An August 6, 2015 decision of the Massachusetts Appeals Court reversed a judgment of more than $155,000 dollars which a Worcester company, Moroney Body Works (“Moroney”), had obtained against the Central Insurance Companies (“Central”). Moroney Body Works first brought the lawsuit over a fire loss to a custom-made bookmobile that resulted in Moroney making a claim under its garage policy issued by Pilgrim Insurance (“Pilgrim”) and its commercial property policy issued by Central.
The decision Moroney Body Works, Inc. vs. Central Insurance Companies was, according to the Appeals Court, the first time a Massachusetts Appellate Court has had to address when an insured interests on two different policies were the same under an “other insurance” clause.
Custom-made $150,000 bookmobile suffers fire loss five days before delivery to Beverly Library
As of today, only four library systems in Massachusetts still operate bookmobiles. One of the most successful of these programs, in the town of Beverly, has been run by the Beverly Library system since 1987. During the course of an average year, the Beverly Bookmobile delivers over 66,000 books to children and seniors at nursing homes as well as to other adults who have limited access or capacity to visit the Beverly Library.
After 20 years in use, however, the time eventually came to replace the Beverly bookmobile in operation since 1987. In response, volunteers conducted a successful four-year private fundraising effort to raise the $150,000 necessary to purchase a new custom-made bookmobile.
The Library then selected Moroney Body Works to build and customize the new bookmobile. The company, based in Worcester, has been building custom-made bookmobiles since 1940. Once the new Beverly bookmobile was ordered, it still took Moroney almost a year to complete construction. Five days before the completed bookmobile was to be delivered to the Library, however, an electrical short circuit in a truck parked next to the bookmobile in Moroney’s garage caused a fire that completely destroyed the truck and caused significant damage to the bookmobile.
After inspecting the damage the vehicle, the Library refused to take delivery on the damaged bookmobile and requested that Moroney built a new bookmobile from scratch.
Central Insurance asserts no liability under “other insurance” clause but loses in Superior Court
Moroney made a fire loss claim for the damage to the bookmobile against Pilgrim and for the loss of its value against Central. In making the claim, it asserted that both policies applied to the bookmobile’s fire loss. Pilgrim’s policy provided primary coverage, and Pilgrim agreed that its policy covered the cost of repairing the bookmobile. Pilgrim paid $12,449.82 based on its appraiser’s estimate of the repair costs — an amount Moroney thought inadequate. Central simply denied liability.
“It is generally held that in order for an “other insurance” clause to operate in the insurer’s favor, there must be both an identity of the insured interest and an identity of risk.”
As a result, Moroney sued both insurers. The claims against Pilgrim were resolved when it paid an additional amount which, in combination with Pilgrim’s earlier payment, resulted in Moroney receiving more than the repair costs. Central, on the other hand, persisted in denying liability. Ultimately, Central and Moroney cross-moved for summary judgment, and those motions were decided in favor of Moroney on its breach of contract claim.
The Superior Court found that Central’s policy applied and that Central was liable to Moroney for $126,232.20, the difference between the $30,667.80 that Pilgrim ultimately settled with Moroney under its policy and the original contract price for the bookmobile, $156,900. By statute, an additional $29,258.46 in prejudgment interest was added to bring Moroney’s recovery to approximately $155,000.
Appeals Court finds no liability under Central policy in interpreting “other insurance” clause as an “excess clause”
Central appealed the summary judgment entered against it to the Appeals Court basing its appeal on its policy’s “other insurance” provision that stated:
2. If there is other insurance covering same loss or damage, . . . we will pay only for the amount of covered loss or damage in excess of the amount due from that other insurance, whether you can collect on it or not. But we will not pay more than the applicable limit of insurance” ((Emphasis in original decision).
The Appeals Court’s decision gives a short primer on “other insurance” clauses that were first developed in the real property fire insurance field in order to prevent owners from over-insuring their property (thereby creating a moral hazard). The Court explained that these clauses apply where there are two or more concurrent policies that “insure the same risk and the same interest, for the benefit of the same person, during the same period.” The decision also stated that “It is generally held that in order for an “other insurance” clause to operate in the insurer’s favor, there must be both an identity of the insured interest and an identity of risk.”
The Appeals Court’s decision identified three types of “other insurance” clauses— “pro rata,” “escape,” and “excess” explaining that:
- Pro rata clauses provide that, if other insurance is available to the insured, the policy containing the pro rata clause will contribute to the loss in the proportion that its policy limit bears to the total limit of all available policies.
- Escape clauses provide that, if there is other insurance available to the insured, the policy containing the escape clause will pay no benefits.
- Excess clauses provide that, if there is other insurance available to the insured, the policy containing the excess clause will pay no benefits until such other insurance is exhausted.
The Appeals Court then went on to decide that the “other insurance” clause in Central’s policy made Central’s coverage excess to “the amount due” under the Pilgrim policy if there were, in fact, another insuring policy covering “the same loss or damage.”
Court rules that garage policy and commercial property policy insured the same risk
In applying Central’s “other insurance” clause to Moroney’s claim, the Appeals Court stated that “Our [appellate] cases have not previously addressed what it means for the insured interests of two different policies to be the same.”
The Court then analyzed the Pilgrim policy and the Central policy pointing out that:
- The fact that Pilgrim’s policy was a garage liability policy, and Central’s was a commercial property policy did not mean that Central’s “other insurance” clause would not apply.
- Instead the application of Central’s “other insurance” clause would depend “on the terms of the respective policies.”
- Coverage under the Pilgrim policy provided comprehensive coverage for covered “autos” damaged by fire.
- Covered “autos” under the Pilgrim policy included vehicles owned by Moroney, such as the bookmobile.
- The Central policy covered “direct physical loss of or damage to Covered Property at the premises [Moroney’s location].”
- The “Covered Property” under the Central policy insured Moroney’s business personal property which included “merchandise held in storage or for sale, raw materials and in-process or finished goods.”
Based on the above points, the Appeals panel concluded that even though the two policies used different language each policy insured the same insured’s (Moroney’s) ownership interest in the same property (the bookmobile) against the same risk (fire).
As a result, the Court concluded that Central’s “other insurance” provision applied and that Central’s had no liability to Moroney unless Pilgrim’s policy limit had been exhausted.
The Appeals Court then noted that since it was undisputed that Pilgrim had not paid it full limit of liability the judgment in favor of Moroney’s had to be reversed and judgment entered for Central on Moroney’s claim.
A copy of the decision can be accessed by clicking on this link: Moroney Body Works v. Central Insurance Companies.