Federal Court Reaffirms Massachusetts Rule Regarding an Insurer’s Duty to Defend
The United States District Court has entered a summary judgment in a case, Partington Builders, LLC v. Nautilus Insurance Company, that demonstrates how broadly Massachusetts courts apply the rule that an insurer must defend the whole of a complaint if one or more counts of the complaints “roughly sketch” a claim covered by the policy’s terms.
This case also reaffirms the Massachusetts rule that an insurer that wrongfully refuses to defend an insured runs the risk of paying legal fees to the insured twice.
- First, a liability insurer found to have breached its duty to defend must reimburse the insured for any legal cost they incurred in defending the lawsuit where the carrier denied a defense.
- Second, the carrier must pay the insured for the legal fees the insured incurred in establishing the insurer’s duty to defend.
Facts leading to United States District Court’s decision
Partington purchased a plot of land in Sudbury for development and profit. Simone and Douglas Blowers (“the Blowers”) owned an adjacent lot. The property line between the two lots was drawn in a way that a triangular portion of the Blowers’ property jutted out in front of the Partington property. While developing their property, Partington sought permission from Douglas Blowers to perform certain work on the triangular “berm” portion of the Blowers’ property on the right in the picture above.
While Partington was ramping up its construction to build a house on its lot, its president engaged in discussions with Douglas Blowers about removing some of the trees and shrubbery on the border of their respective lots. Partington’s president sent an email memorializing the discussion on March 26, 2021, to Mr. Blower, which stated, in part:
“My understanding from our conversation was…The front left-hand corner of your property, as viewed from the street, has some small trees and brush and is an unsightly mound of dirt. We are going to be grading and seeding the front yard of our property, and while we are doing that, we will remove those trees and grade that area down to the level of your retaining wall to clean the area up and flow from our yard into yours.”
On March 29, 2021, the president followed up in a subsequent email, stating:
“As you’ve probably noticed, we started work next door. We received all our permits. We are working on removing the trees on our lot and will work to the plan I outlined in my last email unless I hear otherwise from you. If you have any questions or concerns, please don’t hesitate to reach out.”
Mr. Blowers responded the next morning, March 30, 2021, stating:
“I would like to see plans on how everything will look when it is completed, and some form of guarantee of the quality of work and final results will meet my expectations. At this time, I am ok with the details about the scope of work, but I need assurance of quality and final results will meet both parties’ standards and not negatively impact my property or property value,”
Despite the lack of clear consent from the Blowers, Partington proceeded with the proposed work, leaving the property line (marked by the black plastic fence) looking like this:
The Blowers sue for treble damages under the tree-cutting statute
On June 16, 2021, the Blowers filed a three-count state court complaint against Partington Builders, LLC in Middlesex Superior Court after sending a cease-and-desist letter demanding that Partington restore their property to its prior condition. The first count alleged a violation of the M.G.L. c. 242, §7, which creates a cause of action against anyone who “without license willfully cuts down, carries away, girdles or otherwise destroys trees, timber, wood or underwood on the land of another.” A violation of this statute makes the person cutting down the trees liable for treble damages.
The second count alleged Partington committed a common-law trespass, and the third count alleged Partington’s action in removing the “natural berm” on the Blowers’ property, thereby eliminating the privacy they previously enjoyed, constituted a common-law nuisance.
In their suit, the Blowers sought $97,000 in damages to restore their property to its previous condition.
Nautilus denies Partington any defense under its liability policy for the Blowers’ suit
When the Blowers filed their lawsuit, Partington Builders, LLC had a commercial general liability policy with Nautilus Insurance Company. On June 17, 2021, Partington put Nautilus on notice of the action by forwarding the Blowers’ complaint package via email to its insurance agent.
Without requesting additional information, Nautilus denied coverage on July 1, 2021, on three grounds. First, the complaint did not allege “property damage” or “bodily injury” resulting from an “occurrence,” which is required to trigger the coverage A insuring agreement. Second, the lawsuit alleged that the damage to the plaintiffs’ property was done intentionally in order to enhance the value of the defendant Partington’s property. Finally, the policy expressly excluded coverage for damages arising out of “subsidence or movement of soil, land, bedrock or earth.”
Partington sues for coverage, and Nautilus removes the suit to the United States District Court
On December 5, 2021, Partington filed a declaratory judgment against Nautilus, seeking a ruling setting aside Nautilus’ coverage denial. Nautilus, being a foreign insurer, removed the state court lawsuit to federal court based on diversity of citizenship.
In federal court, both parties cross-moved for summary judgment claiming that there were no material facts in dispute. Each also claimed that based on the undisputed facts, they were entitled to a judgment in their favor as a matter of law.
The Court decides Nautilus’ duty to defend and defers on deciding about any duty to indemnify
Based on the motions before it, the Court stated that the case raised questions about two duties that insurers may owe to their insureds: the duty to defend and the duty to indemnify. Nautilus’ insuring agreement expressly took on both duties through the policy issued to Partington, stating in its insuring agreement:
We will 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. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage,” to which this insurance does not apply.
Based on this insuring agreement, the Court stated that Nautilus only had to defend and indemnify Partington for covered losses, not for uncovered losses, based on this insuring agreement. In the first instance, the Court decided that the only question that could be resolved on summary judgment was whether Nautilus had a duty to defend. The question of whether Nautilus might have a duty to indemnify needed to await the resolution of the Blowers’ underlying state lawsuit.
On the issue of the duty to defend, the Court noted that under Massachusetts law, an insurer has a duty to defend its insured in an action when the allegations against the insured, as stated in the complaint, “are reasonably susceptible of an interpretation that they state or ‘roughly sketch’ a potentially covered claim.” The inquiry turns on the nature of the claim rather than the likelihood of success, and even a weak or frivolous claim can trigger the duty to defend. A liability insurer’s duty to defend arises out of allegations that give rise to a “possibility of recovery,” not a “probability of recovery.”
Furthermore, under Massachusetts’ “in for one, in for all” rule, if Nautilus had a duty to defend any count of the complaint in the Blowers’ lawsuit, then it has the duty to defend every count, including counts that clearly have no coverage.
Nautilus’ arguments for summary judgment based on no occurrence and intentional acts
Nautilus’ first argument was that the claims against Partington were not covered under the policy since they did not arise from an accidental “occurrence.” Nautilus argued that the Blowers’ complaint alleged intentional acts that could not be the basis for a covered claim.
For example, Nautilus argued that Count 1, which alleged a violation of the tree-cutting statute, did not allege a covered “accident.” The statute proscribed willful conduct, and the Blowers’ complaint alleged that Partington removed trees from their property without permission, seeking treble damages. Nautilus claimed that this did not constitute an accidental “occurrence” under the policy.
Similarly, Nautilus argued that the other two counts of the Blowers’ complaint did not allege an accidental “occurrence.” For common law trespass, there is no liability for unintentional, non-negligent acts. Nautilus claimed that Partington’s alleged trespass could not result from an accident or occurrence covered under the policy. Nautilus also argued that the alleged intentional acts were excluded under the policy since “property damage that is expected or intended from the standpoint of the insured” is excluded.
Overall, Nautilus argued that it had no duty to defend or indemnify Partington since the claims alleged intentional acts that were not covered under the policy. However, under Massachusetts law, Nautilus still had a duty to defend Partington if any of the counts in the Blowers’ complaint were “reasonably susceptible” to a covered claim, even if other counts were not covered.
The Court’s decision on Nautilus’ arguments of no “occurrence” and intentional acts
The Court did not accept Nautilus’ arguments that the Blowers’ complaint did not, at least, “roughly sketch” a possibly covered claim sufficient to trigger a duty to defend.
The Court noted that Massachusetts courts construe the term ‘accident’ broadly in insurance policies. An injury ensuing from the volitional act of an insured is still an ‘accident’ within the meaning of an insurance policy if the insured does not specifically intend to cause the resulting harm or is not substantially certain that such harm will occur.” Even reckless conduct is generally considered accidental in this context.
The Court pointed out that the complaint alleged that Partington removed trees from the Blowers’ property “without authority or permission.” This allegation described equally well a person who knew they had no right to remove the trees as well as a person who mistakenly believed they had permission to remove them. In the court’s view, the allegations here were broad enough to reasonably sketch a claim that Partington had a mistaken but reasonable belief that it was authorized to cut the trees. Such a claim would be for property damage arising out of an occurrence, meaning it would be a “loss [that] fit the expectation of protective insurance reasonably generated by the terms of the policy,” thus triggering Nautilus’s duty to defend.
Likewise, the Court found, as with the tree-cutting, the trespass allegations in the Blowers’ complaint could reasonably sketch a claim in which Partington held a mistaken belief that it was authorized to enter onto the Blowers’ property and then entered the property to perform what was ultimately unauthorized work. Such an intentional entry would be a trespass, but it would be one predicated on a mistake, making it an accident for present purposes. As such, the trespass allegations against Partington also arose out of an occurrence and thus triggered Nautilus’s duty to defend.
On the intentional acts exclusion, the court ruled that Nautilus confused an intentional act with an intended result. Because Partington intended to remove trees and earth from the Blowers’ property did not mean that Partington intended or expected that the removal would injure the Blowers. To the Court, Blowers’ complaint reasonably sketched a claim that Partington mistakenly believed that the Blowers had consented to the removal work. Nautilus failed to explain how, under those circumstances, Partington should have expected that the removal would injure the Blowers. As such, the Expected or Intended Injury exclusion did not relieve Nautilus of its duty to defend.
The subsidence exclusion in Nautilus’s policy
The final argument by Nautilus for an exclusion barring coverage was the subsidence exclusion which provided the following:
“This insurance does not apply to …” property damage,”…directly or indirectly arising out of, resulting from, contributed to, aggravated or concurrently caused by “subsidence or movement of soil, land, bedrock or earth,” whether natural, manmade or otherwise.
We have no duty to defend any insured against any loss, claim, “suit,” or other proceeding alleging damages arising out of or related to…” property damage”…to which this exclusion applies.”
The exclusion also supplied the following definition:
“Subsidence or movement of soil, land, bedrock or earth” includes, but is not limited to, settling, bulging, shaking, sinking, slipping, shifting, eroding, rising, tilting, expanding, contracting, shrinking, instability, falling away, caving in, landslide, mudflow, flood, sinkhole, earthquake, volcano, or avalanche.”
Overall, the Court found that the exclusion in Nautilus’ policy regarding “subsidence or movement of soil, land, bedrock or earth” was unclear in its application to the intentional movement of earth, such as Partington’s removal of earth from the Blowers’ property. The policy’s language did not clearly specify whether the intentional movement of earth was included in the exclusion, and the list of verbs included in the definition of subsidence implied spontaneous movement rather than intentional carrying away of earth.
In cases where a policy provision is ambiguous, the Court must interpret it based on what an objectively reasonable insured would expect to be covered. The Court found that it was reasonable for Partington to expect that their general liability policy would cover damages arising from various activities, including digging a hole to plant or remove a tree, as well as cutting grass or trimming hedges. Therefore, given the ambiguity in the policy language, the Court determined that the exclusion did not apply to Partington’s intentional carrying away of soil and that Nautilus had a duty to defend Partington in the Blowers’ lawsuit.
The Court orders Nautilus to defend and pay Partington’s attorney fees
Under Massachusetts law, an insurer that fails to fulfill its duty to defend incurs two costs.
In the first instance, it must pay the insured it failed to defend their attorney fees incurred in defending itself until a court determines an insurer had a duty to defend.
In the second instance, in contradiction to the usual rule that litigants pay their own legal fees, insurers that breach their duty to defend must pay the insured’s legal fees incurred in proving that the insurer had a duty to defend.
Here, the Court found that Partington notified Nautilus of the Blowers’ complaint the day after it was filed, thus triggering Nautilus’s duty to defend. Since Nautilus breached its duty by disclaiming coverage and refusing to defend Partington, the Court ruled Nautilus must pay Partington’s defense costs in the underlying action incurred from June 17, 2021, to date.
Also, the Court ruled that Nautilus’s breach had caused Partington damages beyond its defense costs in the underlying action to the extent that Partington was compelled to bring an action to enforce Nautilus’s duty to defend.
The Court enters a stay pending resolution of the Blowers’ lawsuit
The final order of the Court pending resolution of the Blowers’ lawsuit was:
For the foregoing reasons, Partington’s motion for summary judgment is GRANTED as to Nautilus’s duty to defend and DENIED without prejudice as to its duty to indemnify. Nautilus’s motion for summary judgment is DENIED as to its duty to defend and DENIED without prejudice as to its duty to indemnify. The court will stay the remainder of this case pending the resolution of the underlying action.
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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.
Connect with me directly, by calling me at 617-598-3801.