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.  

More on Szafarowicz

In my last post I discussed Commerce Ins. Co. v. Szafarowicz, __ N.E.3d __, 2019 WL 4774348 (Mass.), a case in which the SJC upheld the legitimacy of settlement/assignment agreements, but only to the extent that the settlement is reasonable including in light of the available insurance coverage.

A settlement/assignment agreement generally consists of three parts:

1.  The plaintiff and insured defendant agree to a settlement amount.
2.  The plaintiff agrees not to enforce the agreement against the defendant but only against the defendant's insurer.
3.  The defendant assigns his or her own rights against the insurer to the plaintiff.

Unsurprisingly, this case has received a lot of attention. Dennis Wall, a Florida attorney who writes the Claims and Bad Faith Law Blog, posted about it here.    

In his post Dennis asked me, if I understand him correctly, to comment on the courage of the insurer, Commerce, and its attorneys in holding fast in fighting what could have been a multi-million dollar loss far exceeding the policy limit.

In reading the case the first thing that jumped out at me was that the attorneys for all the parties seem to have done a stellar job of protecting and advocating for their client’s interests -- and the trial court and SJC made decisions that showed a broad understanding of the competing interests.  I wrote about how the parties' interests overlapped and diverged in my last post.

As far as the positions that Commerce took, Dennis seems to be implying that there may have been a lot of pressure on Commerce to settle the claim because of the settlement in the underlying case in which both sides agreed that the insured driver had been negligent, and that the damages vastly exceeded the policy limit.

To understand why Commerce resisted the settlement, we need to acknowledge that the primary purpose of the settlement agreement was to get insurance coverage for the loss.  If the insured driver, Matthew Padavano, intentionally struck David Szafarowicz with his vehicle, resulting in David's death, there was no coverage under the policy.  There seemed to be plenty of evidence that Matthew did act intentionally and eventually the trial court so found in the declaratory judgment action.  The settlement agreement providing that  Matthew had acted negligently was an effort to protect the assets of Matthew and his family and to provide insurance funds to David's survivors.  It was not proof, or even evidence, of negligence as opposed to an intentional action.  

The only reason that the case was complicated was because of the weird quirk of the insurance policy that required Commerce to pay interest on the entire amount of the underlying multimillion dollar judgment.  That clause exists to encourage settlements -- but there are times when an insurer is justified in holding firm even in the face of the high risk of a big price tag when it does so.  The policy exclusion for intentional acts -- insurance doesn't pay damages when a policyholder murders someone, for example, which the declaratory judgment trial court found is what happened here -- exists for very good reasons.  I'm terribly sorry for David's family, who have suffered an unimaginable loss.  But insurance simply cannot cover murder, and I applaud Commerce for holding firm on that, despite the fact that ultimately the company would have saved money if it had simply settled the case. 

Superior Court holds that post-arbitration interest of twelve percent applies in context of uninsured and underinsured coverage

In my last post I started discussing the Superior Court case of Meaney v. OneBeacon Ins. Co., 2010 WL 1253600 (Mass. Super.), which concerns post-arbitration interest in the context of uninsured and underinsured motorist coverage.

Judge Neel held that post-award interest in an arbitration case is twelve percent. His reasoning was that two SJC decisions affirmed awards at that rate without addressing whether the rate was appropriate.

Superior Court holds that three year statute of limitations applies to post-arbitration interest on uninsured and underinsured motorist coverage

In Meaney v. OneBeacon Ins. Co., 2010 WL 1253600 (Mass. Super.), brought to my attention by Mike Tracy of Rudolph Friedmann LLP, the plaintiffs sought post-arbitration interest from the defendant insurance companies in the context of uninsured and underinsured motorist coverage. In an earlier decision the Superior Court had ruled that they were entitled to such interest under common law.

In the current decision Judge Neel ruled that, like all 93A claims, the claim for violation of Mass. Gen. Laws ch. 93A was governed by a four year statute of limitations.

The court held that the gist of the common law counts were tort claims, not contract claims, so that the three year statute of limitations for torts applied to them.

Superior Court holds that insured not required to pay interest on recovered artwork

In two recent posts I have discussed Apthorp v. OneBeacon Ins. Co.

Another issue the court discussed with respect to damages was whether the insured was required to pay interest to the insurer. Judge Garsh held that no interest was required. The original agreement between the insurer and the insured stated that the insured would repay only the amount it received if the stolen picture was found. Judge Garsh wrote, "OneBeacon is not entitled unilaterally to rewrite the agreement that the insurer drafted to add a requirement that interest be paid to the insurer from the date of its payment for the loss."