The United States District Court for the District of
Massachusetts has issued an opinion holding that the limit of a condominium
unit owner's loss assessment coverage is the most the unit owner can recover
for a single loss, even if there are multiple assessments in different policy
periods that exceed the limit.
It also held that an insurer who takes an examination under
oath in bad faith may be liable under Mass. Gen. Laws ch. 93A for treble the
attorney's fees and costs incurred in defending the EUO.
Fire at a condominium building, loss assessments to unit owners, and insurance coverage for loss assessments
Abigail Brennan owned a condominium unit in a building that
was damaged by a fire in June 2017. She was insured by
Metropolitan. At that time the policy had a "loss assessment
coverage" that provided that Met would pay the first $1000 of any
assessment to unit owners by the condominium association. The loss
assessment coverage clause provided that Met would pay the limit “for your
share of any loss assessment charged during the policy period.” It also
provided, “Regardless of the number of assessments, the limit referenced above
is the most we will pay with respect to any one loss.”
On July 15, 2017, Metropolitan renewed the policy. During the term of this policy, on February 8, 2018, Met agreed to increase Brennan’s loss assessment coverage from $1000 to $50,000 for a premium increase of $10 per year.
In July 2018 Metropolitan renewed the policy again, keeping
the $50,000 in loss assessment coverage. On February 20, 2019, the
management company for the condominium informed Brennan of a loss assessment of
$84,124 for the losses sustained in the 2017 fire. She submitted the
claim for loss assessment coverage on or around May 2, 2019. Met approved
the claim after six months and paid her a $50,000 benefit. Met stated the
six months was necessary to investigate whether Brennan knew she would receive
an assessment prior to obtaining increased loss assessment coverage in February
2018. If she did, coverage would be voided as a known loss.
On May 29, 2020 Brennan received a second loss assessment for
the 2017 fire damage, this one for $75,000. She submitted a claim to Met,
who denied it on the ground that the policy limited coverage to $50,000 for any
one loss and she had already received $50,000 related to the 2017 fire through
the first loss assessment.
Brennan argued that the loss assessment limit reset with
each policy term, so she was entitled to collect an additional $50,000.
United States District Court for District of Massachusetts holds that policyholder is entitled to only one payment of policy limit, even though there were assessments for the loss in different policy periods
In Brennan v. Metropolitan Property & Casualty Insurance
Company, 2022 WL 1652275 (D. Mass.) (unpublished), the United States
District Court for the District of Massachusetts presumed that the purpose of a
policy provision purporting to limit an insurer’s coverage obligation to a
certain amount regardless of the number of loss assessments is to limit the
insurer’s obligation to pay no more than that amount, regardless of the overall
total value of the loss assessments, or when the assessments were
imposed. A different interpretation would allow an insured to recover
unlimited benefits for a single loss. In addition, different unit owners
might receive different insurance amounts based solely on when the loss
assessments were charged compared to their policy periods.
The court noted that “contract interpretation depends
heavily on context and proceeds on the presumption that the parties were trying
to accomplish something rational. . . . Common sense is as much a
part of contract interpretation as is the dictionary or the arsenal of
canons. Thus a contract should be interpreted in a manner that avoids absurd
results and gives it effect as a rational business instrument.”
The court held that, applying such common sense, the $50,000
limitation must be read as the limit for a single loss, regardless of the
number of assessments across policy periods. (I wonder what the result
would be if Brennan had switched carriers between the two assessments. Or if the first loss assessment was when the coverage was $1000, and the
second assessment was after the coverage had increased to
Court denies summary judgment to Metropolitan on allegation
that it acted in bad faith in adjusting the claim for the first loss assessment
Brennan alleged that Met engaged in unfair settlement practices in its handling of the first and second loss assessments. The court granted Met summary judgment with respect to the second loss assessment. In a somewhat damning opinion the court denied summary judgment to Met on the first loss assessment.
With respect to the first loss assessment, Brennan alleged that Met had engaged in an unfair delay in an effort to avoid paying her more than $1000. Met argued that it was entitled to investigate whether Brennan had knowledge of a likely assessment prior to increasing her loss assessment coverage. If she had such knowledge coverage would not be available.
The court did not disagree that Metropolitan had the right to investigate whether Brennan had knowledge that the assessment would be made prior to raising her claim limit. But the court pointed out that there were facts in the record indicating that that was not its primary concern.
Those facts included that Metropolitan first maintained that Brennan had only $1000 in coverage rather than $50,000; failed to respond promptly to Brennan’s inquiries; went back and forth on whether its legal department had rendered an opinion on her claim; asked for documents from her that it should have already possessed and were in some cases of questionable relevance; and waited three months to demand an examination under oath, a demand which may have reflected an effort by Metropolitan to avoid paying her claim.
The court held that a reasonable fact-finder could conclude that the examination under oath was not based on concerns over Brennan's knowledge of a likely assessment, but rather reflected a last-ditch effort by Met to avoid paying her claim after its legal department had concluded Met was otherwise obligated to pay $50,000.
Court holds that legal fees incurred in defending examination under oath taken in bad faith may be actual 93A damages that can be trebled
Met argued that Brennan suffered no cognizable injury under
93A where it ultimately paid her full claim on the first loss assessment.
Brennan alleged that she was compelled to hire an attorney and incur legal fees
and costs associated with producing over 400 documents to Met as a result of
being forced to undergo the examination under oath. She also alleged she
had to take out a loan to pay the first loss assessment. The court noted
that her legal fees may be treated as actual damages.
On my soapbox
Every claims handler should read and understand this decision. It stands for the proposition that adjusting a loss is not a game in which the insurer should use whatever methods they can find to avoid paying the full value of a claim, even when they know the claim is covered and the amount of loss is not disputed. The consequences of failing to abide by that principle may be full damages under Mass. Gen. Laws ch. 93A, including the trebling of attorney's fees in the underlying case.