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. 

 

Kenmore Army Navy Store added to list of businesses seeking business interruption coverage for Covid-19 losses

 

The Kenmore Army Navy Store (which is located in Downtown Crossing, several MBTA stops away from Kenmore), has sued Travelers Casualty Insurance Company of America in the United States District Court for the District of Massachusetts.  Like so many other businesses, the Army Navy store seeks business interruption coverage for losses from the coronavirus pandemic.  

The store alleges that the policy Travelers issued has the usual coverage for "direct physical loss."  It alleges that the direct physical loss from the pandemic is "the property being damaged, access to the property being denied, customers being prevented from physically occupying the property, the property being physically uninhabitable by customers, the function of the property being nearly eliminated or destroyed, and/or a suspension of business operations occurring at the property." 

The store also alleges that the policy has no applicable exclusions -- meaning, presumably, that the policy does not contain a virus exclusion.  If that's correct, that's one legal hurdle the store does not have to jump over.

The store alleges breach of contract and, in what seems to me to be a bit of a stretch, breach of the covenant of good faith and fair dealing and of Mass. Gen. Laws ch, 93A.    

Judicial Panel on Multidistrict Litigation rejects bid to centralize all federal lawsuits seeking coverage for business interruption losses caused by Covid-19 pandemic

 

 Law360 provides in-depth coverage of the decision here.   

Be nice to your adjusters!

I get it.  You have suffered a catastrophic event.  You are seriously injured, or your house burned down,  or you have made a mistake that you are worried has put your career in jeopardy.  You have faithfully paid your insurance premiums and you don't understand why your insurer is giving you a hard time, or not moving quickly enough.

A word of advice:  Be nice to your insurance adjusters.

Be polite to them.  Be calm when communicating with them. Say thank you. 

Don't vent on them.

I work with adjusters from both sides.  I represent policyholders and claimants seeking coverage.  I also represent insurance companies and get hired by insurers to represent policyholders.  From both perspectives I have known many adjusters who have the highest professional standards and who work hard to resolve claims quickly and fairly.  I've also known adjuster who are poorly trained and overworked and who let their unhappiness with their job situation seep into how they handle claims.

But one thing all adjusters have in common: they are human.

Yes, they are required by law to use good faith in adjusting losses, and there are penalties to the insurer if they fail to do so.

But you know what?  Every adjuster will treat you better if you are pleasant to them.  That doesn't mean that they will overvalue your claim, or find liability when there is none.  And if you are rude to them they will not necessarily undervalue your claim or purposefully give you a harder time.

But they are human.  Remember that they are going through the Coronavirus pandemic too.  They may have kids at home.  They may have elderly parents they are worried about, or have their own health problems.

Be pleasant to them.  Then (politely) document your interactions with them so that you have a record.  If you can't resolve the claim, turn your documentation over to the attorney you will hire.  If there was bad faith, the lawyer will have that fight for you.  That's our job.