The Appeals Court has denied coverage for a $142,000 personal property claim arising out of a 2015 fire loss where the named insured’s daughter lived on the insured property but did not qualify as an insured because she was not a household member.
Rebecca Laing and her husband (the “Laings”) lived in a Gloucester property on Colonial Street (“Colonial Property”) owned by her father, George R. Allen. (“Mr. Allen”). Mr. Allen’s insurance agent, Circle Insurance Agency (“Circle”), had placed and maintained an owner-occupied homeowners policy with Merrimack Mutual Fire Insurance (“Merrimack”), a member of the Andover Companies, on the Colonial Property, although Mr. Allen did not live there. The Laings paid the homeowners insurance premiums for the Colonial Property to Merrimack under an agreement with Mr. Allen. Mr. Allen and the Laings intended for the Merrimack policy to cover Mr. Allen for the real estate and the Laings for their personal property.
In 2015, the Colonial Property suffered a two-alarm fire destroying the home and causing the Laings to lose all their personal property. Mr. Allen filed a claim with Merrimack for the real estate loss, and the Laings filed a $207,000 replacement cost claim for their personal property loss with Merrimack.
After Merrimack sought reference of the loss amounts, the referees awarded the Laings’ $147,000 as their personal property loss value. However, notwithstanding the referees’ award, Merrimack denied any coverage for the Laings’ personal property claim. While the Laings were relatives of Mr. Allen, Merrimack argued that since Mr. Allen did not occupy the Colonial Property, the Laings were not members of his “household” and, therefore, not insureds under Mr. Allen’s owner-occupied homeowners policy form.
Mr. Allen sued Circle and Merrimack for coverage for his daughter and her family. The Laings joined Mr. Allen’s suit as intervenors filing a complaint against Merrimack, asserting they were intended beneficiaries of Mr. Allen’s insurance policy and for negligence. After the Superior Court dismissed their intervenors’ complaint, the Laings appealed.
Mr. Allen’s homeowners policies with the Circle Agency
Mr. Allen inherited the home on Colonial Street in Gloucester from his parents in 2002. Circle insured the Colonial Property with Merrimack when he inherited it under an owner-occupied, single-family homeowner’s insurance policy.
Mr. Allen never occupied the Colonial Property after he acquired ownership. Instead, he rented it to his daughter and her family. He lived in a property on Main Street in Gloucester that Circle also insured under an owner-occupied, single-family homeowner’s insurance policy that was also insured with Merrimack.
Circle and Merrimack continued renewing Mr. Allen’s two properties as owner-occupied homes until 2012 when Mr. Allen moved the Main Street property to another agent and insurer.
The Laings’ rental agreement with Mr. Allen
Mr. Allen and the Laings had no formal lease or other written agreement concerning the Colonial Property. Their verbal agreement was that the Laings would pay all the expenses of the Colonial Property, including the mortgage payments, insurance, utilities, and other necessary expenses. The Laings paid the insurance premiums on the Colonial Property directly from their personal account to Merrimack. The Laings and Mr. Allen intended that Mr. Allen would maintain a property insurance policy covering the Laings’ personal property.
The Colonial Property fire loss and the Laings’ personal property loss
On May 8, 2015, the Colonial Property burned to the ground, and the Laings claimed a replacement value loss of $207,837 for the personal property they lost in the fire. Mr. Allen made a claim under the policy for compensation for the personal property losses of the Laing family as well as his losses.
After Mr. Allen and Merrimack disagreed about the amount of loss and damage under the policy relative to the fire, the dispute was referred to a panel of disinterred persons under the reference requirement of M.G.L. c. 175 section 99.
The Referees issued an Award separately stating the amount of loss and damage caused by the fire to the dwelling, the personal property of Mr. Allen, the personal property of others (the Laings), and the loss of use. Merrimack paid the Actual Cash Value of the amount of the Award to Mr. Allen for the damage to the dwelling ($166,000.000), the loss of his personal property ($17,353.00), and additional living expenses ($25,650.00).
The referees also found that the actual cash value of the Laings personal property loss totaled $142,223.00. However, Merrimack denied any coverage for the personal property of the Laings claiming, in part, they were not insureds under the policy.
The father’s lawsuit and the Laings joining the suit as intervenors
After the denial by Merrimack of any coverage for his daughter’s family, Mr. Allen filed a complaint against Merrimack and Circle alleging breach of contract, negligence, and violations of M.G.L. c. 93A (unfair business practices) as to Circle and Merrimack.
Mr. Allen’s Complaint alleged that because of the negligence or breach of contract of Circle, he was unable to provide funds to the Laings for the replacement of their personal property that was damaged because of the May 8, 2015 fire.
Mr. Allen’s Complaint sought relief in the form of monetary damages arising out of the property damage sustained by the Laings in the amount of $142,223.00, representative of the actual cash value of the Laings’ personal property as determined by the referee award.
Based on its payment of the referees’ awards, the Superior Court dismissed Mr. Allen’s claims against Merrimack for breach of contract and violations of Chapter 93A.
While the Laings filed a related proceeding relative to the damage to their personal property because of the fire that included Mr. Allen, Circle, and Circle’s errors and omissions insurer, Utica National Insurance Group (“Utica National”), they also moved to intervene in Mr. Allen’s suit alleging their own claims against Merrimack.
While Circle and Utica National settled with the Laings, the Laings still proceeded on their complaint against Merrimack.
The Laings’ argument in their suit against Merrimack
In the Superior Court, Merrimack moved to dismiss the Laings’ complaint on the basis that there was no valid claim by the Laings against Merrimack.
The Laings argued in opposition to Merrimack’s motion to dismiss that there was a valid, binding contract between Mr. Allen and Merrimack and that the Laings were intended beneficiaries of that contract; that Merrimack breached the contract by failing to compensate the Laings for their personal property loss; and that they lost personal property in the fire totaling $207,837 in replacement case value and $142,323 in actual cash value.
The Laings argued that they had coverage under the contract between Mr. Allen and Merrimack because it covered personal property of “relatives,” and the Laings were relatives living in Mr. Allen’s “household,” a term which the Merrimack policy did not define and which the Laings claimed was ambiguous. Therefore, they argued, the Superior Court should find that based on the intention of the parties and the ambiguity of the term “household,” they were entitled to coverage.
The Superior Court, however, did not agree with any of the Laings’ arguments, and on Merrimack’s motion to dismiss, the Superior Court judge hearing the case ruled that the Laings allegations did not state a legal claim.
The Laings appealed the Superior Court’s dismissal of their complaint to the Appeals Court.
The Appeals Court decision
Since the Superior Court dismissed the Laings’ complaint because of its failure to state any legal claim upon which a court could grant relief, the Appeals Court applied specific rules. First, the Court accepted as true, without any proof, all the factual allegations set forth in the Laings’ complaint. Also, it accepted any inferences that could reasonably be drawn from the facts the Laings alleged to determine whether they had, at least, “plausibly suggest[ed] an entitlement to relief.”
The Court noted that the parties did not contest any of the material facts. Therefore, the Court addressed the legal contentions of the Laings claiming that their complaint alleged claims that could, if proven, entitle them to recover from Merrimack.
The Court noted that the Laings’ major claim alleging they were intended beneficiaries of Merrimack’s insurance contract with Mrs. Laings’ father, depended on the terms of the insurance policy between Mr. Allen and Merrimack. In analyzing this claim, the Court assumed that if the Laings established that the policy might cover their personal property losses in the 2015 fire, then they could sue the insurer as intended third-party beneficiaries.
Relatives but not residents of the named insured’s household
The Court parsed the policy first as to whose personal property the policy might cover. The Court started with two points based on the policy’s terms:
- The personal property of an “insured” is covered wherever such property is located.
- Mr. Allen was the named insured” but residents of [his] household who are . . . [his] relatives” are also insureds.
Based on these terms, the Court concluded that Mr. Allen’s daughter, son-in-law, and grandchildren all qualified as Mr. Allen’s “relatives,” but notwithstanding their family relationship to Mr. Allen, their status as insured depended on whether they were residents of Mr. Allen’s household.
The Laings argued as they had in the Superior Court that the policy did not define the term “household” and that its meaning was ambiguous and thus construed against Merrimack.
The Court did not disagree that the policy did not define the term “household.” However, it pointed out that an undefined term in an insurance policy is not ambiguous if the term has a clear meaning in ordinary usage. Here the Court looked, as courts often do, to dictionaries. In this case, the Court found in the Merriam-Webster dictionary and Black’s Law Dictionary that a “household” is commonly defined as “those who dwell under the same roof and compose a family” or “a social unit composed of those living together in the same dwelling.” (Merriam-Webster) or as “[a] group of people who dwell under the same roof” or “[a] family living together” (Black’s).
The Court did not stop with those dictionary definitions, however. It applied a “pragmatic balancing approach” to determine whether the Laings were part of Mr. Allen’s household, citing a Supreme Judicial Court case stating that “because modern society presents an almost infinite variety of possible domestic situations and living arrangements, the term ‘household member’ can have no precise or inflexible meaning.”
The Court then focused on the allegations of the Laings’ amended complaint, seeking fact claims, suggesting that Mr. Allen had a functional relationship with the Laings’ home other than as a relative and non-resident landlord. The Court found that the Laings’ complaint alleged the opposite, including allegations that:
- “[A]t all relevant times, George Mr. Allen was engaged in business or commerce as a landlord”.
- The complaint repeatedly refers to the Laings as Mr. Allen’s “tenants.”
- Their residence at the Colonial Property predated Mr. Allen’s ownership.
- Mr. Allen “never occupied” the home.
- They paid all the costs of upkeep on the home rather than Mr. Allen.
- The Merrimack policy involved in their claim “was separate from the policy that insured ‘[Mr.] Mr. Allen’s primary residence;” and
- The word “household,” which is a precondition of coverage, never appears in the Laings’ complaint.
Based on this lack of any factual allegations that could trigger coverage for the Laings as relatives living in Mr. Allen’s household, the Court rejected the Laings’ argument as to their having stated a valid claim for coverage as insureds or intended beneficiaries under the Merrimack policy.
No coverage for “personal property of others”
The Court next addressed the policy provision that states that “At the named insured’s request,” the policy will also cover the personal property of others “while the property is on the part of the ‘residence premises’ occupied by an ‘insured.'”
This provision, the Court noted, could provide coverage for the Laings’ personal property loss even if they themselves were not defined as an “insured” under the policy. However, for this provision to apply, according to its terms, there would have to be an “insured” living at the Colonial Property. The Court found no allegations in the Laings’ complaint of either Mr. Allen or any other insured occupying the insured premises. The Laings’ complaint alleged the opposite. The complaint stated that Mr. Allen did not occupy any part of the premises the Laings rented and did not otherwise allege that any other possible insured occupied any part of the premises Merrimack insured.
Negligence claim against Merrimack fails
The Laings’ complaint also alleged that Merrimack had been negligent in not providing them coverage. The Court noted that to state a claim, the Laings must allege that the insurer owed them a legal duty that it breached.
The Court recognized that an insurance broker could face liability for failing to procure insurance coverage when the broker knew that a third party was relying on there being such coverage. While the Court questioned whether any such liability could be applied to an insurer that has a different legal relationship with an insured than a broker, it stated that any such liability required that a broker had actual knowledge of the other party relying on there being coverage.
Without delving any deeper, the Court found that the Laings had alleged no facts that would support any reasonable inference that Merrimack had actual knowledge that the Laings were relying on their personal property being insured under Mr. Allen’s policy.
Based on that fact alone, the Court ruled that the Superior Court was correct to conclude that any negligence claim failed as a matter of law.
Superior Court judgment of dismissal affirmed
Based on these rulings, the Appeals Court panel hearing the Laings’ appeal affirmed the Superior Court dismissal of their complaint against Merrimack.
Motion for reconsideration denied, and the Laings have twenty days to request further appellate review
Following the ruling by the Appeals Court denying their appeal, the Laings filed a motion for reconsideration or modification of the decision. Under the Massachusetts Rules of Appellate Procedure, the motion must “state with particularity the points of law or fact which it is contended the court has overlooked or misapprehended.” In this case, the Court summarily denied the Laings’ motion.
Since the Massachusetts Appeals Court is an intermediate appellate court, the ultimate judicial authority resides with the Supreme Judicial Court. Parties dissatisfied with an Appeal Court’s decision may apply for further appellate review within twenty days of the Appeals Court’s decision. However, the allowance of any further appeal is discretionary with the Supreme Judicial Court.
Under the Massachusetts Rules of Appellate Procedure, the Laings have until June 14, 2021, to apply for further appellate review.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
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