSIC and entered judgment accordingly. Pilgrim appealed.

On appeal, the court cited the automobile exclusion in the FSIC policy. It stated: [this] “exclusion applies even if the claims against any insured allege negligence ... in the supervision [or] hiring ... of others by that insured, if the ‘occurrence’ which caused the ‘bodily injury’... involved the ... use ... of any ... ‘auto’ ... owned or operated by ... any insured.”

The appellate court compared the allegations in the complaint with the policy terms. The court stated that the direct claim for negligence against Pereira obviously fell within the automobile exclusion. The court added that any claims that sought to impose vicarious liability on the R. Squared defendants for Pereira's negligence were also excluded because they were not “separate and distinct from the use or operation of an automobile.” The exclusion also precluded coverage for the claims against the R. Squared defendants for negligent hiring, negligent supervision, and the like. The motion judge’s decision was affirmed.

Appeals Court of Massachusetts, Suffolk. First Specialty Ins. Corp. v. Pilgrim Ins. Co. No. 12–P–1281. June 26, 2013. 2013-WL 3186467