Massachusetts Appeals Court gives sensible interpretation of contractual interest statute

 

Certain Underwrites of Lloyd's London issued a builder's risk policy to Historic Round Hill Summit covering two buildings, Rogers Hall and Hubbard Hall, that Historic had purchased to renovate.  PeoplesBank, which held an mortgage on the property, was an additional insured under a mortgage holder endorsement.  

A fire destroyed Rogers Hall and caused extensive damage to Hubbard Hall.  Lloyd's asserted that the damage to Hubbard Hall was not covered because it was occupied by tenants at the time of the fire.  PeoplesBank argued that it was entitled to coverage for the loss, even if Historic was not. In June 2018 it submitted a proof of loss to Lloyd's seeking $2.8 million.  Lloyd's rejected the claim, on the basis that PeoplesBank could not submit a claim independent of Historic's claim.  PeopleBanks sued, and the trial judge found that Lloyd's was obligated to cover the loss.  

On April 27, 2021, the parties entered a stipulation that the cost to repair the damage was $2,274,194.07, exclusive of work performed by a contractor, Complete Restoration Solutions (CRS), as Historic was disputing CRS's bills.  Historic and CRS eventually settled, after which Lloyd's and PeoplesBank stipulated that the fair value of the work done by CRS was $236,000.  

PeoplesBank sought prejudgment interest from July 3, 2018, the date Lloyd's had denied coverage to it.  Lloyd's asserted that interest should run from 30 days after the date of the stipulations, under a policy provision that stated:

We will pay or make good any "loss" covered under this Coverage Part within 30 days after:

1.    We reach an agreement with you;

2.    The entry of final judgment; or

3.    The filing of an appraisal award. 

In PeoplesBank v. Certain Underwrites at Lloyd's London, 105 Mass. App. Ct. 476 (2025), the Massachusetts Appeals Court interpreted the dispute under Mass. Gen. Laws ch. 231 §6C, which provides for interest for breach of contract from the date of the breach.  The court held that Lloyd's owed interest from the date it denied coverage, except that interest on the CRS payments was due from the date payment was made to CRS.  That was because the amount sought, except for the CRS payments, had already been paid before Lloyds denied coverage.  Prejudgment interest would not result in a windfall to PeoplesBank and failure to award it would result in a windfall to Lloyd's, which had use of the money it had owed to PeoplesBank.  Absent Lloyd's breach of contract, it would have paid the amount due at the time of the demand.  Lloyd's could not rely on the contractual payment provision when it had breached the contract.  Interest was due for the CRS payment from the date payment was made to CRS, because otherwise PeoplesBank would receive a windfall -- interest on funds that it had not paid.