On October 5, 2015, the Appeals Court denied an insured any recovery for a major water loss because the policyholder filed suit nine days after the two year statute of limitations had expired. This two year statute of limitations is required in most Massachusetts property policies by the state statute G.L. c. 175, § 99.
The decision, Karl Nurse v. Omega US Insurance, is the first time that a Massachusetts appellate court addressed the question of whether the so-called “discovery rule” should be applied to insurance claims under policies subject to c. 175, § 99. The policyholder argued that the court should apply the discovery rule to his water damage claim in order to render his suit timely, since he allegedly could not have discovered or reasonably known about the damage until nine days after the actual loss.
In a case of first impression, the Appeals Court ruled that the discovery rule did not apply to insurance policies that had the standard fire insurance provision required by G.L. c. 175, § 99.
Policy Provisions contained statutory two-year limitation on bringing suit
The case arose over a water loss to a three-unit residence located at 294 Shawmut Avenue in Boston (“property”). The property was insured under a dwelling policy issued by Omega for the period from April 27, 2009, to April 27, 2010.
Mr. Nurse had informed Omega that the property would be vacant for the purpose of rehabbing the building’s units during the policy’s coverage period. As a result, the policy included additional provisions.
The first being a condition requiring Mr. Nurse to either shut off the building’s water supply and blow out all internal plumbing, or ensure that the heating system was set to at least fifty-five degrees (55º F). The second provision required by Omega was that Mr. Nurse inspect the vacant property per a provision that stated:
You, or a responsible adult appointed by you, must inspect the dwelling on a weekly basis to ensure that there are no visible signs of loss or damage to the insured property…
Finally, the policy had the following mandatory statutory provision as does all Massachusetts policies that provide or include fire coverage for real property in accordance with G. L. c. 175, § 99,
No suit or action against this company for the recovery of any claim by virtue of this policy shall be sustained in any court of law or equity in this Commonwealth unless commenced within two years from the time the loss occurred.
Broken pipe in sink spewing water goes undetected for nine days
In December 2009, during the policy period, the water supply to the third-floor unit of the property was still active because of the ongoing construction work at the property.
The days of December 17 and 18, 2009, were cold days where the high temperatures only reached twenty-six (26º F) and twenty-eight (28º F) degrees, respectively. December 19, 2009, was a little warmer but with temperatures that still only reached thirty-two degrees (32º F).
Between December 17th and December 18th, 2009, the property had used approximately fifteen (15) cubic feet of water. On December 19, 2019, the water usage at the property increased dramatically. Beginning in the afternoon of December 19th, the property’s water usage spiked to approximately two hundred sixty (260) cubic feet every six (6) hours.
On December 28, 2009, the Boston Water & Sewer Commission notified Mr. Nurse about the spike in water usage at the property. When Mr. Nurse visited the property that day he shut off the water after he had discovered a soldered joint in copper piping that supplied water to the third-floor kitchen sink had failed. Before shutting off of the water on December 28th, however, more than eight thousand (8,000) cubic feet of water had been released into the property causing the building to have substantial water damage.
Immediately thereafter, Mr. Nurse filed an insurance claim with Omega. After a year of investigation, Omega formally denied coverage on January 14, 2011.
We see no basis for extending the discovery rule to insurance cases governed by § 99
Omega’s denial was based, in part, on the electricity usage records from the property’s three units. Those records indicated that the heating systems did not operate during the relevant time period, although water was being furnished to the property. Additionally, Omega claims that Mr. Nurse had violated the inspection condition.
Mr. Nurse did not take immediate action against Omega’s denial. Instead, he waited the full two years from the date he discovered the water damage, December 28, 2009, to file suit in the Superior Court against Omega on December 28, 2011.
Superior Court rules two year limitation is fixed to date of loss without regard to discovery date of the damage
In the response to Mr. Nurse’s suit, Omega moved for summary judgment in Superior Court on three alternative grounds. Those three alternative grounds alleged:
(1) Mr. Nurse’s claim was barred by the applicable statute of limitations,
(2) Mr. Nurse failed to meet the conditions precedent for coverage (maintaining heat), and
(3) Omega has demonstrated the applicability of a policy exclusion (inspection).
Mr. Nurse opposed parts two and three of the motion for summary judgment interposing factual questions regarding the maintenance of the heat and the inspection of the premises. He claimed that he had entered the premises to inspect it on December 21, 2009 and saw no water damage although his inspection only involved his entering the front hallway and not inspecting the third-floor unit where the leak had occurred. Additionally, Mr. Nurse also claimed that he left an electric space heater in the front hallway of the property to maintain a minimum level of heating. This heating unit, as alleged by Mr. Nurse, was on a separate electrical circuit from any of the residential units, and was therefore not taken into account in Omega’s investigation and subsequent denial of coverage.
Upon review, the Superior Court elected not to reach any of the questions raised by Omega as to the policies condition precedent or exclusion. Instead, the Superior Court focused on the applicable statute of limitations under G.L. c. 175, §99.
The Superior Court noted that it was undisputed that the leak that caused the damage occurred on December 19, 2009. As such, the suit filed on December 28, 2011, was as a matter of fact beyond the statutory period allowed by G.L. c. 175, §99. The Superior Court judge further found that the statute focused on the actual date of the policy loss without regard to when it was discovered. Accordingly, the Superior Court judge entered summary judgment for Omega.
Mr. Nurse appealed this adverse decision of the Superior Court to the Appeals Court.
Appeals Court refuses to extend discovery rule to insurance claims governed by G.L. c. 175, §99
On appeal, Mr. Nurse argued that the date the Superior Court should have used in determining when the two year statute of limitations required by §99 began to run was not the date the loss actually occurred but the date he discovered the damage.
In fact, Massachusetts courts have for number of years applied the so-called “discovery rule.” The discovery rule as applied finds the statute of limitations does not begin to run until the claimant discovers, or reasonably should have discovered the loss or damage. In some cases, the discovery rule can extend in a statute of limitations case far beyond the statutory period that would be otherwise allowed for bringing an action.
In the instant case, however, the Appeals Court stated that the prior decisions of Massachusetts courts involving the discovery rule had all related to claims that had limitation periods that began to run out when the cause of action “accrued.” The purpose of the discovery rule, according to the Appeals Court, was for “determining when a cause of action accrues.”
For example, one of the original cases on the discovery rule cited in the Nurse decision involved purchasers of real property, who did not learn for many years that the lawyer they hired had overlooked an easement of record and a defect in their title. The Supreme Judicial Court held that the statute of limitations for their cause of action for negligent misrepresentation did not accrue against the attorney when that attorney made the alleged error but instead only accrued when “they knew or should have known” of the attorneys negligent title search.
Here, however, the Appeals Court stated that the plain language of the statute (G.L. c. 175, §99) required a determination of when the “loss occurred” as opposed to “the more nuanced determination of when a cause of action accrues.” Although, G.L. c. 175, §99 does not provide any additional definition of what constitutes “loss” for purposes of the statute of limitations, the Appeals Court found that Massachusetts courts have consistently viewed the word “loss” as meaning “the incident that causes damage to the property.”
As a result, the Appeals Court affirmed the decision of the Superior Court in favor of Omega and against Mr. Nurse ruling:
We see no basis for extending the discovery rule to insurance cases governed by G.L. c. 175, §99. Unlike the situations where the discovery rule was initially applied…the damage here was not ‘inherently unknowable.’
Copy of decision
A copy of the decision can be accessed by clicking on this link: Nurse v. Omega US Insurance