Many in the Massachusetts insurance industry will recall the winter of 2015 and the deluge of ice dam claims which occurred as a result. For one couple who had suffered such damage and a claim to cover it, the couple was faced with what they considered low ball offers and inordinate delay in payment for the damage done by ice dams to their residence. As a result of their experience, they decided to file a lawsuit to seek multiple damages under M.G.L. c. 93A, and c. 176D, for what they considered unfair claim practices by their insurer.
Although the insurer had only offered initially $17,000 and the insureds ultimately recovered over $137,000 on the referees’ award after two days of hearings, the couple were prohibited from recovering in their unfair claim practices suit for their attorney fees or alleged additional damages. The insureds lost on summary judgment in the United States District Court and appealed. On November 22, 2019, the First Circuit Court of Appeals found against the insureds’ claim in River Farm Realty Trust; Paul R. DeRensis; and Linda DeRensis v. Farm Family Casualty Insurance Company.
The appeals court decision case is instructive for anyone involved in claims or advising insureds on how frustrating the process can be for all involved.
The insureds and the insurance policy
Paul DeRensis and Linda DeRensis (“DeRensises”) held title to their home in Sherborn in the River Farm Realty Trust. (“River Farm”).
Farm Family Casualty Insurance Company (“Farm Family”) issued River Farm a Special Farm Package “10” to for the coverage period of November 15, 2014, to November 15, 2015.
The policy provides that, in the event of a covered property loss, Farm Family would pay the least of the following:
- The applicable limit of liability.
- An amount not greater than [the insured’s] interest in the property.
- The cost of repairing or replacing the property with materials of equivalent kind and quality to the extent practicable.
- The amount computed after applying the deductible or other limitation applicable to the loss; or
- the Actual Cash Value of the property at the time of loss (unless the policy’s Replacement Cost Provision applied).
The policy defines “actual cash value” as “the amount it would currently cost to repair or replace the covered property with new material of like kind and quality, less allowance for physical deterioration and depreciation, including obsolescence.”
The policy’s limit of liability $1,263,807 in total, and $729,987 was the limit of liability for the River Farm residence at 262 South Main Street.
The property policy also contained the required Massachusetts amendment that required the insured in case of loss to provide the insurer with a “signed, sworn statement in proof of loss.” That proof of loss triggers the obligation of the insurer, within thirty days of the insured submitting this statement, to “either pay the amount for which it shall be liable, which amount if not agreed upon, shall be ascertained by an award of referees . . . or replace the property with other of the same kind and goodness.” If the insurer fails to comply with the policy within thirty days of receiving the statement of loss, it is liable for “the payment of interest to the [insured] at a rate of one percent over the prime interest rate on the agreed figure.”
The Massachusetts amendment tracking the provision of M.G.L. c. 175, § 99 required a “Reference” to three referees as to any dispute as to the amount of loss. Under the policy and the statute, the referees’ award “[is] conclusive and final upon the parties as to the amount of loss or damage.”
Ice dam claim keeps expanding
In February 2015, the Sherborn property, like many other properties in Massachusetts, began to have serious ice damming issues. The ice dams occurring throughout February and into early March caused water leakage into the residence.
The DeRensises first reported the ice dam claim to Farm Family by phone on an unspecified date in early March. Farm Family admitted that it received the telephone report. However, through a mix-up at Farm Family, the insurer combined the DeRensises’ ice dam claim with someone else’s claim. As a result, no one got back to the DeRensises until late April.
Once Farm Family recognized the error, they had an independent adjuster assigned who contacted the DeRensises for an inspection of the water damage from the ice dams.
After inspecting the residence, on May 20, 2015, with Mr. DeRensis, the adjuster prepared an estimate of the damage that he mailed to the DeRensises in early June, estimating that the loss to the River Farm residence, less the deductible and depreciation, was $17,825.95.
Three contractors estimate damage over $100,000
On November 13, 2015, Mrs. DeRensis faxed a letter to the adjuster stating that they had consulted with three local contractors on the cost to repair different aspects of the damage and that their estimates, along with $42,000 for anticipated hotel living expenses during the repairs and furniture damage, totaled $154,769.93.
As this was Farm Family’s first notice of the dispute over the claim amount, Farm Family’s inside claim adjuster email Mr. DeRensis advising he had received the contractor estimates in the November 13 letter, that he had tried unsuccessfully to reach Paul DeRensis by phone earlier that day and left him voicemail messages, and he requested a call to “see what we can do to get this resolved for you.”
The next day Mr. DeRensis replied by email on that same day stating that his contractors had told him that Farm Family’s adjusters were not acting in “good faith,” that he was consulting an attorney, and that he understood “in Massachusetts we may be entitled to treble damages arising out of the bad faith botch up, plus legal fees, so your exposure is well over a half million and rising fast.”
Farm Family and the DeRensises’ attorney fail to resolve the claim
After Farm Family learned that the DeRensises were claiming their adjuster had acted in bad faith, they received a representation letter from the DeRensises’ attorney. Between November 24, 2015, and February 16, 2016, Farm Family and the DeRensises’ attorney corresponded by email and talked by phone without any resolution as the DeRensises were obtaining a new estimate that they subsequently claimed Farm Family had requested.
On February 16, 2016, the DeRensises’ attorney emailed Farm Family a “preliminary statement of loss and associated estimates,” that estimated the loss at not the $154,769.93 previously claimed but at $236,438.
Farm Family reinspects and increases its loss estimate
Based on the breathtaking difference in the original Farm Family estimate and the DeRensises February 16 estimate, Farm Family asked to reinspect the Sherborn residence.
The second inspection by Farm Family’s new independent adjuster occurred on March 2, 2016.
On March 18, 2016, Farm Family received and sent to the DeRensises’ attorney Farm Family’s revised damage estimate that found the loss to River Farm (excluding roof damage that could not be inspected), less the deductible and depreciation, was $28,005.21.
Farm Family immediately issued payment to the DeRensises for $28,005.21.
Demand for reference and award of referees
Unsurprisingly, the DeRensises disputed Farm Family’s amount, and on March 28, 2016, their attorney sent a letter to Farm Family demanding Reference on behalf of the DeRensises under Massachusetts General Laws chapter 175, section 99.
Under this statutory procedure, each party gave three names to the other party of which each would choose one referee. The two referees would pick a third referee. If the two referees cannot agree on a third, the commissioner of insurance will appoint that third referee. For the reference hearing, the parties pay their own referee and split the cost of the third referee.
The referees selected conducted two days of hearings that took place in June and July of 2016.
On July 20, 2016, the Reference Panel determined that the “Building Replacement Cost Loss,” including the roof, was $153,208, and the amount recoverable on an actual cash value basis was the lesser sum of $137,888. On August 17, 2016, Farm Family paid the DeRensises the actual cash value amount determined by the Reference Panel less the amount already paid, for a total of $109,882.78.
The DeRensises sue for breach of contract and unfair claim practices
Although Farm Family had paid the reference award, on September 22, 2016, the DeRensises’ attorney wrote to Farm Family demanding payment of an additional $147,397.77. This amount included legal fees, the DeRensises’ reference expenses, and an “Additional Reference Award,” based on alleged violations of Massachusetts General Laws chapters 93A and 176D.
Farm Family offered the DeRensises $7,766.58, as six percent interest on the funds they were unable to use during the dispute. Farm Family conditioned the interest payment upon the DeRensises signing a release. The DeRensises refused to give a release, and Farm Family made no payment.
On November 23, 2016, River Farm filed a lawsuit against Farm Family, alleging breach of contract and violations of chapters 93A and 176D in the United States District Court.
After the district court granted Farm Family’s summary judgment motion on February 4, 2019, the DeRensis filed an appeal to the First Circuit Court of Appeals.
The Appeals Court decision
On appeal, the DeRensises focused on their unfair claim settlement practices under M. G.L. c. 176D. This statute, in § 3(9), lists fourteen acts or omissions of insurers that constitute unfair claim practices for which noncommercial insured can recover damages under the Massachusetts unfair trade practice statute, M.G.L. c. 93A, § 9.
The DeRensises argue Farm Family improperly delayed their claim
In the first instance, the DeRensises argued that Farm Family had violated M.G.L. c. 176D, § 3(9)(b) because of how long the claim process had taken. Under this subsection of c. 176D an insurer can be in violation if it “fail[ed] to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.”
The Appeals Court noted that “The central inquiry under chapter 176D is the reasonableness of the insurer’s actions.”
In the first instance, the court found that the time between River Farm’s report of the claim in early March and the reply from Farm Family on April 27, that there was no evidence it occurred out of a desire to delay or bad faith. Farm Family had explained its delay in responding as a result of its confusion as to several outstanding claims.
The court found that even if there were negligence by Farm Family in responding in a timely manner, negligence was not enough to sustain a 176D violation.
Likewise, the court found no 176D violation for the claim delay in the period between the first estimate by the insurer’s outside adjuster in June 2015, and the response from the insureds in November or after that.
The DeRensises did not inform Farm Family that they disagreed with the June estimate or that they were seeking separate estimates as to the damage. Once the DeRensises sent the letter to the adjuster on November 13 with their estimate Farm Family responded to all inquiries. To the court, the DeRensises showed no evidence that Farm Family acted unreasonably in this time period.
The DeRensises also argue Farm Family did not affirm coverage after proof of loss is submitted.
The DeRensises next argued that under M.G.L. c. 176D, § 3(9)(e) Farm Family had liability because it “fail[ed] to affirm or deny coverage of claims within a reasonable time after proof of loss statements [had] been completed.”
On this legal assertion, the court found that the argument was misdirected. Farm Family had never denied coverage. Farm Family was disputing the DeRensises estimates of the loss, not their coverage for the loss.
The court finds Farm Family had a reasonable basis for disputing liability on the amount of loss
The DeRensises’ final argument was that Farm Family “fail[ed] to effectuate prompt, fair and equitable settlements of claims in which liability ha[d] become reasonably clear,” thereby violating M.G.L. c. 176D, § 3(9)(f), and the discrepancies between the estimates of loss were evidence of a violation of M.G.L. c. 176D.
On the settlement issue, the court reiterated under Massachusetts law, “a duty to settle does not arise until ‘liability has become reasonably clear’ and that “liability encompasses both fault and damages.”
Here the court noted the DeRensises’ estimates rose from $154,769.93 in November 2015 to $236,438 in February 2016 and to a demand of $257,997.97 in June 2016. Also, the court pointed out that the loss estimates of each side materially changed over the course of the dispute based on new information, and therefore liability for a particular amount was not reasonably clear.
The court finds for Farm Family but says it may have been negligent
In making its decision for Farm Family, the court analyzed numbers and time periods that did not necessarily amount to the level of claim handling that one might wish to see in an insurance carrier. However, the court did not and could not find that this insurer acted in bad faith. As the court put it:
We do not say that the insurer Farm Family behaved admirably, and it may have been negligent at times. But liability under chapter 176D is not imposed for mere negligence, and [the DeRensises trust have] simply failed to produce evidence in support of [their] assertions.
