On January 8, 2019, Judge Leo T. Sorokin of the United States District Court sitting in Boston entered summary judgment against the Clarendon National Insurance Company (“Clarendon”) in its suit against the Philadelphia Indemnity Insurance Company (“Philadelphia”). Clarendon’s lawsuit sought to have Philadelphia contribute to the costs Clarendon incurred in defending and settling a bodily injury and property damage brought by a condominium owner against these two insurers’ common insured, The Lundgren Management Group (“Lundgren”).
In the suit, Clarendon National Insurance Company v. Philadelphia Indemnity Insurance Company, Judge Sorokin ruled that Philadelphia’s policy issued to Lundgren did not apply because the insuring agreement did not apply to recurring property damage for which Lundgren knew of the damage before the policy’s inception date.
Condominium owner’s suit against real property manager claiming shoddy repairs
Denise Doherty resided at a condominium in the Admiral Hill development of Chelsea for several years, before starting in 2004, the building envelope of the condominium began to have water leaks that “caused ceiling cracks and loosening plaster” in her unit. Ms. Doherty complained to Lundgren, but the leaks were not repaired “in a timely or appropriate manner” despite Ms. Doherty’s repeated requests.
In 2005, rotting was discovered at the threshold to Ms. Doherty’s property. In February 2006, Ms. Doherty discovered further water infiltration and again notified Lundgren. To Ms. Doherty, Lundgren’s repairs for this issue were untimely and inadequate.
On March 10, 2006, after hazardous mold was discovered in Ms. Doherty’s unit, Lundgren hired a mold testing company to investigate. At that time, Lundgren assured Ms. Doherty that the mold would be removed, but it was not. As a result, on September 2, 2008, Ms. Doherty’s doctor ordered her to vacate her unit and not return until the mold was completely remediated, and the water leaks repaired.
Ms. Doherty continued to request Lundgren to effectuate the repairs and remediation work properly, to no avail, and on February 12, 2009, Ms. Doherty brought suit in Suffolk Superior Court against Lundgren and the condominium trust. Her amended complaint sought damages for negligence, nuisance, trespass, misrepresentation, and breach of contract, stemming from the failure of Lundgren as the condominium’s management to make adequate repairs to her unit at 50 Boatswains Way, Chelsea.
In her suit, she claimed damages including severe adverse health effects, loss of personal property, loss of value in the condominium, and loss of income.
Clarendon defends Lundgren under a reservation, but Philadelphia denies liability
Clarendon issued a liability insurance policy to Admirals Flagship Condominium Trust (“Admirals”) for the period of June 24, 2004, through June 24, 2005, in which Lundgren, as the real estate manager, was an insured.
Clarendon accepted the duty to defend under a reservation of rights related to certain allegations concerning mold or fungus but paid for Lundgren’s defense until a 2014 multi-party mediation in which Clarendon contributed at least $40 thousand in settlement funds to resolve the matter and dismiss the lawsuit.
From the beginning of Ms. Doherty’s suit, Clarendon sought to have Philadelphia, which had issued a liability insurance policy to Lundgren for the period of September 1, 2007, through September 1, 2008, to take over the defense or share defense costs.
Clarendon based its claim for Philadelphia to assume or join in the defense costs based upon Ms. Doherty’s amended complaint alleging property damage occurring or continuing to occur as the result of continued exposure to repeated conditions within Philadelphia’s policy period.
Both the Clarendon and the Philadelphia policies contained exclusions for damages caused by mold. Clarendon elected to defend Lundgren under a reservation of rights. Philadelphia, however, disclaimed coverage and refused to defend or contribute to Clarendon’s defense costs based on its policy’s mold exclusion.
In October 2014, as Ms. Doherty’s suit was in a settlement mode, Clarendon made a final demand to Philadelphia claiming that it had a duty to defend based on the rule of law that
On November 3, 2014, Philadelphia issued a response letter denying Clarendon’s claim for contribution.
In its response, Philadelphia did admit that potentially Ms. Doherty’s amended complaint “may be read as alleging ‘property damage’ not barred by the Fungi or Bacteria exclusion.” Still, Philadelphia denied any contribution to Clarendon’s defense costs.
Philadelphia argued the “property damage” alleged in Ms. Doherty’s complaint began prior the inception of its policy and its policy’s insuring agreement restricted coverage to “property damage” the insured was not aware of before the policy’s inception date. Ms. Doherty’s water leakage complaints to Lundgren in the period from 2004 to 2006, made Lundgren aware of the alleged “property damage” prior to the inception of Philadelphia’s policy in 2007. Thus, to Philadelphia, Clarendon’s contribution claim fell outside Philadelphia’s insuring agreement.
Clarendon sues Philadelphia under an assignment of rights for contribution, breach of contract, and unfair claim practices
After Ms. Doherty’s lawsuit settled in November 2014, Clarendon obtained an assignment of rights from Lundgren and filed suit against Philadelphia in Suffolk Superior Court. Clarendon’s three-count suit claimed a right to recover against Philadelphia for contribution, breach of contract, and unfair claim practices under M.G.L. c. 176D and c. 93A.
Philadelphia removed Clarendon’s lawsuit to the United States District Court for Massachusetts sitting in Boston-based upon diversity jurisdiction resulting from it being a foreign insurance company doing business in Massachusetts.
After some discovery, Philadelphia moved for summary judgment alleging that no material facts were in dispute and that it was entitled to a judgment in its favor as a matter of law. Clarendon opposed the summary judgment.
The district court judge’s ruling in favor of Philadelphia
Notwithstanding Clarendon’s arguments, Judge Sorokin went right to what he saw as the decisive policy language.
Philadelphia’s insurance policy provided that Philadelphia would “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” However, the policy condition this grant of coverage “only if. .. [t]he ‘bodily injury’ or ‘property damage’ occurs during the policy period; and… [p]rior to the policy period, no insured…knew that the ‘bodily injury’ or ‘property damage’ had occurred, in whole or in part.”
The critical additional policy language to the judge was that if a named insured or an “authorized employee:”
knew, prior to the policy period, that the ‘bodily injury’ or ‘property damage’ occurred, then any continuation, change, or resumption of such…’property damage’ during or after the policy period will be deemed to have been known prior to the policy period.”
The judge noted it was undisputed that Ms. Doherty’s amended complaint alleged damage that began well before the beginning of Philadelphia’s policy period on September 1, 2007, and that Lundgren had knowledge of this damage including that:
- leaks developed “during the year 2004;” and;
- continued through 2005 and;
- in 2006, the leaks caused hazardous mold;
- Dougherty had notified Lundgren of the leaks on several occasions throughout that period.
Based on these facts, the judge concluded Lundgren indubitably knew of the damage before the policy period began.
Thus, the judge ruled the damages alleged did not fall within the plain terms of Philadelphia’s policy excluding coverage for damage that was known to the insured to have occurred before the policy period began.
Clarendon tried to argue that Ms. Doherty’s complaint could be read to suggest that, although the original leaks were repaired adequately, “new leaks arose due to underlying building envelope issues” during the period of Philadelphia’s policy.
The judge gave this argument short shrift by pointing out that Philadelphia’s policy also excludes coverage for damage that resumes during the policy period if the damage began and was known before Philadelphia’s policy’s inception date.
Thus, Lundgren’s attempts to remediate the damage, even if temporarily successful, which they apparently were not, would not have transformed the recurrence of that same damage into new instances of property damage that would potentially have coverage under Philadelphia’s policy.
Based on this reasoning the judge ruled
Because the damages alleged in Dougherty’s amended complaint are not “reasonably susceptible of an interpretation that they state” a claim covered by Philadelphia’s policy, the suit did not trigger Philadelphia’s duty to defend.”
The judge then entered judgment in favor of Philadephia on all the counts in Clarendon’s complaint.
Thirty days to appeal
Clarendon has thirty days to appeal to the First Circuit Court of Appeals. Based on Judge Sorokin’s reading of the policy language an appeal seems unlikely. However, since Clarendon has come this far, it may wish to get a final word from an appellate court depending on how extensive its defense costs were.