Massachusetts Federal Court Denies Attempt to Pierce Liberty Mutual Corporate Veil
By David A. Gauntlett*
Introduction
A recent decision from a United States District Court in Massachusetts rejected the attempts of a class action suit to pursue claims against Liberty Mutual Insurance Company (“LMIC”) for contracts that named Liberty Mutual Personal Insurance Company (“LMPIC”) as the underwriter. Litigating in the world of corporate insurance is often greatly complicated by the tangled web of parent companies and subsidiaries that are, in common thought and speech, often considered a single entity. For example, The Hartford Insurance Group’s website lists 81 distinct legal entities as subsidiaries. In rejecting the policyholders’ attempts in this class action suit, the court effectively endorsed this confusing structure that makes it more difficult for policyholders to determine who to sue, where to sue, and how to actually recover funds after a victory.
Underlying Facts
The case at issue is styled as contained Watts, et al. v. Liberty Mutual Personal Ins. Co., et al.[1] Therein, plaintiffs are a class of policyholders who purchased car insurance through LMPIC. The policies all contained an Optional Transportation Expenses Coverage endorsement which provided that, in the event of an accident, LMPIC would pay the expense of a rental vehicle while repairs were performed on the damaged vehicle. If the vehicle was declared a total loss, then LMPIC would pay for a rental vehicle for the “period of time reasonably required” to replace the total loss vehicle, up to a maximum of 30 days, or $900.
Each Plaintiff argued that after a car accident in which they received access to and payment for a rental vehicle, LMPIC and LMIC prematurely terminated the rental car coverage, despite the contractual obligation to first determine the amount of time a policyholder reasonably needs to replace their totaled vehicle. The plaintiffs sued both LMPIC and LMIC alleging breach of contract and various statutory violations.
LMIC Determined Not to Be a Party to Contract
The court observed several facts that were highlighted by the plaintiffs to show connections between LMIC and LMPIC. Legally, both entities are wholly owned subsidiaries of non-party Liberty Mutual Group Inc. Officially, LMPIC is organized under the laws of the State of New Hampshire with its statutory home office located in Portsmouth, New Hampshire, and LMIC is organized under the laws of Massachusetts with its statutory home office located in Boston, Massachusetts. Nevertheless, both LMIC and LMPIC share office space at 175 Berkley Street.
LMIC and LMPIC entered into a Management Services Agreement by which LMIC provides services to LMPIC. Pursuant to this agreement, LMIC assists LMPIC with its insurance business in exchange for monetary compensation. Specifically, “[s]ubject to the direction and control of LMPIC's Board of Directors and responsible officers,” LMIC agreed to provide to LMPIC: (1) risk underwriting, claims processing and adjustments, and other administrative services; (2) human resources services, such as administering employee benefits; (3) marketing and strategic support; (4) information technology infrastructure and support; (5) printing and mailing services; (6) real estate management, such as handling issues relating to leases; (7) legal and compliance services, such as litigation support; and (8) reinsurance services.
After acknowledging these facts, the court rejected the plaintiffs’ argument that the contract was ambiguous as to whether LMIC was a party. Plaintiffs highlighted that the policy defined “we,” “our,” and “us” to refer to “the Company providing this insurance” without specifically defining “the Company.” The court determined it was sufficiently clear due to the Declarations page only listing LMPIC as an insurer. The court also noted that “[t]he fact that LMIC shares an office with LMPIC does not transform LMIC into Plaintiffs’ insurance carrier or make the two companies co-insurers.”[2]
Nor was the court persuaded by the fact that LMIC collected the premiums and paid claims instead of LMPIC. It noted that LMIC undertook these actions pursuant to its contractual obligations under the MSA, which did not make LMIC an appropriate defendant. Case law from both Illinois and Missouri (the two states whose laws were applied) does not allow insureds to pursue breach of contract claims against adjusters or reinsurers.[3]
Alter Ego Theory Rejected
The plaintiffs also argued that the Management Services Agreement evidenced that LMIC exercised total control over LMPIC, rendering it merely an alter ego corporation. The court rejected this argument as well.
While Plaintiffs characterize the MSA as permitting LMIC to operate under its “sole discretion,” [citation] that reading is undermined by the text of the agreement. . . . Under the terms of the MSA: (1) LMPIC continues to own and control its own books, records, and accounts and LMPIC has exclusive ownership over all funds and assets it collects and invests, MSA § I(B)(3); (2) LMIC's services are “[s]ubject to the direction and control of LMPIC's Board of Directors and responsible officers,” see, e.g., id. § I(A); (3) with respect to claims made under LMPIC's policies and all services under the MSA, LMIC must perform services for “LMPIC as LMPIC determines to be reasonably necessary or desirable,” id. § I; (4) as to risk underwriting, claims processing, policyholder services, and contract management and administration, among other things, the LMIC must perform these services “at a level that is at least equal to its standard for performing such functions on behalf of its own insurance operations,” id. § V.A; and (5) “LMPIC shall maintain oversight for functions provided to LMPIC and shall monitor services annually for quality assurance,” id. Given the clear retention of control and oversight by LMPIC, the terms of the MSA fail to provide LMIC with such pervasive control over LMPIC to justify veil-piercing.[4]
The court did acknowledge the overlap of officers and directors, but it concluded this was only one factor in determining whether to pierce a corporate veil and was insufficient on its own to justify that action. Plaintiffs also noted that LMPIC was structured in a manner that left it without sufficient funds to satisfy any legal judgment, but the court noted that this was obviously inconvenient for the plaintiffs yet was not evidently detrimental to the operations of LMPIC.[5]
Conclusion
The complex corporate structures of major insurance companies are designed to complicate recovery for policyholders seeking legal recourse for wrongful denials and other misconduct. As in the Watts case, refusal to pierce the corporate veil can leave plaintiffs in a position where legal victory no longer promises financial recovery at the end. Expert coverage counsel should always be consulted to determine what entities are potential parties to a lawsuit. In some case, there may be uncertainty, making the question of where to sue (and therefore what choice of law rules will be employed to determine the test for piercing the corporate veil) of paramount importance.
*David A. Gauntlett is a principal of Gauntlett & Associates and represents policyholders in insurance coverage disputes regarding intellectual property, antitrust, and business tort claims, as well as in the underlying actions. Mr. Gauntlett can be reached at (949) 514-5662 or dag@gauntlettlaw.com. For more information, visit Gauntlett & Associates at www.gauntlettlaw.com.
[1] Watts, et al. v. Liberty Mutual Personal Ins. Co., et al., No. CV 23-12845-BEM, 2025 WL 2576800 (D. Mass. Sept. 5, 2025).
[2] Id. at *5.
[3] See Shobe v. Kelly, 279 S.W.3d 203, 209 (Mo. Ct. App. 2009) (holding that adjusters are not personally liable for breach of contract or insurance bad faith); Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 643 (7th Cir. (Ill.) 2015) (“An adjuster who is retained by an insurance company is subject to a duty which runs to the company and not to the insured in adjustment of a claim, and, where not a party to the contract of insurance, he or she is not subject to an implied duty of good faith and fair dealing to the insured.” (internal quotation marks and citation omitted)); J.C. Penney Life Ins. Co. v. Transit Cas. Co. in Receivership, 299 S.W.3d 668, 673–74 (Mo. Ct. App. 2009) (holding that a reinsurer is liable only to reinsured and has no contractual obligation or liability to underlying insured); In re Liquidations of Rsrv. Ins. Co., 122 Ill. 2d 555, 561 (1988) (“[A] reinsurance agreement is distinct from and unconnected with the original insurance policy; the original policyholder—the entity whose loss is insured—is not a party to the reinsurance agreement.”)
[4] Watts, 2025 WL 2576800 at *8.
[5] Id.