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LLC v. American Zurich Insurance Co.

United States District Court, D. Massachusetts

September 4, 2018

689 CHARLES RIVER, LLC, Plaintiff,


          F. Dennis Saylor, IV United States District Judge.

         This is an action seeking defense costs and indemnity from an insurance company, arising out of the defective construction of a home. Jurisdiction is based on diversity of citizenship.

         Plaintiff 689 Charles River, LLC built a single-family home in Needham, Massachusetts. Charles River sold it to non-party Needham Holdings, LLC, which purchased the property on behalf of Steven J. Sands. The home proved to have multiple construction defects. Sands and Needham Holdings later filed a lawsuit against Charles River in Norfolk Superior Court alleging breach of the implied warranty of habitability, fraud and deceit, fraudulent misrepresentation, negligence, and unfair and deceptive business practices in violation of Mass. Gen. Laws. ch. 93A. (C.A. No. 15-0136). Sands's subrogee, Privilege Underwriters Reciprocal Exchange (“PURE”), later filed a second complaint against Charles River in Suffolk Superior Court, alleging damages arising from the same set of facts. (No. 1684CV00962).

         Charles River seeks a declaration from this Court that defendant American Zurich Insurance Company, which issued two insurance policies to Charles River, is obligated to defend and indemnify it in the Sands and PURE lawsuits under the terms of those policies. Zurich has moved for summary judgment. Because the policies do not provide defense and indemnity coverage for third-party claims such as those alleged in the Sands and PURE lawsuits against Charles River, the motion will be granted.

         I. Background

         A. Factual Background[1]

         Zurich issued a Builders' Risk Policy to “689 Charles River Street LLC, ” with a policy period that ran from July 3, 2013, to July 3, 2014. (Def. SMF Ex. 3 at 3).[2] It provided coverage for damage to new construction occurring at 689 Charles River Street, Needham, Massachusetts, up to $850, 000, and included coverage of certain consequential losses, such as debris removal, pollutant clean-up, fire department service charges, and storage of property at a temporary location. (Id. at 3, 5).

         Under the heading “Coverage, ” the policy states as follows: “We will pay for direct physical loss or damage to Covered Property from any Covered Cause of Loss described in this Coverage Form.” (Def. SMF Ex. 3 at 14).

         The policy defines “Covered Property, ” in part, as “[p]roperty which has been installed, or is to be installed in any ‘commercial structure' or any one to four family dwelling . . . includ[ing]: (a) Your property; (b) Property of others for which you are legally responsible; [and] (c) Paving, curbing, fences and outdoor fixtures.” (Def. SMF Ex. 3 at 14). The policy further provides that Zurich “may adjust losses with the owners of lost or damaged property if other than you. If we pay the owners, such payments will satisfy your claim against us for the owners' property. We will not pay the owners more than their financial interest in the Covered Property.” (Def. SMF Ex. 3 at 9). In the next paragraph, it states that Zurich “may elect to defend you against suits arising from claims of owners of property. We will do this at our expense.” (Id.).

         The policy defines “Covered Cause of Loss” as “risk of direct physical loss or damage to Covered Property, except those causes of loss listed in Section B. EXCLUSIONS.” (Id. at 14). The exclusions include “loss or damage caused by or resulting from . . . [d]ishonest or criminal acts by you, any of your partners, employees or leased employees, directors, trustees, authorized representatives or anyone to whom you entrust the property for any purpose, ” (id. at 19), and “loss or damage caused by or resulting from . . . [f]aulty, inadequate or defective: (1) Planning, zoning, development, surveying, siting; (2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; (3) Materials used in repair, construction, renovation or remodeling; or (4) Maintenance of all or part of any Covered Property wherever located, ” (id. at 20).

         Zurich issued a second policy, a Commercial Insurance Policy, to “689 Charles River Street LLC, ” which was to have a policy period extending from July 3, 2014, through July 3, 2015. (Def. SMF Ex. 4 at 35). However, Charles River never paid the premium for that second policy. Presumably, that it is because it sold the house to Sands on July 5, 2014, two days later. (See Def. SMF Ex. 5).

         The Sands lawsuit was filed on October 9, 2015, in Norfolk Superior Court. The second amended complaint seeks damages from Charles River and five individuals for the “spectacularly shoddy and stunningly substandard design and construction” of the house. (Def. SMF Ex. 1 ¶ 1). Among other things, it alleges that the house contained “serious latent defects” caused by “improper design, material, and/or workmanship, ” which combined to make the house “unfit for human habitation.” (Id. Ex. 1 ¶ 23). It alleged that the defects did not manifest themselves until February 2015. (Id. Ex. 1 ¶ 23). The alleged defects included inadequate or wholly missing insulation, improper air filtration, missing joists and structural beams, improper toilet installation, and sealing so poor as to cause “catastrophic water damage to the interior of the Home from typical regional weather such as snow, rain and ice” and “disastrous growth of mold.” (Id. Ex. 1 ¶ 23). The second amended complaint asserted five counts for relief: (1) breach of the implied warranty of habitability; (2) fraud and deceit; (3) fraudulent misrepresentation; (4) negligence; and (5) violation of Mass. Gen. Laws ch. 93A. (Id. Ex. 1 ¶¶ 42-79).

         In December 2015, Charles River submitted a claim to Zurich for defense costs and indemnity for the Sands suit, with a reported loss date of February 15, 2015. Zurich denied coverage on January 7, 2016, and again on April 8, 2016. (Def. SMF Exs. 7 & 8).

         The PURE lawsuit was filed in Suffolk Superior Court on March 22, 2016. It arises from the same operative facts and alleges negligence. (Pl. Opp. Ex. F). It was stayed pending the outcome of the Sands action. (Def. SMF Ex. 2). It is not clear from the exhibits whether Charles River also submitted a claim to Zurich for ...

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