On March 13, 2019, the Appeals Court reversed and remanded to the Superior Court a summary judgment decision finding the Arbella Insurance Group (“Arbella”) had no liability on a reach and apply action brought by a husband and wife who had obtained a $1,000,0000 default judgment against Arbella’s insureds under successive homeowners policies.
The Appeals Court decision, Timothy Creamer et ux. v. Arbella Insurance Group, Inc., arose from a home purchase where Mr. and Mrs. Creamer purchased the Danvers property of Walter and Joan Mercer (“Mercers”). The day after the Creamers closed on the house they discovered a long-standing oil leak under a rug in the basement.
When the Creamers sued the Mercers for the damages including the environmental cleanup costs, alleging misrepresentation and statutory liability. The Mercers did not defend the suit but instead filed for bankruptcy.
The Mercers’ had several years of homeowners policies with Arbella up to the time the Creamers bought the property. Arbella denied coverage asserting the Creamers claim against its insureds was for deceit and negligent misrepresentation and not for an “occurrence” covered by Arbella’s homeowners’ policy.
The Creamers eventually obtained a default judgment against the Mercers for over $1,000,00 and filed suit in Superior Court to reach and apply Arbella’s homeowners’ policies to the judgment. The Superior Court granted summary judgment in favor of Arbella essentially ruling, as Arbella had argued, the cause of the Creamers’ oil cleanup costs was the prior homeowners’ concealment of the oil spill, As such, concealment did not qualify as an “occurrence” under Arbella’s policy.
On appeal, the Appeals Court ruled the oil leak itself constituted an “occurrence” covered by the insuring agreement in Arbella’s policies. The Appeals Court reversed the judgment in favor of Arbella but remanded the case to the Superior Court for trial. The Appeals Court ruled that a question of fact existed as to whether the oil leak damages were “expected or intended” from the viewpoint of the Mercers and therefore excluded under Arbella’s policies.
Home buyers find oil spill in the basement the day after purchasing home
On October 28, 2005, Timothy and Stacy Creamer purchased a residential property located in Danvers from Walter and Joan Mercer. The following day, October 29, the Creamers smelled oil in the house and traced the smell to the basement. In the basement, they lifted some rugs covering parts of the floor and found heating oil had permeated the concrete floors.
The Massachusetts Department of Environmental Protection was promptly notified of the contamination and issued Notices of Responsibility to both the Creamers and the Mercers under M.G.L. c. 21E.
An investigation found that a heating oil fuel line running along the home’s foundation had been leaking over an extended period. This leak caused the contamination of the house’s foundation, the ground beneath the foundation, the groundwater, and posed an imminent threat of migrating to adjoining property.
The Mercers’ heating oil supply company installed a new heating oil fuel line in approximately 1995, and the suspicion was the oil leak might have existed from prior to that date up to the Mercers’ sale of the house to the Creamers on October 28, 2005.
The house for which the Creamers had paid $380,000 was condemned and torn down. The land under the house was then subjected to extensive remediation to remove the contaminated soil. The homeowner insurer for the Creamers participated in paying for the remediation of the property; however, neither the Mercers nor Arbella contributed in any way to the assessment or remediation of the Property. After the completion of the home’s remediation, the Creamers sold the now vacant lot for $190,000.
Suit for damages against the Mercers for not disclosing oil leakage
On May 29, 2008, The Creamers filed suit against the Mercers and the heating oil company that had installed the oil line in 1995. Eventually, another heating oil company and the real estate brokers for the sale became involved in the suit as third-party defendants.
The Creamers suit alleged against the Mercers were liable for deceit in concealing the hazardous oil spill in connection with the sale of their house, and response cost under M.G.L. c. 21E, as an owner responsible for the oil spill. The Creamers also sued all defendants for negligence.
The Mercers never responded or answered the Creamers, and soon after the suit commenced, they filed for bankruptcy.
The injury, in other words, derives from the initial, accidental release of the oil—which is an ‘occurrence’ under the policy—and not any later acts of misconduct committed by the sellers.”
Arbella for its part, on June 23, 2009, declined to defend or indemnify the Mercers claiming no coverage for the loss or the Mercers’ actions.
After several years of litigation, the Creamers received $200,000 for third-party settlements exclusive of the Mercers. On October 23, 2013, the Creamers obtained an execution for $1,062,205.62 against the Mercers based on a default judgment awarding $623,270.81 in damages with the balance prejudgment interest and costs.
Since the bankruptcy court had discharged the Mercers from personal liability to the Creamers, the only assets available to the Creamers for levying their execution were the Arbella homeowner policies.
The Creamers seek to reach and apply to their million-dollar judgment against Arbella’s homeowners’ policies
The Mercers’ homeowners’ policy initially covered the period from July 15, 2003, to July 15, 2004. The policy was renewed twice on July 15, 2004, and July 15, 2005. The policy terminated upon the sale of the property on October 28, 2005. Each policy period had a liability limit of $500,000.00.
On March 28, 2014, the Creamers initiated an action Timothy Creamer and Stacy Creamer v. Arbella Insurance Group, Essex Superior Court, Civil Action No. 1477CV00544 (“the Apply Action”), seeking a declaratory judgment as to the insurance coverage under Arbella’s policies with the Mercers.
The Mercers’ discharge in bankruptcy did not prevent the Creamers from suing Arbella for the indemnity limits under the Mercers’ policies alleging rights under M.G.L. c. 214, § 3(9). This statute provides that claimants who obtain judgments against insureds may sue in Superior Court to “reach and apply the obligation of an insurance company to a judgment debtor [insured] under…[any] policy insuring a judgment debtor against liability for loss or damage on account of bodily injury or… damage to property, in satisfaction of a judgment covered by such policy…”
The question in the Superior Court on the suit to reach and apply the Mercers’ policies with Arbella was whether the Creamers’ default judgment was “covered by such polic[ies].”
Superior Court finds no “occurrence” triggered Arbella’s coverage
The Creamers and Arbella filed cross-motions for summary judgment. Arbella in its motion for summary judgment, like the Creamers, argued to the court that since there were no material facts in dispute, and Arbella was entitled to judgment as a matter of law. The main arguments Arbella put forward were that:
- The parties were bound by the facts alleged in the Creamers’ complaint that resulted in the default judgment and that this complaint alleged intentional conduct rather than negligent conduct by Arbella’s insureds;
- The Creamers’ claim for “Strict liability,” under G.L. c. 21E for environmental response costs and site cleanup did not create any duty to indemnify because the source of the injury was intentional misconduct by Arbella’s insureds;
- The Creamers complaint established that the damages caused by the oil contamination had to have been expected or intended damages from the viewpoint of Arbella’s insureds and as such, were excluded causes under Arbella’s policies; and,
- The allegations in the Creamers’ complaint did not state events that were an “occurrence” indemnifiable under Arbella’ policies because there was not, as defined in the policies, “an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in… ‘Property Damage.’”
After a hearing, the Superior Court denied the Creamers’ motion and allowed Arbella’s motion. The Superior Court accepted Arbella’s position that the liability of the Mercers under the Creamers complaint was based upon the concealment of the oil spill rather than for the oil spills that had occurred before they purchased the property. Therefore, the Creamers’ claims were not covered under Arbella’s policies.
Appeals Court finds coverage unless Arbella can prove “expected” or “intended” loss exclusion applies
The Creamers appealed the Superior Court decision to the Appeals Court.
On appeal, Arbella again argued that the source of the Creamers’ injury was the concealment of the spill and not the spills themselves that had occurred before they purchased the property. However, in this case, the Appeals Court disagreed.
They addressed three arguments that Arbella made on appeal:
- No loss occurred during the policy period
- The source of the Creamers’ injury was the Mercers’ concealment of the spill, which is not an “occurrence” [accident] within the meaning of the policy; and
- The property damage was “expected or intended” by the sellers and is thus excluded from coverage.
On the first argument, the judges found that the initial release of oil was accidental and that under Massachusetts law the ‘occurrence’ is the ‘injurious exposure’ to the hazardous material during the policy periods.”.
The judge is further noted that the Creamers’ complaint did allege the spill caused “damage to [the Creamers’] real and personal property.” Since Arbella had not defended the complaint against the Mercers, it was bound by this allegation of property damage having occurred. Also, under Massachusetts law, the judges noted that “when a release of hazardous material results in property damage, as we must accept that it has here, ‘cleanup costs’ constitute ‘damages within the policy language.’”
On the second argument the judges rejected Arbella’s contention that the only source of the Creamers’ injury was “the intervening concealment of the spill by the sellers.” The judges did agree, in part with Arbella that the deceit and misrepresentation claims in the Creamers’ complaint alleged intentional conduct uncovered under Arbella’s policies.
However, the judges found the environmental damage claim was “a strict liability statute (M.G.L. c. 21E) that imposes responsibility on the basis of status and does not require a showing of fault.” Under section 5 of that statute, the Mercers were liable for property damage “without regard to fault.”
Based on that principle of law, the Appeals Court ruled
Thus, the [Creamers] have incurred damages under c. 21E regardless whether the sellers deceived or misled them into purchasing the property. The injury, in other words, derives from the initial, accidental release of the oil—which is an ‘occurrence’ under the policy—and not any later acts of misconduct committed by the sellers.”
On Arbella’s third argument, the judges did agree with Arbella that when the Mercers first discovered the spill, they must have known to a substantial certainty that property damage would result and therefore, “From that point forward, therefore, any further property damage was ‘expected,’ if not ‘intended,’ by the sellers.”
The problem for Arbella, in the judges’ opinion, however, was that the summary judgment record from the Superior Court did not establish when the sellers discovered the spill or whether the period of concealment caused additional or increased property damage. The Creamers’ complaint alleged the oil leaked “over an extended period of time,” and that the sellers knew about the spill prior to the sale of the property. But there was no evidence in the complaint or otherwise as to the date of the Mercers discovered the leak.
This lack of evidence, the judges ruled, created “a genuine issue of material fact” for trial. As a result, they found that “[A] remand is required for a determination of what portion of the plaintiffs’ c. 21E damages falls outside the exclusion.” The Appeals Court final order was:
For the above reasons, we vacate the judgment and remand for further proceedings consistent with this opinion
In any proceedings in the Superior Court to determine the date the Mercers discovered the leak, the Appeals Court ruling pointed out that since the ‘expected’ or ‘intended’ language appeared in an exclusion to the policies, Arbella would have the burden of proof on remand.
Arbella denied reconsideration and files for further appellate review filed
On March 27, 2019, Arbella filed a motion for reconsideration or modification of the Appeals Court panel’s decision. The panel denied that motion on April 2, 2019. The same day, Arbella filed an application for further appellate review with the Supreme Judicial Court.
Since the Massachusetts Appeals Court is an intermediate appellate court, the ultimate judicial authority resides with the Supreme Judicial Court of Massachusetts. Any parties dissatisfied with an Appeal Court’s decision may apply for further appellate review within 20 days of the entry of the decision. However, the allowance of any further appeal is discretionary with the Supreme Judicial Court.
Agency Checklists will keep its readers informed of Arbella success, or lack thereof, in seeking further appellate review of this decision.
On April 2, 2019, Arbella filed its application for further appellate review with the Supreme Judicial Court. The SJC denied Arbella’s application on May 9, 2019. As a result of the denial, the suit against Arbella has been remanded to the Superior Court for trial.