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Clarendon National Insurance Co. v. Philadelphia Indemnity Insurance Co.

United States District Court, D. Massachusetts

January 8, 2019



          Leo T. Sorokin United States District Judge.

         On November 29, 2017, plaintiff Clarendon National Insurance Company (“Clarendon”) filed suit in Suffolk Superior Court against defendant Philadelphia Indemnity Insurance Company (“Philadelphia”), claiming damages arising from Philadelphia's denial of coverage under an insurance policy issued to Lundgren Management Group, Inc. (“Lundgren”), whom Clarendon had also insured, in a 2009 Suffolk Superior Court suit. Doc. No. 1-3. On December 21, 2017, Philadelphia removed the case to this Court. Doc. No. 1. The parties agreed to phased discovery that would be initially “limited to the discre[te] question of whether [Philadelphia] had a duty to defend Clarendon's insured” in the 2009 suit. Doc. No. 13 at 2, 14. Now that the first phase of discovery has concluded, pending before the Court is Philadelphia's motion for summary judgment, Doc. No. 16.

         I. BACKGROUND

         Clarendon issued a liability insurance policy to Admirals Flagship Condominium Trust (“Admirals”) for the period of June 24, 2004 through June 24, 2005, in which Lundgren was an insured. Doc. No. 28 ¶ 1.[1] Philadelphia issued a liability insurance policy to Lundgren for the period of September 1, 2007 through September 1, 2008. Doc. No. 18 ¶ 1.

         On February 12, 2009, Denise Dougherty brought suit in Suffolk Superior Court against Lundgren, Admirals, and others, amending her complaint on or about April 29, 2009. Doc. No. 28 ¶ 3; Doc. No. 19-2. The amended complaint sought damages for negligence, nuisance, trespass, misrepresentation, and breach of contract, stemming from the failure of Dougherty's condominium's management to make adequate repairs to her unit at 50 Boatswains Way, Chelsea. See generally Doc. No. 19-2. The amended complaint alleged that Admirals owned the common areas of 50 Boatswains Way, while Lundgren managed them. Id. ¶¶ 12, 14. The complaint alleged that leaks had developed in the condominium unit's roof area “during the year 2004.” Id. ¶ 16. It alleged that those leaks “caused ceiling cracks and loosening plaster, ” which was not repaired “in a timely or appropriate manner” despite Dougherty's requests. Id. ¶ 17. These issues continued in 2005 and 2006, and on March 10, 2006, hazardous mold was discovered in the unit. Id. ¶¶ 18-23. According to the amended complaint, although Lundgren told Dougherty the leaks and mold would be remediated, repair efforts were unsuccessful. Id. ¶¶ 24-26. Finally, on September 2, 2008, Dougherty's doctor ordered her to vacate the unit until the mold was eliminated and the leaks repaired. Id. ¶ 27. The complaint alleges that these events led to severe adverse health effects, loss of personal property, loss of value in the condominium, and loss of income for Dougherty. Id. ¶ 29.

         On June 30, 2009, counsel for Lundgren and Admirals tendered the defense of the amended complaint to Philadelphia, Doc. No. 18 ¶ 3. Philadelphia declined it by letter on July 24, 2009. Id. ¶ 4. Acknowledging that Dougherty's complaint “allege[d] water leaks that began in year 2004 which caused mold, ” Philadelphia's letter stated that its policy did not cover the damages sought in Dougherty's suit. Doc. No. 19-3 at 9. The letter offered several justifications for this claim, including that the suit contained “no allegations that occurred within [Philadelphia's] policy period” and that “the policy specifically exclude[d] ‘property damage' to property owned (common elements) and any damages that result from ‘fungi' as defined in the policy.” Id. at 15. However, because Philadelphia “believe[d the] matter [was] so clearly outside the scope of the Policy, ” it did “not raise[] other defenses to coverage which may be applicable and reserve[d its] right to raise other such” defenses later. Id.

         On October 7, 2014, Clarendon issued another demand to Philadelphia through North American Risk Services (“NARS”), Clarendon's third-party administrator. Doc. No. 28 ¶ 20; Doc. No. 18 ¶¶ 6-7. The letter argued that, while Philadelphia had no responsibility to indemnify its insureds for damages caused by mold, it did have a duty to defend against Dougherty's suit “for personal property damage possibly caused by water alone.” Doc. No. 19-3 at 17. Because the damages in Dougherty's suit could have included some compensation awarded solely for water damage, the letter claimed, Philadelphia “had a duty to defend the matter and indemnify for personal property damage” caused by water alone and therefore owed “a pro rata share of the defense costs related to” Dougherty's suit. Id. at 23. On November 3, 2014, Philadelphia responded to NARS by letter. Doc. No. 18 ¶ 8. This letter again denied that Philadelphia had a duty to defend against Dougherty's suit, reiterating that the “‘property damage' is alleged to have occurred prior to the inception of [Philadelphia's] policy” and therefore was not covered. Doc. No. 19-3 at 26.

         Dougherty's lawsuit ended in settlement in October or November 2014.[2] On March 17, 2015, Clarendon obtained authority from Lundgren to bring claims against Philadelphia arising from the Dougherty suit. Doc. No. 28 ¶ 23.


         The Court applies the familiar summary judgment standard. Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The Court is “obliged to view the record in the light most favorable to the nonmoving party, and to draw all reasonable inferences in the nonmoving party's favor.” LeBlanc v. Great Am. Ins. Co., 6 F.3d 836, 841 (1st Cir. 1993). Even so, the Court must ignore “conclusory allegations, improbable inferences, and unsupported speculation.” Sullivan v. City of Springfield, 561 F.3d 7, 14 (1st Cir. 2009).

         In an insurance dispute such as this one, “[t]he insured has the initial burden of proving that a loss falls within the policy's description of covered risks, ” after which it becomes “the insurer's burden to show the applicability of a particular exclusion.” New Fed Mortg. Corp. v. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa., 543 F.3d 7, 11 (1st Cir. 2008). At that point, settled law instructs that (1) “[e]xclusions from coverage are to be strictly construed” and that (2) “[a]ny ambiguity in the somewhat complicated exclusions must be construed against the insurer.” Mt. Airy Ins. Co. v. Greenbaum, 127 F.3d 15, 19 (1st Cir. 1997) (quoting Sterilite Corp. v. Continental Cas. Co., 458 N.E.2d 338, 342 n.10 (Mass. App. Ct. 1983)); see also Utica Mut. Ins. Co. v. Herbert H. Landry Ins. Agency, Inc., 820 F.3d 36, 42 (1st Cir. 2016) (noting that the rule of construing an insurance policy in favor of the insured “applies with particular force to exclusionary provisions” (quoting Metropolitan Prop. & Cas. Ins. Co. v. Morrison, 460 Mass. 352, 363 (2011))). Settled law also advises that “every word must be presumed to have been employed with a purpose and must be given effect whenever practicable.” Metropolitan, 460 Mass. at 362 (internal citation and formatting omitted).


         Philadelphia's insurance policy provided that Philadelphia would “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury' or ‘property damage' to which this insurance applies.” Doc. No. 19-1 at 60. But it further provided that such coverage would apply “only if . . . [t]he ‘bodily injury' or ‘property damage' occurs during the policy period; and . . . [p]rior to the policy period, no insured . . . knew that the ‘bodily injury' or ‘property damage' had occurred, in whole or in part.” Id. “If such a listed insured or authorized ‘employee' knew, prior to the policy period, that the ‘bodily injury' or ‘property damage' occurred, then any continuation, change, or resumption of such ‘bodily injury' or ‘property damage' during or after the policy period will be deemed to have been known prior to the policy period.” Id. “‘Bodily injury' or ‘property damage' will be deemed to have been known to have occurred at the earliest time when any insured, ” or authorized employee thereof, “[b]ecomes aware . . . that ‘bodily injury' or ‘property damage' has occurred or has begun to occur.” Id.

         Dougherty's amended complaint alleges damage that began well before the beginning of Philadelphia's policy period on September 1, 2007. The complaint alleges that leaks developed “during the year 2004, ” Doc. No. 19-2 ¶ 16, and continued through 2005 and 2006, developing into hazardous mold. Id. ¶¶ 18-23. It also specifically alleges that Dougherty notified Lundgren of the leaks on several occasions throughout that period. Id. ΒΆΒΆ 17, 24-26. Lundgren therefore had knowledge of the damage before the policy period began. ...

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