The Case: Chow v. Merrimack Mut. Fire Ins. Co., 83 Mass. App. Ct. 622 (2013)
Why we featured this case:
Water losses from frozen pipes are usually covered losses on property policies. Agency Checklists, however, has seen cases where a specific policy exclusion coupled with some neglect by the insured have resulted in a denied claim. This case might be of interest to Mass. insurance agents because it gives guidance where an insured has a third person acting for him as his agent or as an independent contractor and that person trips the exclusion by his or her negligence.
What You Should Know About This Case:
In 1987, the insured opened Panda Garden, a restaurant located in Northampton. In addition to the restaurant, the insured also purchased a four-bedroom house in Hadley for his own personal use while he got the restaurant operational. After the restaurant was open and established, the insured then moved to New York and let his restaurant manager and restaurant employees use the house as living quarters. By late 2006, the insured began his plans to close the restaurant and possibly reopen it in a new location. The restaurant manager by then had found a new job and moved to another location. The house was then only being intermittently occupied by one or two former restaurant employees.
The insured and his former manager, however, remained on good terms and in the Fall of 2006 the manager had agreed “as a friend” to watch the property and to maintain the internal temperature at 60 degrees during the coming winter. The house was heated exclusively by means of electric baseboard heaters that were operated by thermostats in each room.
By late January 2007, the town building inspector inspected the property based upon a report of visible water damage. The inspector found that the house had been completely flooded as the result of frozen water pipes that had burst. The carpets, furniture, and other items in the house were waterlogged, and ceilings had collapsed. Large icicles protruded from the exterior siding of the house.
The cause of the freezing pipes resulted from the thermostats on the baseboard heating units being turned to the “off” position. After completing his inspection, the building inspector condemned the property.
The insured and owner of the property then filed his claim with Merrimack Mutual Fire Insurance Company citing a total loss of his home. Merrimack denied coverage for the loss, based upon a policy exclusion that stated there was no coverage for any loss caused by:
“freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system … or by discharge, leakage or overflow from within the system or appliance caused by freezing. This exclusion applies only while the dwelling is vacant, unoccupied or being constructed unless you have used reasonable care to:
“(1) maintain heat in the building; or
“(2) shut off the water supply and drain the system and appliances of water”
Merrimack’s denial of liability hinged on its position that the restaurant manager under the informal agreement was acting as the agent for the insured and as a result the negligence of the restaurant manager was imputed to the insured and the exclusion applied.
What the Court said: Judgment reversed for a new trial
The insured’s claim against Merrimack was decided by a jury trial. During the trial the restaurant manager testified, as above, that although he was no longer employed by the restaurant, he was watching out for the property as a friend to the insured. The judge then put the further question to the jury whether the insured was vicariously liable for the negligence of his former restaurant manager in turning off the electric heat. The jury answered yes.
On appeal, the Appeals Court reversed the judgment and sent it back for a new trial based upon the failure of the judge to adequately explain that if the restaurant manager were acting as an independent contractor rather than as an agent of the insured, then the findings should be in favor of the insured. On this question the appeals court found that the judge had not adequately charged the jury as to the issue of the insured’s control over the actions of his former manager. The trial court judge had not asked the jury to determine whether the relationship between the insured and the former restaurant manager was still one of master-servant or whether the manager instead acted as an independent contractor, with regard to his services in agreeing to look after the property on the insured’s behalf.
As such, if the relationship was one where the insured exercised control over the actions of the former restaurant manager, whether formally or informally, then the negligence would be treated as that of a principal and agent and the negligence of the agent would bind the principal, in this case the insured. If, however, the jury found as a matter of fact that the manager was acting on his own as an independent contractor then the lack of reasonable care on the part of the manager would not be imputed to the insured and the insured would recover under the policy.
Agent Takeaways:
- Whether an employer has sufficient control over part of the work of an independent contractor to render him liable … “is a question of fact for the jury.”
- The case held that the term “unoccupied” is not ambiguous and required the jury to evaluate whether the house was being used as a dwelling place at the time of the loss, and whether it was occupied as such.
- This case also reiterated that under an insurance contract if there is a contractually imposed duty to use reasonable care, that duty is tested by reference to ordinary principles of negligence. See our analysis of the French King case for further discussion.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
