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Mills Construction Corp. v. Nautilus Insurance Co.

United States District Court, D. Massachusetts

March 31, 2019



          Indira Talwani United States District Judge

         The parties in this insurance coverage dispute have filed cross-motions for summary judgment. For the reasons set forth below, Defendant's Motion for Summary Judgment [#21] is GRANTED and Plaintiffs' Motion for Summary Judgment [#25] is DENIED.

         I. Factual Background

         Plaintiffs Mills Construction Corporation, Inc., and its president, Neil Crothers, [1]purchased commercial general liability (“CGL”) insurance from Defendant Nautilus Insurance Company (“Nautilus”). Plaintiffs' Statement of Material Facts (“Pls. SOF”) ¶ 31 [#27]; Defendant's Statement of Material Facts (“Def. SOF”) ¶¶ 18-19 [#23] & Ex. C (Nautilus Policies (“Policies”)) [#23-3].

         In October 2017, Plaintiffs requested defense of a suit brought against them in Superior Court by Collette Sychantha. Pls. SOF ¶ 39 [#27] & Ex. J (Letter to Kym Baldyga, Eastern Ins. Grp. (Oct. 23, 2017)) [#27-5], refiled at Joint Mem., Att. 1 [#42-1][2]; Def. SOF ¶ 1 Ex. A (Sychantha Amended Complaint (“Sychantha Compl.”)) [#23-1], refiled at Joint Mem., Att. 2 [#42-2]. In her complaint, Sychantha alleges that she hired Mills and Crother in June 2014 to “perform construction work to rebuild the Premises” after a November 2013 fire damaged her property. Sychantha Compl. ¶¶ 4-5 [#23-1]. The complaint alleges that Mills and Crother undertook demolition of the “damaged Premises, ” and that during demolition, they damaged the foundation. Id. ¶ 7. The foundation damage allegedly led to delays and required relocating the home. Id. ¶¶ 8-10. The complaint alleges further that once construction started, it “did not proceed smoothly.” Id. ¶ 11. The “many problems with the construction of the home” allegedly included improper construction of various parts of the house, the “exterior deck is not properly supported, ” the “foundation lacks rebar, ” and Mills' failure to complete work. Id. ¶¶ 1-17. Sychantha claimed Breach of Contract, Negligence, Breach of Warranty of Habitability, Negligent Misrepresentations, Negligent Supervision, and violation of Mass. Gen. L. c. 93A. Id. ¶¶ 22-66.

         In November 2017, Nautilus denied Plaintiffs' request for coverage. Def. SOF ¶ 23 Ex. D (Letter to Mills (Nov. 27, 2017)) [#23-4], refiled as Joint Mem., Att. 3 [#42-3]. Notwithstanding the denial, Nautilus requested that Mills “provide for our consideration any additional information or facts you currently have in your possession or may develop in the future that may change our decision regarding coverage of this loss, thereby providing us the opportunity to reconsider our position.” Id. at 13.

         The next month, Plaintiffs again contacted Nautilus requesting coverage. Pls. Reply to Def. Opp. to Pls. Mot. Summ. Judg. (“Reply”) Ex. L (State Court Record, Letter to Kristian Yates, Litigation Specialist, Nautilus Insurance (Dec. 21, 2017)) 63-67 [#34-2], refiled as Joint Mem., Att. 4 [#42-4]. Mills asserted that the foundation damage alleged in Sychantha's complaint was accidental (because Sychantha did not allege intentional or willful conduct) and was not subject to any exclusions (because Mills had not performed work on the foundation prior to the damage, nor was any work intended). Id. at 63-64. Plaintiffs enclosed their original contract with Sychantha, an estimate for repairs from Sychantha's insurance company following the fire, a subcontract between Mills and Assabet Construction Services (“Assabet”), and emails between Sychantha and Crothers describing damage to the property.[3] See Def. SOF Ex. B (Contract with Sychantha (“Contract”)) [#23-2], refiled at Joint Mem., Att. 5 [#42-5]; Pls. SOF Ex. F (Insurance Estimate) 28-60 [#27-1], refiled at Joint Mem., Att. 6 [#42-6]; Pls. SOF Ex. F (Assabet Subcontractor Agreement) 62-63 [#27-1], refiled at Joint Mem., Att. 7 [#42-7].

         Nautilus again disclaimed coverage. Pls. Reply Ex. L. (State Court Record, Letter to Attorney Kennedy, December 28, 2017) 83-86 [#34-2], refiled at Joint Mem., Att. 8 [#42-8].

         Plaintiffs wrote to Nautilus again in January 2018. This request sought to “bring to [Nautilus's] attention certain admissions by [Sychantha]” in the state court action. Pls. Reply Ex. K (Letter to Kristian Yates, Litigation Specialist, Nautilus Insurance (Jan. 18, 2018)) 3 [#34-1], refiled as Joint Mem., Att. 9 [#42-9]. Plaintiffs asserted that Sychantha had admitted in discovery responses that: “[p]rior to the alleged damage to the foundation, [Mills and Crothers] had performed no work on the foundation”; “at the time the foundation was damaged, [Mills and Crothers] or their agents were not performing any actual work on the foundation. Rather, they were performing work and the excavator got too close to the foundation and caused irreparable harm to the foundation[]”; and she “alleges that the alleged damage to the foundation was accidental.” Id. at 3-4. Plaintiffs quoted, but did not enclose, the referenced responses.

         In February 2018, Plaintiffs sent Nautilus a draft of their complaint for declaratory judgment and violations of M.G.L. c. 93A. They enclosed with the draft complaint Sychantha's Responses to Mills' Request for Admissions and Sychantha's Answers to Mills' First Set of Interrogatories. See Def. SOF Ex. E (Req. for Admissions) [#23-5], refiled at Joint Mem., Att. 10 [#42-10]; Pls. SOF Ex. I (First Interr. Resp.) [#27-4], refiled at Joint Mem., Att. 11 [#42-11]. Plaintiffs formally served Nautilus with their complaint and the attached documents on March 1, 2018. Joint Mem. 2 [#42].

         A few months later, Plaintiffs sent Nautilus the affidavit of Neil Crothers. Pls. SOF ¶ 4 [#37] & Ex. F (Affidavit of Neil Crothers) [#27-1], refiled at Joint Mem., Att. 12 [#42-12]. Attached to the affidavit were photographs of work being performed at the Property by individuals who Crothers asserted were not affiliated with Mills Construction, and copies of the previously provided contracts and insurance estimate. Id.

         Finally, Plaintiffs sent Nautilus copies of Sychantha's Supplemental Answers to Mills' First Set of Interrogatories and receipts produced by Sychantha. See Pls. SOF Ex. G (Supp. Interr. Resp.) [#27-2], refiled at Joint Mem., Att. 13 [#42-13]; Pls. SOF Ex. H (Receipts) [#27-3], refiled at Joint Mem., Att. 14 [#42-14]. Sychantha's Supplemental Answers contain her timeline of the events at the Property, and responses to Mills and Crothers' request for information regarding expert witnesses and her Consumer Complaint against Mills.

         II. Standard of Review

         Summary judgment is appropriate only if “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). “A dispute is genuine if the evidence about the fact is such that a reasonable jury could resolve the point in the favor of the non-moving party. A fact is material if it has the potential of determining the outcome of the litigation.” Patco Constr. Co. v. People's United Bank, 684 F.3d 197, 206-07 (1st Cir. 2012) (internal quotation marks and citations omitted). In resolving a motion for summary judgment, the court takes all properly supported evidence in the light most favorable to the non-movant and draws all reasonable inferences in the non-movant's favor. Griggs-Ryan v. Smith, 904 F.2d 112, 115 (1st Cir. 1990). When presented with cross-motions for summary judgment, the court “‘must view each motion, separately,' in the light most favorable to the non-moving party, and draw all reasonable inferences in that party's favor.” OneBeacon Am. Ins. Co. v. Commercial Union Assur. Co. of Canada, 684 F.3d 237, 241 (1st Cir. 2012) (quoting Estate of Hevia v. Portrio Corp., 602 F.3d 34, 40 (1st Cir. 2010)).

         Because this is a matter brought in diversity jurisdiction, the court applies applicable state law to substantive rules of decision. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938).

         III. Duty to Defend

         Plaintiffs seek a declaratory judgment that Nautilus is obligated to defend them against Sychantha's underlying action. Defendant, in turn, seeks declaratory judgment that it is not obligated to defend Mills and Crothers.

         A. The Policies

         In Massachusetts, interpretation of an insurance policy is “a question of law” for the court and therefore appropriate for summary judgment. Essex Ins. Co. v. BloomSouth Flooring Corp., 562 F.3d 399, 403 (1st Cir. 2009). The scope of an insurer's duty to defend is determined by the policy, to which courts apply “familiar rules of contract interpretation.” Sanders v. Phoenix Ins. Co., 843 F.3d 37, 42 (1st Cir. 2016); see also B&T Masonry Constr. Co. v. Pub. Serv. Mut. Ins. Co., 382 F.3d 36, 39 (1st Cir. 2004). Like other contracts, words in insurance policies are given their usual and ordinary meaning, see Hakim v. Mass. Insurers' Insolvency Fund, 424 Mass. 275, 280 (1997). However, any ambiguity in an insurance contract is “resolved against the insurance company that employed them and in favor of the insured.” Cody v. Conn. Gen. Life Ins. Co., 387 Mass. 142, 146 (1982) (quoting August A. Busch & Co. of Mass. v. Liberty Mut. Ins. Co., 339 Mass. 239, 243 (1959)); see also B & T Masonry, 382 F.3d at 39 (“[A]ny ambiguity [that] permeates a policy exclusion . . . must be construed strictly against the insurer.”).

         In relevant part, the Policies cover “sums that the insured becomes legally obligated to pay as damages because of . . . ‘property damage, ”' provided property damage is caused by an “occurrence.”[4] “Property damage” includes “[p]hysical injury to tangible property” and “loss of use” of tangible property.[5] An “occurrence” is defined by the Policies as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Nautilus Insurance Policies, Def. SOF Ex. C, 66-67 [#23-3].

         Courts interpreting similar commercial general liability policies understand an accident as “an unexpected happening without intention or design.” See Friel Luxury Home Const., Inc. v. ProBuilders Specialty Ins. Co. RRG, No. 09-CV-11036-DPW, 2009 WL 5227893, at *5 (D. Mass. Dec. 22, 2009) (collecting cases).

         “General liability coverage is not intended as a guarantee of the insured's work, and for that reason, general liability policies contain ‘business risk' exclusions.” Dorchester Mut. FireIns. Co. v. First Kostas Corp., 49 Mass.App.Ct. 651, 654 (2000), citing Sterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 321-322 (1983). Because the “consequence of not performing properly is a part of every business enterprise, ” business risk exclusions in commercial general liability policies are intended to ensure that the cost of normal business risks are borne by ...

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