On September 12, 2016, a judge in the United States District Court entered summary judgment in favor of Charter Oak Insurance Company (“Charter Oak”) against Shri Gayatri, LLC (“Shri Gayatri” or “insured”), the owner of a Days Inn hotel in Sturbridge.
In the lawsuit, Shri Gayatri, LLC v. The Charter Oak Fire Insurance Company, Shri Gayatri, sought to recover $600,000 for replacement costs and ordinance and law coverages arising out of the total loss of its hotel in 2011. Additionally, Shri Gayatri sought damages from Charter Oak for breaching its covenant of good faith and fair dealing and for Charter Oak’s alleged unfair claim practices in violation of G.L. c. 93A.
Although the hotel had suffered a total loss, the insured did not receive all the recovery that it might have because of its unexplained delay in providing bills and estimates to the insurance company. The insured also delayed filing for reference and on repairing the property until the allowed two-year policy period to file was about to expire. The court rejected Shri Gayatri’s claim that it was excused because of the delayed payments by Charter Oak. Instead, the court found that much of the delay resulted from Shri Gayatri’s lackadaisical approach to keeping Charter Oak informed.
Hotel a total loss after a tornado in June, a hurricane in August, and out-of-season Northeaster in October
Shri Gayatri’s 38 room hotel operated as a Days Inn franchisee in Sturbridge. Between June and October 2011, three unusual and severe weather events destroyed the hotel and led Shri Gayatri into a protracted claim process, a successful reference proceeding, and an unsuccessful lawsuit with its insurer, Charter Oak.
First, the Springfield tornado: The Springfield tornado of June 1, 2011, went from the western part of the state to just beyond Sturbridge. The tornado’s path went by the hotel owned by Shri Gayatri.
The force of the tornado splintered and uprooted over 40 trees on the hotel property. The falling trees and blowing branches damaged all four buildings relating to the hotel complex. Shri Gayatri immediately notified the hotel’s insurer Charter Oak.
Second, Hurricane Irene: On August 28, the hotel and its property sustained additional damage as the result of the remnants of Hurricane Irene, the seventh-costliest hurricane in United States history.
The torrential rains accompanying that storm’s passage north through Connecticut and Southern Massachusetts dumped vast amounts of water on a property that had not yet been repaired and in parts was unprotected from such a deluge.
After this second weather event, however, Shri Gayatri, did not act with the same alacrity as she had done with the prior tornado claim that was still pending. Charter Oak ultimately, did not learn of the additional water damage until some months later, since for some reason, Shri Gayatri did not immediately report the additional damage to Charter Oak.
Third: The 2011 Halloween nor’easter: Almost unbelievably, on October 29, 2010 the hotel sustained a third separate loss caused by an early severe ice and snow storm that hit the region.
Called the Halloween nor’easter, “Snowtober” and also “Storm Alfred,” the storm was a large low pressure area that produced in parts of Massachusetts winds of up to 70 miles per hour and snow that exceed 30” in depth. The wet snow and ice weighed down and uprooted trees, many of which still retained their leaves, causing extensive power outages and property damage.
After this third weather event, Shri Gayatri, in this case also, did not immediately notify Charter Oak of this third loss. Charter Oak had to find out about it on its own.
Hotel condemned and Days Inn franchise canceled
In December, the Town of Sturbridge’s building inspector condemned Shri Gayatri’s hotel as a total loss because of the damage suffered in the three severe weather incidents of June, August, and October.
Shri Gayatri ended her annus horriblis, 2011, with the Wyndham Hotel Group, the Days Inn franchisor, canceling Shri Gayatri’s Days Inn franchise on December 9, 2011 because of the status of the hotel property.
Tornado loss reported and initial payments made by Charter
Initially, the claim for the tornado damage went according to plan. After Shri Gayatri’s notice of the June 1st tornado loss, Charter Oak sent out adjusters to review the damage. The company subsequently issued two payments dated June 9, 2011 to Shri Gayatri totaling $107,500 as an advance payment on the building loss.
Charter Oak, also retained outside consultants to assist in the evaluation of the loss, including a damage estimator, a structural engineer, a mechanical engineer, a commercial equipment insurance pricing service, and a certified public accountant.
After its first payments in June, Charter Oak issued payments on August 8, 2011 to Shri Gayatri totaling $396,824 for the building and for business personal property losses. By this time, Charter Oak had estimated the full replacement cost of the building loss to be $647,022.21
Shri Gayatri’s public adjuster also had hired an outside damage estimator, who, in early July 2011, estimated the total replacement cost value of $755,200.20. Shri Gayatri, however, never provided this estimate to Charter Oak. Additionally, Shri Gayatri did not contest Charter Oak’s August estimate of the building loss, either in its evaluation of the scope of damages or the cost of making repairs.
Charter Oak learns no repairs in progress and that hotel incurred additional damage
On on November 4, 2011, a Charter Oak adjuster, driving past the hotel, observed that no repairs were in progress. When he followed up with Shri Gayatri’s then public adjuster, Charter Oak learned for the first time that the hotel property had sustained additional damage as a result of the August hurricane and the October northeaster. Also, Charter Oak learned that Shri Gayatri had obtained a replacement cost estimate of $2,195,426 from a hotel construction company. This estimate Shri Gayatri did share with Charter Oak on November 9, 2011.
At the end of November, Charter Oak conducted another inspection of the hotel property with the Gayatri LLC’s representatives to observe the additional damage. The inspection also showed that Shri Gayatri had not made any repairs other than temporary roof covering, initial removal of wet items and other minor remediation with the $509,324.00 Charter Oak had by now paid on the loss.
After this further inspection in late November, Charter Oak issued a revised Statement of Loss based in part on its determination that one of the buildings in the motel complex had become a total loss that had to be demolished and replaced. The revised Statement of Loss set the replacement cost of the building loss to be $1,050,020, with an ACV of $808,478.
Additionally, Charter Oak paid for water damage in various rooms caused by Shri Gayatri having left them vulnerable to the rain and snow damage from the remnants of Hurricane Irene and the October snow storm by failing to adequately protect the hotel buildings from the elements.
Shri Gayatri and Charter Oak continued to swap inspection reports and damage estimates between their respective adjusters and public adjuster to little effect.
Ultimately, Shri Gayatri did not initiate any repairs claiming that it could not start repairs because Charter Oak had not provided enough funds to rebuild the property. The parties eventually reached an impasse and by March 2012, Shri Gayatri requested that Charter Oak exercise its option of the policy to find and engage a contractor to rebuild the property. Charter Oak declined to do so.
Insurer suggest reference on disputed loss but Shri Gayatri delays eight months to file
On August 15, 2012 Charter Oaks’ attorney sent a letter to Shri Gayatri’s attorney stating that “if your client disagrees with the amount of losses determined by Charter Oak, the amount of loss must be submitted to reference in accordance with the policies and the procedures set forth in M.G.L. Ch. 175, §100, et seq.” Shri Gayatri’s attorney replied that “it is Shri Gayatri’s position that reference must be initiated by Shri Gayatri not the insurer, pursuant to the statute.”
The standard Massachusetts policy requires reference be initiated within two years of the loss. However, Shri Gayatri waited another eight months, until April 2013, before Shri Gayatri’s public adjuster finally demanded reference on the claim.
Reference results in substantial award for Shri Gayatri
The reference was held between October 17 and 29, 2013. The memorandum submitted by the public adjuster for Shri Gayatri enclosed a statement of loss with the building loss calculated at $1,894,447.89 with an actual cash value of $1,569,580.57. At the same time Shri Gayatri submitted a claim binder containing voluminous invoices and estimates most of which apparently had not been previously provided to Charter Oak. This included things such as incurred emergency repairs totaling $85,232.77, additional checks for landscaping to almost $23,000.00, cleaning and restoration costs of $14,000.00 and various and sundry other expenses including an estimate for code upgrades totaling $323,451.00, a supply estimate for the furniture and fixtures and equipment, and operating supplies of $305,587.22.
The Reference Award entered on November 4th, with the following awards:
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Reference award schedule for policy losses
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| Damage or loss item | Replacement cost | Actual cash value |
| Building loss and damage: | $1,281,164.35 | $1,053,880.35 |
| Business Personal Property | $97,770.00 | $74,305.50 |
| Appurtenant Building & Structures | $9,811.00 | $7,750.69 |
| Outdoor Property | Excess of policy limit | $10,000.00 |
| Outside Sign | $16,845.20 | $13,307.71 |
| Business Income & Extra Expense | $320,000.00 | |
| Ordinance and Law | $260,000 | |
On December 23, 2013, Charter Oak sent Shri Gayatri a check for $364,243.55, which reflected the difference between what Charter Oak had previously paid Shri Gayatri and the ACV of the loss determined by the reference panel (less the policy deductible).
Charter Oak refused to pay the ordinance or law costs awarded by the reference panel and the difference between the actual value awards and the replacement costs awarded.
On March 3, 2014, Shri Gayatri informed Charter Oak that it had purchased a replacement property at another location in Sturbridge, MA.
The policy did provide that the replacement property could be, “At some other location in the Commonwealth of Massachusetts.” However, the policy also provided no payment for replacement costs would be made, “Unless the repairs or replacement are made within a reasonable time, but no more than 2 years after the loss or damage.”
The actual purchase of the replacement property had taken place on January 14, 2014, more than two years after the loss.
Lawsuit following reference award and payment of balance claimed owed by Charter Oak
After Charter Oak’s denial of any further payments on the loss, Shri Gayatri filed a lawsuit against Charter Oak seeking a court declaration that it was entitled to recover:
- Damages equal to the difference between the replacement cost of the damaged property and the ACV of that property; and
- Damages for the hypothetical cost of the additional expenses it would have incurred to bring a repaired or replaced building up to the current building code standards if it had actually repaired or replaced the damaged property.
- Damages for Charter Oak’s breach of the implied covenant of good faith and fair dealing, and
- Damages for unfair and deceptive trade acts or practices in violation of Chapter 93A.
Delay in payment claim rejected because Shri Gayatri “one step behind” in keeping insurer advised
Charter Oak defended itself on the basis that the policy provided clearly that Shri Gayatri was not entitled to replacement costs or ordinance and law costs unless the damaged property was repaired or replaced within 2 years of the date of the loss.
Shri Gayatri countered by claiming that the repair or replacement of the property within the 2 years of the date was impossible because of the actions or inactions of Charter Oak and, therefore, Charter Oak was estopped from denying coverage for replacement cost and or ordinance cost. Specifically, Shri Gayatri argued that it was unable to timely repair or replace the property because Charter Oak made untimely payments on the claims and provided unduly low estimates of the cost to repair based upon an insurance estimating program.
The court, however, rejected the claim that Charter Oak was estopped because of delay or untimely payments. The Court did note that based on the reference award, Charter Oak had made a “fairly substantial underpayment” to Shri Gayatri on the losses.
Additionally, the Court found that even viewing this evidence in the light most favorable to Shri Gayatri, it failed to produce sufficient evidence that Charter Oak prevented it from satisfying the condition that it had timely repaired and replaced the damaged Property. On the contrary, the Court found that the undisputed evidence establishes that Charter Oak acted reasonably promptly in investigating the loss, providing its estimate and paying the claim.
The Court explained that based on the undisputed evidence Shri Gayatri was always “one or two steps behind” and that much of the delay was attributable to:
- Shri Gayatri’s dissatisfaction with the people it hired to pursue its claim, or
- Shri Gayatri’s lack of communication with its agents handling the claim.
- Shri Gayatri changing public adjuster’s mid-stream and essentially starting the claim process anew.
- Shri Gayatri inexplicably holding checks totaling over $360,000 issued in August 2011, until March 2012, due to his own perception that his lender bank had some concerns.
- Shri Gayatri first furnishing estimates and invoices to Charter Oak during the reference proceedings that occurred some two years after the losses.
- Finally, after being advised by Charter Oak’s attorney of the company’s final estimate of replacement cost and ACV damages, Shri Gayatri’s delayed waited almost a year before demanding reference.
Given the totality of these circumstances, the Court ruled that it could not find that Shri Gayatri’s failure to timely repair or replace the damaged Property was due to any action or inaction on the part of Charter Oak.
The Court then ruled that Shri Gayatri’s delay of more than two years to repair or replace the insured property barred any recovery against Charter Oak notwithstanding the reference award.
