Mass. Appeals Court holds insurer estopped from denying lead paint coverage when it did not inform policyholder that lead paint certificate was insufficient

In 1992, John Cerasuolo sought to purchase coverage for lead paint claims that might arise from an apartment building he owned with his wife.  His agent told him that he would have to obtain letters of compliance in order to obtain such coverage, but did not explain what a letter of compliance was or how to obtain one.

John had the apartments inspected by a lead inspector, who issued letters for each unit that John incorrectly believed were letters of compliance.  He submitted them to his agent, who submitted them to Northern Security Insurance Company.  Over the next years Northern issued consecutive insurance policies to the Cerasuolos.  John believed that the policies provided the requested coverage for lead poisoning claims.  

In 2010, a tenant notified John of  lead paint claim.  Northern declined to defend or indemnify, on the ground that the Cerasuolos had not submitted a letter of compliance.

Two juries determined that Northern was estopped to deny coverage.  In Rabassa v. Cerasuolo, __ N.E.3d __, 2020 WL 3635887, the Massachusetts Appeals Court affirmed.

Northern contended that estoppel cannot create coverage.  Without ruling on whether Massachusetts has adopted the general rule that the doctrines of waiver and estoppel will not create, enlarge, or expand the coverage of a policy, the court noted that the general rule has exceptions.  One exception is when an insurer misrepresents the extent of coverage to an insured, thereby inducing the insured to purchase coverage which does not cover the disputed risk.

The court held that the facts of the case fell into the exception.  John specifically requested coverage for lead poisoning claims.  Northern, through its silence when it had a duty to speak, misrepresented that the polices provided the requested coverage.  Relying on that misrepresentation, the Cerasuolos purchased the policies.

The court relied on expert testimony that Northern had a duty to inform the Cerasuolos that the documents they submitted were insufficient for lead paint coverage.  It affirmed the jury's finding that the Cerasuolos' reliance was reasonable.