United States District Court for District of Massachusetts holds that insurer breached ch. 93A by denying fire coverage for new homeowner because she had not yet moved into her house

Fire at house homeowner had just purchased and not yet moved into

Awilda Pimental closed on a new home on June 28, 2022.  She purchased a homeowner's policy from AmGuard Insurance Company that went into effect on the closing date, that included coverage for fire losses.

On July 22, 2022, before Pimental moved into her house, a fire significantly damaged it.  

Policy's definition of residence premises, and denial of coverage

The policy provided coverage for the "residence premises," which it defined as the "dwelling where you reside."  An endorsement to the policy amended the definition to "the dwelling where you reside . . . on the inception date of the policy period." The term "reside" was not defined by the policy.  (The decision did not address that the declarations page of the policy almost certainly would have listed the address as the residence premises or the insured location or similar language.)  

AmGuard denied Pimental's claim on the ground that she did not reside on the premises at the time of the fire, as she had not yet moved in.  

U.S. District Court holds that the insurer's interpretation of policy was not plausible, and was a 93A violation

In Awilda Pimental v. AmGuard Ins. Co., the United States District Court for the District of Massachusetts held that there were "multiple problems" with AmGuard's position.

First, according to the court, coverage applied to the dwelling where Pimental resided on the inception date of the policy, not the date she moved her belongings in and set up a household.  The inception date was June 28.  AmGuard ignored the "inception date" language entirely. 

Second, the policy had a vacancy exclusion that excluded coverage if the property was vacant for more than 60 consecutive days.   According to the court, that meant that a homeowner had 60 days from the closing date to move in before the vacancy exclusion applied.  AmGuard's position rendered the exclusion a nullity.  

The court pointed out that if AmGuard's position prevailed, there would never be insurance coverage between the day of a closing and the day the purchaser moves in sometime after that. "No reasonable purchaser of a new homeowner's policy would anticipate that gaping hole in her insurance coverage."  Moreover, under AmGuard's position coverage would never attach at all because the purchaser of a home does not reside in the home on the date of purchase, the inception date of the policy.  

The court held that the policy should be interpreted "sensibly" -- that it covered the dwelling beginning on the closing date, provided that the insured purchased the property intending it as her residence, and did not wait more than 60 days to move in. 

The court further held that AmGuard's interpretation of the policy was not plausible, and was therefore a violation of Mass. Gen. Laws ch. 93A.  However, the violation was not knowing or willful, so multiple damages were not awarded.  

My take 

In my view the decision was results-oriented.  The word "reside," for example, does not strike me as ambiguous.  Coverage was not illusory, because there would be circumstances where the coverage would come into play under the insurer's interpretation -- but not, as the court pointed out, for a new homeowner.  For that reason the court was correct that its interpretiation was "sensible" -- it would indeed by absurd for there to be no property coverage between the closing date and the date the homebuyer moves in.  

60 Minutes report on fraud by Florida homeowners insurers following Hurricane Ian two years ago

Here's the link:  

Supreme Judicial Court of Massachusetts holds that term "surface waters" in policy is ambiguous, so does not apply to water on surface of a roof

Sure, Steward Health Care has created a public health care emergency, but at least it has prevailed in an insurance coverage dispute. 

A storm in June 2020 caused an accumulation of rainwater on a rooftop courtyard and on roofs of Norwood Hospital. The rainwater seeped into the interior of the hospital buildings, causing significant damage.

Norwood Hospital's owner, Medical Properties Trust, Inc., which is insured by Zurich, and Steward, the hospital's operator, insured by AGLIC, sought coverage from their respective insurers.  

Both policies had sublimits (meaning, limited coverage) for damage caused by "Flood," which the policies defined as "a general and temporary condition of partial or complete inundation of normally dry land areas or structures caused by the unusual and rapid accumulation or runoff of surface waters." 

The insurers and insureds disagreed about whether water that accumulated on roofs and infiltrated the buildings was "surface water" and therefore subject to the flood sublimits rather than the higher policy limits.  

The insureds argued that the plain meaning of "surface waters" is waters at ground level or on a ground-level surface -- waters on the surface of the earth.  The insurers argued that the phrase means waters accumulating naturally on any surface whether or not at ground level.

In Zurich Am. Ins. Co. v. Medical Properties Trust, Inc., __ N.E.3d __, 2024 WL 3504060 (Mass. 2024), the Supreme Judicial Court of Massachusetts held that the meaning of "surface waters," and therefore of "Flood," under the policies is ambiguous with respect to accumulation of rainwater on roofs.  As ambiguous terms are interpreted in favor of policyholders, the court held that there was coverage for the loss.  

Even Whitey Bulger's crimes end in insurance coverage disputes: Town of Braintree sues multiple insurance carriers for coverage for wrongful conviction claim by man framed by Bulger

 

On May 24, 2024, the Town of Braintree filed a lawsuit in Suffolk County Superior Court against fifteen insurers, as well as insurance companies Does 1 though 50, for refusing to defend and indemnify it in a massive wrongful conviction lawsuit.

The Town alleges that the insurers have each either refused to acknowledge or outright denied their contractual obligations under liability policies issued to the Town over the course of nearly four decades for claims that the Town is liable for the wrongful conviction and 36 year imprisonment of Frederick Weichel.  Weichel has sued the Town in federal court and has demanded tens of millions of dollars in damages. 

The complaint summarizes Weichel's allegations:  In 1980, Robert LaMonica was murdered in the Town.  The Town police investigated.  A composite sketch from details provided by a witness bore a likeness to a convicted murderer named Rocco Balliro, who had failed to return from a prison furlough.  A police report, the "Leahy report," containing this information was stored by the town in a "Basement Archive" and was not turned over to the prosecutors, Mr. Weichel, or Mr. Weichel's defense counsel.  

Mr. Weichel was convicted of the murder in 1981.  He alleges that if the Leahy report had been produced he would not have been convicted.  He was sentenced to life without the possibility of parole, and spent over 36 years in prison.  In 2017, after he obtained the Leahy Report and moved for a new trial, he was released and all charges against him were dropped.  In a 2018 lawsuit against the Commonwealth, a jury found that Mr. Weichel had been innocent of the murder.  

Mr. Weichel sued the Town, alleging that it had a continuing obligation to disclose disculpatory evidence throughout the entire period between 1980 and 2017, and that it was deliberately indifferent to, and breached, that duty throughout his incarceration.  He alleges that he suffered bodily injury and personal injury during each year of his incarceration.  

During these years the defendant insurers had issued law enforcement, general liability, and umbrella policies to the Town.  Most of the insurers have refused to defend and indemnify the Town.  According to the complaint, some of the insurers have asserted that the events that led to Mr. Weichel's injury took place in 1980, and therefore the only applicable insurance coverage would be a 1980 policy.

The Town asserts that the Weichel lawsuit is a "paradigmatic example of the claims that the Town's liability policies were supposed to protect it against: a suit seeking tens of millions of dollars in damages, brought against the Town by an individual who accuses the Town, its police officers, and its other managers and officials, of being responsible for his bodily injury and personal injury foreseeably resulting from him having spent thirty-six years in prison for a crime he did not commit."  

It's interesting that the complaint (as well as Weichel's complaint in federal court) does not mention his claim that he was framed by Whitey Bulger.   

Insurance Claims for Damage to Buildings in Massachusetts (my new brochure)

THE LIFECYCLE OF A MASSACHUSETTS PROPERTY DAMAGE CLAIM

• The property damage occurs.
  
  
• The insured submits the claim to the insurer.
  
  
• The insured chooses and retains a public adjuster.

The role of the public adjuster: to determine all applicable coverages under the insurance policy, prepare estimates, and advocate with the insurer over the amount of loss.

The public adjuster is paid by contingency fee, typically ten percent of the amount recovered.

• The insurer may raise defenses to coverage.  If so, the insured should hire an attorney immediately.  The public adjuster is not an attorney and cannot argue with the insurer about coverage issues. 
  
  
• If there is no dispute over coverage, there will usually be back and forth between the public adjuster and the insurer about the amount of loss. 
  
  
• If the public adjuster/insured and the insurer cannot agree over the amount of loss, the case goes to a reference proceeding. 
  
  
• A reference proceeding is similar to an arbitration, with three referees who decide the amount of loss based on evidence submitted by both sides.
  
  

THE INSURED SHOULD CONSULT WITH AN ATTORNEY:

• At any time, to answer questions about the process and whether the claim seems to be proceeding on track. 
  
  
• If the public adjuster advises the insured to consult with an attorney.
  
  
• If the insurer raises defenses to coverage.
  
  
• If the public adjuster and the insurer are unable to agree on the amount of loss.
  
  
• If the insurer has demanded a reference proceeding or the public adjuster advises the insured that a reference proceeding is necessary.
  
  
• If the loss occurred 18 months ago and the claim remains open.
  
  

Important:  The statute of limitations on property damage claims in Massachusetts is generally two years, but if you wait until close to two years to hire an attorney you can lose crucial rights.

HOW A PUBLIC ADJUSTER AND ATTORNEY WORK TOGETHER:

• If the insurer raises defenses to coverage, the attorney will take the lead.
  
  
• If the public adjuster and insurer are in the negotiating phase, the public adjuster will take the lead.  The attorney will be available to answer questions from both the insured and the public adjuster, and to provide advice, usually behind the scenes. 
  
  
• If the public adjuster and insurer are unable to agree on the amount of loss, the public adjuster and attorney will work closely together.  The attorney will draft formal “demand letters” to the insurer, prepare the case for a reference proceeding, and represent the insured at the reference proceeding.  The public adjuster will support claims about the amount of loss, will prepare or help prepare exhibits, and will be an expert witness at the reference proceeding.
  
  

TYPES OF COVERAGE IN MOST POLICIES

• Building damage
  
  
• Other structures 
  
  
• Personal property
  
  
• Loss of use / additional living expenses (residential) / business interruption (lost profits) (commercial)
  
  
• Code upgrades
  
  
• Mold
  
  
• Additional coverages such as landscaping, etc.
  
  

Special issues in condominium buildings:

• The master policy is issued to the condominium trust and provides coverage for common elements of the building (for example, the roof and common areas).
  
  
• The unit-owners policy (often called the HO-6 policy) provides coverage for the interior of a unit.
  
  
• Different master policies and unit-owners’ policies have different definitions of common elements.
  
  
• In condominiums, a unit-owners’ personal property and loss of use is typically covered by their unit-owner’s policy, not by the master policy. 
  
  
• Insurance proceeds from the master policy are disbursed to the condominium trust. 

VOCABULARY

• Actual cash value (ACV): 
  The value of an item on the date of loss.  This is paid immediately.
  
  
• Replacement cost value (RCV): 
  The cost to replace an item.  
  
  
• Depreciation:
  The difference between ACV and RCV,  This is paid upon completion of the work or when the item is replaced.
  
  
• Code upgrades: 
  The cost to bring a building in line with current state and local building code requirements.  This is paid upon completion.
  
  

Material presented in this brochure is for informational purposes only. It is not intended as professional advice and should not be construed as such. Unless and until you enter into a formal agreement with Attorney Kallen, she is not your attorney and you do not have an attorney-client relationship with her.

Let me Introduce Myself!

I have been an attorney in Massachusetts since 1994. I practice in general litigation and focus on insurance coverage and bad faith issues. I am available to assist claimants and insureds who have a dispute over property, homeowners, general liability, motor vehicle, and other insurance policies.

You can learn more about me on my website: www.kallenlawyer.com

 

40 FLORIAN STREET
ROSLINDALE, MA 02131
Phone: (617) 363-0547
nkallen@kallenlawyer.com
www.kallenlawyer.com

 Blog: 
Insurance Coverage Law in Massachusetts
http://insurancecoveragemassachusetts.blogspot.com

A video primer on the duties of an insurer to defend and indemnify

Welcome to my video.  

Fall River District Court allows claim against insurer's vehicle appraiser

 

Source One Financial Corporation sued Commerce Insurance Company and its adjuster in a dispute arising out of the value of a totaled vehicle.  Source One sought to amend the complaint by adding Commerce's vehicle appraiser and her company as defendants, asserting that they exceeded their authority as appraisers and worked with Commerce to artificially suppress the value of the totaled vehicle.

Commerce opposed the motion on the ground that the claim against the appraiser should be addressed through an administrative remedy before the Automobile Damage Appraiser Licensing Board.

In a decision and order on Source One's motion to amend the complaint in Source One Financial Corp. v. Commerce Ins. Co., Fall River District Court No. 23CV0369 (December 4, 2023), the Fall River District Court allowed Source One to amend the complaint.  The court held, "although there may be an administrative procedure available to resolve complaints against appraisers, the plaintiff need not choose that avenue to remedy his complaints."  

First Circuit holds that under clear Massachusetts precedent, an insurer cannot ordinarily seek reimbursement of settlement funds after a later finding of no duty to indemnify

 

I am pleased to say that reason has prevailed in the First Circuit.  

I am generally pretty sanguine about insurance coverage decisions (except on my own cases, of course). I might disagree with the outcomes, but . . . the vagaries of the court system, yada yada yada.

But every once in a great while I come across a decision that I have to read several times before I believe that my eyes aren't skipping over a "not" that would allow the decision to make sense.  The decisions of the United States District Court for the District of Massachusetts in Berkley Nat'l Ins. Co. v. Granite Telecommunications LLC, 594 F. Supp.3d 233 (D. Mass. 2022) (Berkley I) and 617 F.Supp. 3d 77 (2022) (Berkley II) were such decisions.

         THE UNDERLYING FACTS

The underlying facts, as described by the U.S. District Court in Berkley I, are straightforward.  Granite Telecommunications operated at a building owned by Atlantic-Newport Realty.  Sewage backed up into the building, resulting in underlying plaintiff Stephen Papsis suffering a serious infection.  He sued.  Granite and Atlantic-Newport sought coverage under a policy issued by Berkley National Insurance Company.

The Berkley policy had an exclusion for bodily injury "that would not have occurred, in whole or in part, but for . . . contact with . . . any fungi or bacteria on or within a building or structure." 

Berkley undertook the defense and eventually proposed that settlement in the Papsis lawsuit be jointly funded by Berkley and the insureds.  The insureds' attorney sent an email to Berkley stating that Berkley had a statutory obligation under Mass. Gen. Laws ch. 176D to cover the cost of settlement, and threatened to sue Berkley if it did not agree to wholly fund the settlement.  Berkley agreed, but reserved its right to subsequently deny coverage and seek reimbursement.  Berkley paid the settlement and sued the insureds in federal court for reimbursement.

BERKLEY I: U.S. DISTRICT COURT  DENIES MOTION FOR JUDGMENT ON THE PLEADINGS BY THE DEFENDANT INSUREDS

In Berkley I, the District Court denied the insureds' motion for judgment on the pleadings.  The court  distinguished the facts from the facts in Medical Malpractice Joint Underwriting Ass'n of Mass. v. Goldberg, 425 Mass. 46 (1997), in which the SJC held that where an insurer had settled without informing the insured of the settlement or obtaining the consent of the insured to later seek reimbursement from it, the insurer had no right to seek reimbursement.

The District Court held that the situation before it was different, because the insureds had participated in the settlement discussions.

Then -- and I remember my eyes rolling so hard I thought they might get lost in my head when I read this decision when it came out two years ago (but also, I have nothing but admiration for the work of the attorney who obtained this decision for Berkley) -- the court continued, "More importantly, defendants' actions in coercing [yes, coercing] Berkley to pay the full settlement essentially left Berkley without the viable options that were available to [insurer] JUA in Goldberg" -- essentially, the option of asking the insured for an agreement that it would reimburse the insurer if the insurer's coverage position prevailed.

Here -- and get ready for a thousand tiny violins to play for the poor insurer -- "defendants attempted to foreclose those options to Berkley by threatening legal action if Berkley sought to pursue them.  Indeed, defendants' counsel portentously [what a word] warned Berkley in an email that '[s]hould [it] fail to make settlement offers in line with defense counsel's recommendations and/or make unreasonable demands on the defendants to fund a portion of any settlement themselves, Berkley National will be risking significant exposure under ch. 176D.'  In effect, defendants 'whipsawed' Berkley into exercising its only feasible option: paying the full settlement amount and maintaining its unilateral reservation of rights to seek reimbursement."  The court concluded that it would be "fundamentally unfair" to strip the insurer facing such a predicament of any legal recourse.

Okay, deep breath.

Berkley had options.  If it was convinced of its coverage position, it could have refused to defend the case, or it could have refused to settle until a declaratory judgment action on coverage was resolved.  Or, it could have refused to settle unless the insureds agreed that if Berkley eventually won on coverage they would reimburse the settlement amount to Berkley.  Keep in mind, if an insurer takes a plausible position on coverage that ultimately loses, it is not liable for breach of chs. 93A or 176D.  So the only time an insurer will find itself in a difficult situation is when it refuses to settle on the basis of a coverage defense that is not plausible. 

The idea that absolutely standard posturing by the insureds somehow placed Berkley in an untenable position is absurd. 

BERKLEY II: U.S. DISTRICT COURT GRANTS SUMMARY JUDGMENT TO BERKLEY

In Berkley II, the court granted summary judgment to Berkley on the coverage issues and its claim for reimbursement.  On coverage, the court held that the Papsis lawsuit fell within the policy's bacteria exclusion, so that Berkley had no duty to defend or indemnify the insureds in the that lawsuit. 

Then, applying the theory of equitable restitution, the court held that the insureds should reasonably have expected Berkley to seek reimbursement from them pursuant to its reservation of rights.  Again, "Berkley was effectively forced by defendants to pay for the cost of defending and settling the Papsis lawsuit because defendants threatened to sue Berkley if it did not do so." 

FIRST CIRCUIT REVERSES, PROVING THAT THERE IS HOPE FOR THE WORLD

In Berkley Nat'l Ins. Co. v. Atlantic-Newport Realty LLC, __ F.4 __, 2024 WL 723978 (1st. Cir. 2024), the First Circuit reversed both District Court decisions.  It held that Goldberg was not distinguishable.  Reframing that case slightly differently than the District Court had done, the First Circuit noted that Goldberg held that an insurer can seek reimbursement of a settlement from an insured only (1) if the insured had agreed that the insurer may commit the insurer's own funds to a reasonable settlement with the right later to seek reimbursement from the insured; (2) the insured agreed to pay the settlement; or (3) the insurer had notified the insured of a reasonable settlement offer and given the insured an opportunity to accept the offer or to assume its own defense. 

The First Circuit held that none of those circumstances were present. It rejected Berkley's argument that the presence of the insureds at settlement negotiations was sufficient to distinguish Goldberg.  It also rejected Berkley's attempts to hold that a case discussing the rights of a disability insurer overturned Goldberg, a liability insurance case.

The First Circuit left open the possibility that under Massachusetts law if an insurer properly reserves its rights to seek reimbursement of defense costs, it may be able to seek such reimbursement after a finding that the insurer never had a duty to defend. 

 

Introducing my assistant, Nikki Payne

If you’ve worked with me over the past year then you’ve likely had an opportunity to meet my assistant, Nikki Payne.  Nikki is the first point of contact a new client has with my office.  She walks you through my process, helps you with paperwork, and answers your initial questions.  As the case progresses she helps keep the case on track by gathering and often conducting the first review of documents, coordinating schedules, and tracking down recalcitrant opposing attorneys for dates and discovery.   

Nikki is a former licensed property/casualty insurance agent. She is also a certified Washington State Legal Secretary.  She worked as the assistant to the general counsel and his staff at a nuclear power plant in Washington State, and has extensive conference management work both locally and internationally.  And for a while she essentially ran the small town of Tensed (pronounced Ten-sed), Idaho.

Why Tensed?  Did I mention Nikki is my virtual assistant?  In a miracle of modern technology, Nikki works for me here in Massachusetts while residing in Idaho. 

Other than making sure that my clients get the best representation they can possibly have, Nikki’s passion is animal rescue.  She and her husband own and operate a ranch, TN Funny Farm, on what she tells me is 217 acres of pure bliss.  They currently raise low-line Angus cattle, Nigerian dwarf goats, and Rambouillet sheep.  They have two Jersey cows, Lailani and Roxie, who they milk-share with their calves and make butter, cheese and ice cream. Their large flock of feathered fowl includes a variety of laying hens, Malaysian Serama chickens, Muscovy ducks, Bourbon red turkeys, and Guinee fowl.  They also raise crops in their garden, and in the summer you can find them at farmers markets.  

Nikki loves to hike and forage for mushrooms, medicinal plants, herbs, fruits and berries.  She makes  tinctures and herbal remedies and salves. When there is an opportunity to take a little R&R she enjoys reading a good mystery or romance novel. 

If you are ever in Northern Idaho and crave fresh eggs or want to hug a cow or cuddle a chicken, Nikki can help you out.