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Self-insured grocery chain can't be sued as an insurer

Self-insured grocery chain can't be sued as an insurer

A self-insured food distributor is not an insurer and therefore cannot be sued for failing to promptly pay a claim, says an appellate court in affirming a lower court ruling.

The origin of the complex litigation was a January 2006 accident that occurred when Marion Bingham was struck by a motorized cart while shopping at a Shaw's Supermarket in East Boston and suffered a laceration in the area of her Achilles tendon, according to last week's ruling by the 1st U.S. Circuit Court of Appeals in Boston in Warren Bingham, as executor of the estate of Marion Bingham v. Supervalu Inc.

The accident to Ms. Bingham, who was in her early 80s seemed to have precipitated a rapid decline in her health, and she died eight months later in September 2006, according to court documents. Ms. Bingham had filed a negligence action in Massachusetts state court against Shaw's that was taken over by her nephew, Mr. Bingham, after her death.

Shaw's was a subsidiary of Albertson's Inc., which was acquired by Eden Prairie, Minnesota-based Supervalu in June 2006. Supervalu maintained a centralized risk management system that negotiated and resolved claims against subsidiaries that were not otherwise covered by insurance, according to the ruling. Once a self-insured claim was settled, Supervalu would issue payment from a central account.

“Supervalu did not issue insurance policies to its subsidiaries,” said the ruling. “However, in order to minimize its total costs and exposure, Supervalu opted to centralize the self-insured claims administration process.”

Eventually, the estate accepted an offer of $475,000 plus interest in the litigation, and payment was made in December 2010. Thereafter, “all was quiet” until April 2013, when the estate filed suit contending Supervalu had acted as Shaw's insurer and violated state insurance law by failing to promptly pay its claim.

The litigation, which was originally filed in state court and subsequently transferred to federal court, sought payment of just over $1 million.

Supervalu was not in the business of insurance and therefore was not subject to state insurance law, said a unanimous three-judge panel of the 1st Circuit, in upholding a ruling by the U.S. District Court in Boston and affirming the case's dismissal.

“Supervalu did not sell insurance policies to its subsidiaries; it handled claims only for itself and its subsidiaries and therefore did not assume risk on behalf of unaffiliated third parties; and, Supervalu was not under a contractual obligation to settle claims with the Estate or any other claimant,” said the ruling.

Supervalu “spread risk among its subsidiaries and paid claims out of a central account, much like a typical insurer. But this merely underscores the fact that Supervalu qualifies as self-insured because … Supervalu opted to bear the full risk of loss stemming from uninsured claims made against itself and its subsidiaries.”

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