SJC Clarifies Statutory Duty to Defend as Between Car Manufacturers and Car Dealers

August 25, 2014

The Massachusetts Supreme Judicial Court (SJC) recently interpreted a statute under M.G.L. c. 93B, section 8(a), which requires a car manufacturer, under certain circumstances, to defend a car dealer against a claim "predicated upon the negligent design or manufacture of a new motor vehicle, or any part or component thereof." While a "duty to defend" often arises based on the terms of contractual relationships between parties, it is less common that a duty to defend arises in a statutory context.

In Ferreira v. Chrysler Group, LLC, the plaintiff had purchased a new Jeep Wrangler from the car dealership, Somerset Auto Group ("Somerset"). The vehicle was manufactured by Chrysler Group LLC, and came with a standard limited warranty, which covered all costs of parts and labor necessary to repair any defects on the vehicle for a period of thirty-six months or 36,000 miles, whichever came first. The plaintiff alleged that after he purchased it, the vehicle underwent six separate repairs, and was out of service for up to forty-two days at a time. In a demand letter to Chrysler and Somerset, the plaintiff alleged that Chrysler's inability to repair the vehicle constituted a breach of warranty, a violation of M.G.L. ch. 93A (unfair and deceptive acts and practices), and the Massachusetts Lemon Law, while Somerset's inability to repair the vehicle was a breach of warranty and a violation of 93A.

In response to the demand letter, Somerset demanded that Chrysler assume the defense and indemnify Somerset against the plaintiff's claims, relying upon the statutory provisions of M.G.L. 93B, section 8(a). Under that statute, a car manufacturer owes such a statutory duty to defend and indemnify a car dealer where the dealer promptly notifies the manufacturer in writing that a claim has been raised that alleges damages arising from a defective motor vehicle or part, caused solely by the fault or neglect of the manufacturer, and not by any fault or neglect of the dealer. Additionally, Somerset claimed that it was entitled to indemnification from Chrysler on the plaintiff's claim based upon the terms of Somerset's franchise agreement with Chrysler.

Chrysler refused to defend or indemnify Somerset. When the plaintiff filed suit against both parties, Somerset filed a cross-claim against Chrysler seeking relief and damages for the defense of the plaintiff's case. Chrysler moved for summary judgment on Somerset's cross-claim, and the judge granted it, concluding that Somerset was not entitled to a defense or indemnification under M.G.L. c. 93B, because that statute "was intended to place the burden upon manufacturers to defend product liability cases arising out of negligent design or manufacture of motor vehicles," and the plaintiff's "demand letter and . . . complaint are completely devoid of any claim of negligent manufacture or design of the vehicle." In addition, the judge held that Somerset was not entitled to indemnification under the franchise agreement because Somerset "failed to follow the procedures outlined in the agreement." The judge also disposed of the plaintiff's claims against Chrysler on summary judgment, and the plaintiff later dismissed his claims against Somerset.

Somerset appealed the summary judgment decision. The Appeals Court affirmed on different grounds, and Somerset appealed further to the SJC. In interpreting M.G.L. c. 93B, the SJC read section 8(a) (a manufacturer's duty to defend a dealer) and section 8(b) (a dealer's duty to defend a manufacturer) together. In doing so, the SJC made four significant observations. First, it found that the statutory duties to indemnify and defend may not be abrogated or limited by any franchise agreement between the manufacturer and dealer. Second, the SJC found the statutory duties to indemnify and defend are generally reciprocal as between the manufacturer and the dealer. Third, the statutory duty to indemnify is very narrow. Finally, in contrast with the duty to indemnify, which is triggered by a finding of liability, the duty to defend under M.G.L. c. 93B is triggered by written notification from a manufacturer, distributor, or dealer that a claim has been asserted and is pending.

Based upon these observations and the specific facts of this case, the SJC concluded that no duty to defend was ever triggered as between Chrysler and Somerset. Both the plaintiff's demand letter and complaint allege claims against both defendants for different reasons. "Under these circumstances," the SJC reasoned, "neither Chrysler nor Somerset had any duty to defend the other because the conduct of both was at issue based on the plaintiff's allegations." Accordingly, the SJC affirmed the dismissal of Somerset's cross-claim against Chrysler for reimbursement of its attorney's fees and costs of defense.

Additionally, the SJC noted its disagreement with the lower court's determination that there can be no duty to indemnify or to defend under M.G.L. c. 93B section 8(a) unless the claim specifically alleges negligent design or manufacture of a motor vehicle. Rather, the SJC concluded that "a claim that a new motor vehicle is defective because of its design or manufacture falls within the scope of a claim of relief 'predicated upon the negligent design or manufacture of a new motor vehicle.'"