Massachusetts Superior Court holds that insurance broker has limited liability to insured

Strega Realty Trust, which was operated by Linda Cappuccio, rented property in Salem to Red Lulu Salem for the purpose of Red Lulu operating a restaurant there.  However, Red Lulu never opened the restaurant.  In 2012 Strega Realty sued Red Lulu.  That lawsuit settled, with the provision that Red Lulu would vacate the premises by October 31, 2013. 

Red Lulu’s proprietors vandalized the property around the time that they vacated the premises.  Cappuccio informed Raymond Kameras, the president of its insurance brokerage, Allan Insurance. 

Cappuccio and Kameras discussed filing an insurance claim to recover the damage.  They now dispute whether Kameras suggested filing a claim with both Strega Realty’s own policy and with Selective Insurance, Red Lulu’s policy, but  Cappuccio notified only Selective.  Selective denied coverage because its policy excluded coverage for vandalism committed by its insured. 

On November 6, 2015, Cappuccio submitted a claim for the property damage to Public Service.  Public Service issued a reservation of rights letter asserting that Cappuccio had failed to notify the company of the loss within two years.  The policy also had a vandalism exclusion. 

Cappuccio then sued both Public Service and Allan Insurance.  In  Cappuccio v. Public Service Ins. Co., 2020 WL 4581672 (Mass. Super.), the Essex County Superior Court granted both defendants' motionis for summary judgment. 

 

Allan Insurance Company’s motion for summary judgment

                Insurance broker had no duty to secure specific coverage

The court noted that generally an insurance broker is not under a duty to secure a policy that includes adequate coverage for the insured’s needs – but there are circumstances that might create such a duty.  Such circumstances can include a prolonged business relationship, frequent contact between the broker and the insured, and a broker’s advice with respect to the complexity of the policies.  The court held that no special circumstances existed between Cappuccio and Allan Insurance.  They had a new business relationship, there were no complex issues with respect to the coverage she wanted to purchase, and they did not have an in-depth discussion.  Cappuccio told Allan Insurance she wanted to renew her policy, and Allan Insurance did so. 

Cappuccio pointed to statements on Allan Insurance’s website setting forth that its agents were experts and would provide the best policy to fit the customer’s individual needs.  The court held that Cappuccio had offered no evidence that she relied on such statements or was even aware of them. 

The court also held that Cappuccio had offered no evidence of breach of duty.  She did not establish that Allan Insurance could have secured a policy for her that would have covered acts of vandalism by a tenant.               

No damage from failing to advise Cappuccio to file claim with Public Service, because coverage was excluded by the vandalism exclusion

The court also granted summary judgment to Allan Insurance on the claim that it negligently advised Cappuccio not to file her claim with Public Service when she discovered the vandalism.  Allan Insurance denied giving such advice, but argued that even if it had there was no harm because the policy excluded criminal acts by anyone to whom the insured entrusted its property.  The court held that that exclusion unambiguously applied to vandalism by a tenant even after eviction proceedings had begun.

 Public Service’s motion for summary judgment: Notification to broker is not notification to insurer

Cappuccio alleged that Public Service failed to resolve her claim for roughly 3 ½ years after she notified Allan Insurance of the loss, a delay which constituted a bad faith settlement practice. 

Public Service argued that Cappuccio’s notification to Allan Insurance was not a notification to Public Service, and that it was not notified of the loss until more than two years after the occurrence.  The court agreed that notification to the insurance broker did not constitute notification to the insurer, as the undisputed facts showed that Allan Insurance was not an agent of Public Service. 

            Takeaways

                Short limitations period for first-party property damage claims

This case highlights a trap for the unwary: almost all Massachusetts insurance policies have a two year contractual limitations period for first-party property damage claims (a claim filed by the policyholder against its own insurer, not against a tortfeasor or tortfeasor’s insurer).  This limitations period applies to homeowners' policies as well as general liability policies.  Although not made clear by the decision, this is not the time limit for bringing a claim to the attention of the insurance company; it is the period by which a lawsuit against the insurer for breach of the policy must be filed in court.  Unlike with a bad faith settlement practices claim under Mass. Gen. Laws chs. 93A and 176D, the time does not begin running on the date that the policyholder should reasonably know that the insurance company is not adequately adjusting the claim; it begins on the date of loss. This is obviously significantly shorter than the six year statute of limitations that applies to most breach of contract claims. 

Property policies have other quirky provisions, such as the requirement of a reference proceeding – a type of arbitration – for disputes over the amount of loss.  I would advise anyone who has a property damage claim against their own insurer to speak with an attorney who really understands the nitty-gritty of these policies. 

                     Limited duty of insurance broker 

Another issue highlighted by this case is that an insurance broker does not have a general duty to secure a policy that includes, as the court put it,  adequate coverage for the insured’s needs.  That seems counterintuitive – you expect your broker to help you get the policy that you need.  But most policies have standard language and, as the court pointed out, an insurer is unlikely to be willing to negotiate over whether or not a relatively low value policy will include a vandalism exclusion. 

There can, however, be special circumstances when the insurance broker’s duty is expanded.  Those circumstances include a prolonged business relationship with the client, frequent contact between the client and the agent, and when a client relies on the advice of the agent because of the complexity of the policy.  Essentially, as you move into a  higher value policy there is more negotiation between the policyholder (through the broker or a risk management company, generally) and the insurer.