The condo association’s claim comes too late says federal court
On October 11, 2018, a federal Magistrate Judge, Marianne B. Bowler, ordered the entry of final judgment against the Condominium Trust for The Meadows at Mainstone Farm Condominium Trust (The Meadows) on the trust’s $7 million loss claim against a subsidiary of the Greater New York Mutual Insurance Company, Strathmore Insurance (Strathmore), for damages allegedly resulting from ice dams.
The federal court’s decision ruled that The Meadows had missed the two-year statutory on filing suit within two years of the date of loss as required under the Massachusetts mandatory endorsement to fire insurance policies. In its lawsuit. The Meadows at Mainstone Farm Condominium Trust v. Strathmore Insurance Company, The Meadows argued it had filed its property damage claim within the legally allowed time because:
- its claim and subsequent suit were not based on a fire claim and, therefore the standard fire endorsement’s time limit did not apply;
- its discovery of the ice dam damage occurred within two years of its filing suit; a
However, the Magistrate Judge Magistrate found against the arguments of The Meadows that it had filed timely and ruled the two-year requirement to file suit was statutory and did not allow The Meadows to base the time to file suit from its discovery of the damage. The Magistrate Judge also ruled that The Meadows could not avoid the terms of the compulsory endorsement when it was attached to a policy combining coverages.
The Strathmore insurance policy for The Meadows
The Meadows is a condominium complex located in Wayland, Massachusetts with eighteen buildings containing between two to six two-story townhouses in each building. The condominium units that were built between 1998 and 2001 range in living space from 2000 to 4000 square feet.
Effective as of May 28, 2010, Strathmore issued an insurance policy (“the policy”) for general commercial property liability coverage to The Meadows for the period of May 28, 2010, to May 28, 2011.
The first-party property damage coverage limit of liability for the policy was $32 million.
The policy had, as required, the Standard Massachusetts Fire Policy endorsement which, in pertinent part, include the following:
Your policy contains Legal Actions Against Us, Appraisal and Cancellation Provisions. Massachusetts law requires that the Suit, Appraisal and Cancellation Provisions of the Massachusetts Standard Fire Policy supersede any similar provisions contained in your policy. Therefore, all Legal Action Against Us, Appraisal and Cancellation Provisions contained in your policy are void. The Suit, Appraisal and Cancellation Provisions of the Massachusetts Standard Fire Policy shall apply instead.
The endorsement further provided that, as amended, under the policy:
… 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[.] (Emphasis in original decision of the Magistrate Judge)
In addition to the Standard Massachusetts Fire Policy endorsement, the policy contained language that prevents insureds from bringing legal action against Strathmore under the policy unless “[t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred.”
Paid claim for interior damage and $7 million estimate of exterior damage
On February 4, 2011, melting ice and snow caused interior damage to the ceiling, walls, and flooring inside some of The Meadows’ buildings causing damage to the buildings’ interior damage”).
Three days later, The Meadows notified Strathmore of the water damage and hired an expert consultant to assess the damage.
Strathmore’s independent adjuster inspected the interior of the units and observed: “water intrusion caused interior damage to ceiling, walls, and flooring.” According to the adjuster, the water had migrated through the floor and wall cavities to additional finished areas of the two-level townhouses in the complex.
Strathmore estimated the total adjusted replacement cost value was $366,921.42 and issued The Meadows a $150,000.00 advance payment May 2011. In July, The Meadows submitted its sworn statement of proof of loss to Strathmore for $322,194.88. Strathmore issued its check for the balance due for the interior damage of $167,194.88 and closed the claim.
In September 2011, October 2011, March 2012, and June 2012, The Meadows hired and consulted with expert consultants seeking to determine whether the February 2011 ice dams had caused damage to the exterior walls, roofs, and siding of the condominium units to investigate the matter.
After receiving reports from its expert consultants around September 1, 2012, The Meadows estimated the repair costs for the exterior damage to be seven million dollars.
Submission of claim for exterior damage two years after ice dam loss
In late 2012, and early January, The Meadows’ condominium members, discussed “…if it [was] worth putting the insurance company on notice of the possibility of a supplemental claim in case there is damage found under the siding or roofs that can be directly attributed to the previous ice dam claim.”
The Meadows also at this time talked with its insurance agent, Rodman Insurance, about the “merits of filing a supplemental claim related to the large ice dam loss because the contractor had indicated there may be additional damage resulting from that loss.” The agency responded, “At this point I do think it makes sense to file a supplemental claim, and I do not anticipate that it will have an adverse effect on Arbella’s willingness to remain on the account in the future–- especially since there is a large capital improvement project being undertaken to address the roof issues.”
However, it was until April 2, 2013, that The Meadows sent an email to Rodman Insurance Agency stating, “The board would like to investigate opening up a supplemental claim associated with a prior ice dam claim. Can you have adjuster contact me?”
On April 3, 2013, Strathmore’s independent adjuster received a forwarded copy of The Meadows’ email to the Rodman Agency and responded to the agency that the “two-year statute has expired on this claim that occurred on February 4, 2011.”
Strathmore, for its part on the same day, informed Rodman Agency that, “the suit limitation has passed, but that does not preclude the insured from reporting a supplement to their claim.” Strathmore accepted The Meadows supplemental claim under a full reservation of rights and assigned its independent adjuster to investigate. After further investigation, Strathmore denied The Meadows’ supplemental claim.
After Strathmore denied the claim, The Meadows hired legal counsel who requested Strathmore reconsider the denial. Strathmore agreed and issued a new reservation, then entered into a tolling agreement, conducted examinations under oath, requested and received documents. All this activity, however, did not change Strathmore’s opinion of The Meadows’ supplemental $7 million claim.
On November 17, 2016, Strathmore provided The Meadows, through its legal counsel, a 44-page denial letter detailing Strathmore’s basis in denying coverage for the supplemental claim for exterior damage.
A month later, on December 17, 2016, The Meadows filed its lawsuit against Strathmore claiming Strathmore’s declination of coverage constituted a breach of contract.
Strathmore’s motion for summary judgment on two-year suit limitation
After the parties completed discovery, Strathmore moved for summary judgment based on three major points relating to the terms of the insurance policy and the Massachusetts statute applicable to the policy. These points were:
- The applicable limitations period under the policy, required by M.G.L. c. 175, § 99, is two years from the time the loss occurred;
- In Massachusetts, the two-year limitations period in § 99 applies to all claims for first-party property losses; and
- The loss discovery rule, applicable to other types of policies, does not apply first-party property losses;
The Meadows arguments for coverage run up against well-established Massachusetts case law.
The Meadows arguments for coverage run up against well-established Massachusetts case law.
The Meadows argued that the limitations language found in M.G.L. c. 175, § 22 applied to its claim and not the provision found in § 99, of the same chapter. In pertinent part, § 22 states that:
No company and no officer or agent thereof shall make, issue or deliver any policy of insurance or any annuity or pure endowment contract containing any condition, stipulation or agreement. .. limiting the time for commencing actions against it to a period of less than two years from the time when the cause of action accrues. … Any such condition, stipulation or agreement shall be void.
The Meadows submitted that § 22 voided Strathmore’s policy’s limitations period, which wrongly “purports to shorten the time to bring suit to less than the ‘two years from the time when the cause of action accrues.’”
A ruling that The Meadows had two years from when its cause of action accrued would base the two-year period to file suit commencing when The Meadows knew of it had suffered an exterior property loss, and not when the loss occurred.
However, the Magistrate Judge observed there were a number of Massachusetts cases in which insureds tried to use § 22 to challenge the validity of insurance policies that utilize § 99’s shorter suit limitation language. These cases, the Magistrate Judge, noted were almost uniformly unsuccessful.
The judge pointed out that M.G.L. c. 175, § 54F explicitly permits commercial property insurance policies to write additional coverage protections into standard fire insurance policies with the Insurance Commissioner’s permission. However, such policies, under the statute, “may be written only when insurance against the peril of fire is written in the same policy and on forms which have been submitted to and approved by the commissioner.” The Magistrate Judge ruled because § 22 does not void limitations provisions that explicitly follow statutory guidelines, “Strathmore’s reliance on § 99 adheres to the legislative intent behind § 54F.”
The Meadows also argued that because the exterior damage did not result from a fire loss § 99, did not. This argument also failed because Massachusetts case law decisions apply § 99 beyond the narrowly-defined scope of fire losses to a broad range of claims arising from non-fire damages where a policy insuring non-fire risk has the mandatory Massachusetts Standard Fire Policy endorsement attached.
Finally, The Meadows argued that the exterior damage was concealed damage only discovered the exterior damage sometime after February 2011, and, within two years, after Strathmore denied its claim. In effect, The Meadows urged the Magistrate Judge to apply the so-called ‘discovery rule’ which would measure the policy limitation period from when The Meadows reasonably knew of the exterior damage.
The Magistrate Judge cited a 2012 Massachusetts case on point stating that “because the plain language of § 99 uses the ‘unambiguous’ phrase ‘loss occurred,’ the ‘plain language’ of § 99 did ‘not support the application of the discovery rule.’”
To the Magistrate Judge, the plain and unambiguous language of § 99 that “No suit. .. for the recovery of any claim… shall be sustained… unless commenced within two years from the time the loss occurred” left no room for a delay of the accrual of the two-year limitations period under the discovery rule. She ruled that in the context of a denial of an property insurance claim alleging a breach of contract, the term “loss” in § 99 “is the incident ‘causing the damage to the property’ rather than the denial of insurance benefits.’”
Thus, in the Magistrate Judge’s opinion, The Meadows’ breach-of-contract claim was time-barred under § 99’s two-year statute of limitations provision included in the Strathmore policy.
Final judgment for Strathmore with The Meadows having thirty-days to appeal
Based upon Magistrate Judge Bowler’s legal conclusions, she ordered the entry of judgment for Strathmore stating: “The issues having been duly heard and a decision rendered, it is ORDERED and ADJUDGED that The Meadows at Mainstone Farm Condominium Trust take nothing and that this action be dismissed on the merits.
Under the Federal Rules of Civil Procedure, The Meadows will have thirty days to appeal Magistrate Judge Bowler’s decision to the First Circuit Court of Appeals.
Agency Checklists will keep its readers posted.