Judge Selya introduced his decision in Vermont Mut. Ins. Co. v. Zamsky, __ F.3d __, 2013 WL 5543915 (1st Cir. 2013) by proclaiming that the decision addresses "what some might regard as an oxymoron: an interesting insurance coverage question."
Andrew Zamsky was an insured under three homeowners' policies issued to his parents by Vermont Mutual. Each of the policies covered a separate parcel of residential real estate they owned.
The policies provided coverage for claims of bodily injury caused by an occurrence. They also contained a "UL exclusion," which excluded coverage for injuries "arising out of a premises" owned by an insured but not itself an insured location.
On November 27, 2008, Zamsky, claimant Renata Ivnitskaya, and several friends drove to a house which was owned by Zamsky's parents but which was not an insured location under any of the policies.
Zamsky retrieved from a shed on the property a portable fire pit he had purchased earlier that year. The group tried to start a fire in it. When the wood would not burn readily, one of the group retrieved a container of gasoline from the garage or the shed and poured its contents on the fire.
In the subsequent conflagration three people were burned. Ivnitskaya suffered especially severe burns.
Ivnitskaya sued Zamsky. As Judge Selya wrote, she alleged a "golconda" (presumably meaning a source of great wealth, and not a mystical state of enlightenment where a vampire is no longer subject to the beast [thank you, Google]) of negligent acts and omissions.
Vermont Mutual agreed to defend the claim under a reservation of rights, and then filed a declaratory judgment action.
In rendering its decision the court relied on Massachusetts Appeals Court cases that interpreted the UL exclusion. One held that a UL exclusion did not exclude coverage for a dogbite case because, while the bite happened at the uninsured premises, the dog was not a condition of the premises.
In a second Appeals Court case the claimant was on uninsured premises "in order to minister to a dying tree" (perhaps so that it would no longer be subject to the beast?). He fell from a ladder and was injured. The Appeals Court held the UL exclusion applied because "where . . . a third person is on the property to repair a condition of the property . . . there is a sufficiently close relationship between the injury and the premises" such that the injury should be understood to have arisen out of the premises.
Taken together, the courts change the UL exclusion to claims "arising out of a condition of premises" owned by the insured that are not an insured location. Judge Selya held that a portable fire pit stored at the premises was not a condition of the premises, so the exclusion did not apply.
Vermont Mutual tried to change the debate by focusing not on "the premises" but on "arising out of," a phrase that is construed broadly. Judge Selya held that the "arising out of" language only comes into play if there is some causal link between the covered occurrence and a condition of the premises. "Here, there is no such linkage."
Judge Selya also rejected Vermont Mutual's argument that if the group went to the premises with the intention of lighting a fire, the occurrence arose out of the premises. "The group's reason for going to Falmouth was not material because that purpose was not related to a condition of the premises."
Judge Selya added that if Vermont Mutual had wanted to exclude from coverage all injuries occurring at an owned location it did not insure, "it would have been child's play to say so."
I think Judge Selya's decision is correct as a matter of a federal court interpreting Massachusetts law. He properly relied on Massachusetts Appeals Court cases because there are no SJC cases on point. Although Judge Selya asserted that he was predicting how the SJC would rule, I'm not so sure it would follow the Appeals Court cases. The exclusion does not exclude injuries "arising out of conditions of premises" that are not insured locations; it excluded injuries "arising out of premises" that are not insured locations. I don't see a basis for reading "condition of" into the exclusion.
Moreover, it makes sense to me that an insured buying three separate homeowner's policies for three discrete houses would not expect that an injury occurring at another house he owns to be covered by those policies. (The Zamsky family most likely had coverage from a different carrier for the house where the fire occurred. My guess is that this is a fight between carriers concerned about which one of them will pay if Ivnitskaya prevails on liability in her underlying action, not a fight about whether an insurer or the Zamsky family will pay. Not that that should make any difference in the contract interpretation issues, but it gives the fight a different flavor, right?)
In this I find myself at surprising odds with Barry Zalma, an insurance fraud specialist whose posts tend to be in favor of limited coverage. But here he claims that "the stupidity [of Vermont Mutual] arguing no coverage even outweighed the stupidity of throwing gasoline on a fire."