In a recent decision, the Rhode Island Superior Court ruled that claims brought against a dissolved entity’s insurers are barred pursuant to R.I. General Laws § 27-7-2.  This statute bars direct actions against insurers of alleged tortfeasors absent very limited exceptions.

In Shirley D’Amico, et al. v. A.O. Smith Corp., et al. (C.A. PC12-0403), the Rhode Island Superior Court examined whether one of those exceptions to R.I. General Laws § 27-7-2, which allows direct actions against the insurers of a bankrupt entity, similarly permits a direct action against the insurers of a dissolved entity.  The underlying facts of the case were straightforward.  Plaintiff alleged that her husband, Frank D’Amico, died from malignant mesothelioma proximately caused by occupational exposure to asbestos.  This exposure, according to Plaintiff, took place during Mr. D’Amico’s service in the United States Navy and his subsequent employment at various golf courses.  Plaintiff filed the original complaint on January 25, 2012.  After multiple amendments, Plaintiff filed a fifth amended complaint on June 11, 2015, to include Grover S. Wormer Company (“Wormer”) as a defendant.  In accordance with Michigan Corporate Code, [1]Wormer was dissolved as of January 10, 2008.  As such, on February 28, 2018, the Court dismissed Plaintiff’s claims against Wormer, finding they were barred by the laws of State of Michigan.

Following Wormer’s dismissal, Plaintiff filed a sixth amended complaint naming Wormer’s former insurance carriers (“Defendant Insurers”) in its stead.  These Defendant Insurers collectively filed a Motion to Dismiss Plaintiff’s claims pursuant to R.I. Super. R. Civ. P. 12(b)(6), based on R.I. General Laws § 27-7-2’s general prohibition of direct actions against insurers.

Generally, Rhode Island law bars direct claims against the insurer of an alleged tortfeasor.  R.I. Gen. Laws § 27-7-2.  Section 27-7-2 provides in pertinent part that “[a]n injured party, or in the event of the injured party’s death, the party entitled to sue for that death, in his or her suit against the insured, shall not join the insurer as a defendant.”  Id.  The Rhode Island legislature, however, has created three exceptions to this bright line rule – one of which allows direct actions against an insurer where the insured has filed for bankruptcy.  R.I. Gen. Laws § 27-7-2.4.  In her opposition, Plaintiff primarily argued that her claims against the Defendant Insurers should survive under this exception because the Court should broadly interpret the term “bankruptcy” to encompass dissolution, which Plaintiff maintained is its functional equivalent. In so doing, Plaintiff relied on Progressive Northwestern Ins. Co. v. East Bay Ins. Ltd., PC97-2735, 2002 WL 393695 (R.I. Super Ct.), in which the Superior Court expanded the reach of the term bankruptcy contained in § 27-7-2.4 to include receivership.

In support of its Motion to Dismiss, Defendant Insurers relied on D’Amico v. Johnston Partners, in which the Rhode Island Supreme Court held that the language of R.I. General Laws § 27-7-2 and its exceptions are clear and unambiguous.  866 A.2d 1222, 1225 (R.I. 2005).  As such, the exception contained in R.I. General Laws § 27-7-2.4 is limited to the generally accepted meaning of bankruptcy, which does not include dissolution.

After considering the arguments of the Parties, the Court granted Defendant Insurers’ Motion to Dismiss.  The Court found that the language of § 27-7-2 and 27-7-2.4 are clear and unambiguous and, therefore, it must apply the “natural and generally accepted meaning” of the term bankruptcy, which is a separate and distinct legal process from dissolution.  Accordingly, the Court held that because the term bankruptcy does not encompass dissolution, applying the exception to allow a direct claim against the insurers of a dissolved entity would contravene the intent of the legislature, and thus, Plaintiff’s claims are barred as a matter of law.

This decision represents a victory for insurance carriers as it severely limits the ability of future plaintiffs to bring claims against insurance companies that do not explicitly meet the exceptions carved out by the Rhode Island legislature.

[1]Wormer was incorporated in the state of Michigan.