A Massachusetts construction manager wins the fight to keep its insurance case in Boston—but loses the right to pursue unfair claims practices damages against its insurer, Arch Specialty
A federal judge in Boston handed down a decision last month that construction managers, specialty insurers, and the brokers who connect them should read with care. The ruling issued February 27, 2026, by United States District Judge Indira Talwani of the District of Massachusetts, resolved a procedural skirmish in what is shaping up to be a consequential fight over how a surplus lines subcontractor default insurance policy limits—or, as the insured sees it, extinguishes—coverage for small subcontract defaults.
The result was a split that left both sides with something, but with neither fully satisfied. Callahan, Inc. d/b/a Callahan Construction Managers, a Bridgewater, Massachusetts construction management firm, defeated Arch Specialty Insurance Company’s motion to transfer the case to a New York federal court. But Callahan lost the part of the fight that might matter most. The court dismissed its unfair claims practice count under Chapter 93A and Chapter 176D. These statutes allow an insured to pursue double or triple damages and attorney’s fees when an insurer engages in unfair claims settlement practices. Those claims, the court held, were foreclosed by a single, carefully worded sentence buried inside the Policy itself.
The Policy and the Claim
Callahan purchased a Subcontractor Default Insurance (“SDI”) policy from Arch—Policy No. 12SCD8013902—covering the period January 21, 2022, through January 21, 2024. Unlike a surety bond, which is posted by the subcontractor and protects the project owner, an SDI policy is purchased by the general contractor or construction manager to protect its own financial exposure in the event a subcontractor fails to perform. The Arch policy scheduled seventeen projects: fourteen in Massachusetts, one in New Hampshire, one in New York, and one in Connecticut.
In May 2023, a subcontractor defaulted on the 57 Alexander Street Project in Yonkers, New York. Callahan submitted a claim and calculated its loss at approximately $3,830,000. Arch did not dispute the amount of the loss and did not dispute that the loss was covered under the Policy. What Arch disputed was how much of that loss it was obligated to pay.
Arch paid Callahan $951,950 and declared the matter closed, citing what it called a “Subcontract Multiplier Cap” that it said limited its exposure to twice the value of the defaulting subcontractor’s contract. The arithmetic: the subcontractor’s contract was worth $949,750, doubled to $1,899,500, less the Policy’s $1,000,000 “Each Loss” deductible, yielding net coverage of approximately $899,500 to $951,950. Callahan was left holding a loss of nearly $2.9 million.
Callahan’s position was that no such cap appeared anywhere on the Policy’s Declarations page—the section where, as the complaint put it, “all other monetary limitations and financial conditions upon coverage are stated.” The cap was buried instead in the Policy’s definition of the word “Loss,” which provided that a loss is “not to exceed double the Subcontract Amount.” An insured, Callahan argued, “would not reasonably expect to find such a restriction” in a definitions section. Callahan further argued that the cap renders coverage entirely illusory for any covered subcontract valued at $500,000 or less, because twice $500,000 equals the $1,000,000 deductible, leaving zero net recovery despite the insured having paid premiums for those subcontracts.
Three Claims, Three Theories
Callahan originally filed suit in the Massachusetts Superior Court in Plymouth County. Its amended complaint, filed March 25, 2025, pressed three counts:
- Breach of contract: Arch failed to honor the reasonable expectations of its insured by relying on a financial limitation buried outside the Declarations, and by construing the Policy in a way that renders coverage illusory for small subcontracts.
- Unfair insurance practices under M.G.L. c. 93A and 176D, §3: Callahan alleged Arch had “deliberately ignor[ed] facts which revealed obvious flaws with its interpretation of the Policy,” had placed “its own financial interests ahead of its insureds,” and had violated specific provisions of Chapter 176D—misrepresenting policy provisions (§3(9)(a)), failing to acknowledge claim communications promptly (§3(9)(b)), and refusing to pay without conducting a reasonable investigation (§3(9)(d)).
- Declaratory relief: Callahan sought a judicial declaration that the Subcontract Multiplier Cap does not apply—a ruling with direct implications for the fourteen additional Massachusetts projects still on the Policy.
Arch removed the case to the United States District Court for the District of Massachusetts, invoking diversity jurisdiction. It then filed a motion to transfer the case to the Southern District of New York and, in the alternative, to dismiss Callahan’s statutory claims.
The Battle Over Boston
To understand what followed, it helps to understand the mechanics of a federal transfer motion. Under 28 U.S.C. §1404(a), a district court may transfer a case to another district for “the convenience of parties and witnesses, in the interest of justice.” The standard is exacting: a defendant seeking transfer must show that its preferred forum is substantially more convenient, not merely convenient for itself. Transfer is inappropriate where its “effect merely shifts the inconvenience from one party to another.”
Courts in the District of Massachusetts weigh six factors: the plaintiff’s choice of forum, relative convenience of the parties, convenience of witnesses and location of documents, the connection between the forum and the issues, the law to be applied, and state or public interests.
Arch’s central argument was that because the underlying incident—the Yonkers subcontractor default—occurred in New York, and because New York law governs the Policy, New York was the proper venue. Judge Talwani was unpersuaded on all six counts.
Callahan, incorporated and headquartered in Massachusetts, chose its home forum, which is entitled to presumptive weight. Arch’s removal to federal court did not diminish that presumption. Arch is a Missouri corporation and could not credibly claim New York was “substantially more convenient” for it. The witnesses at the Yonkers job site were beside the point because, as the court observed, neither side disputed the amount of the loss or that it was covered: the dispute “primarily involves interpretation of the Policy language, which renders the location of witnesses to the underlying incident less significant.” Electronic discovery has rendered the physical location of documents equally irrelevant.
On public interest, the court found that Massachusetts held the stronger hand. Callahan is a Massachusetts corporation. The Policy was issued and delivered in Massachusetts. Fourteen of the seventeen covered projects are in Massachusetts. Only the one project that generated the claim is in New York.
The Choice of Law Clause: One Factor, not a Compass
The most instructive portion of the transfer ruling, for practitioners who place coverage or advise on policy language, is the court’s treatment of the New York choice-of-law clause. Arch argued that because New York law governs the Policy, the case should be tried in New York by judges conversant in New York law. The Policy’s clause provides:
“The laws of the State of New York (without giving regard to conflicts of law provisions thereof) shall apply to any controversy or claim between any Insured and [Arch] arising out of or in any way related to this Policy, including but not limited to disputes as to the meaning, interpretation or operation of any term, condition, definition or provision of this Policy or any alleged breach of this Policy.”
The court acknowledged that a district court’s familiarity with governing law is a legitimate factor in the transfer analysis. But a choice-of-law provision selecting another state’s law “does not mandate transfer in favor of litigation in the corresponding state.” It is “merely one factor in the balance.” Massachusetts federal courts, the court noted, “frequently apply New York law”—citing prior District of Massachusetts decisions applying New York contract law, the New York Statute of Frauds, and New York insurance policy provisions.
The court declared itself “not aware of any exceptionally arcane features of [New York] contract law that are likely to defy comprehension by a federal judge sitting in [Massachusetts].” Motion to transfer: denied.
The Choice of Law Clause Claims Its Prize
Having lost the transfer motion, Arch turned to its alternative argument: that the same clause which failed to move the courthouse should nonetheless eliminate Callahan’s Massachusetts statutory claims. Here, the language that could not change the venue proved powerful enough to strip the insured of its most formidable remedies.
Under Massachusetts law, whether a choice-of-law clause bars statutory claims depends entirely on the scope of its reach. Courts draw a sharp line between two types of provisions:
- Narrow construction clauses that merely “gover[n]” or “construe” the agreement leave Massachusetts statutory claims intact, because the clause reaches only the contract’s written terms—not rights created by statute. The SJC’s decision in Jacobson v. Mailboxes Etc. U.S.A., Inc. (1995) is the benchmark: a clause stating that “the agreement is to be governed and construed by California law” did not bar Chapter 93A claims because it did not govern the parties’ statutory rights and obligations.
- Broad rights-and-obligations clauses that extend beyond the contract’s four corners to cover the parties’ rights and obligations broadly do bar Massachusetts statutory claims like Chapter 93A claims. The First Circuit so held in Northeast Data Systems v. McDonnell Douglas Computer Systems (1993).
The Arch clause applies New York law to “any controversy or claim… arising out of or in any way related to” the Policy. That language, the court held, is not a narrow construction clause—it “covers a lot more ground” than a provision that simply says an agreement shall be governed and construed by another state’s law. It is broad enough to reach statutory claims.
Callahan’s 93A and 176D allegations—misrepresentation of policy provisions, failure to investigate, bad faith interpretation—all relate solely to Arch’s interpretation of the Policy and the resulting coverage dispute. They are, inescapably, claims “arising out of or in any way related to” the Policy. That Callahan characterized those claims in the language of deliberate misconduct made no difference. Such “state of mind” or “bad motive” allegations, the court said, do not “take these claims outside the scope of the contractual language that says [New York] law will govern.”
New York has no statute equivalent to Chapter 93A or Chapter 176D. The dismissal of Count II eliminates Callahan’s ability to pursue multiple damages and attorney’s fees—remedies that would have transformed a coverage dispute over less than $3 million into a genuinely punishing exposure for a carrier found to have acted in bad faith. Motion to dismiss Count II: granted.
What Remains
The case proceeds in the District of Massachusetts on Callahan’s breach-of-contract claim and its request for a declaratory judgment regarding the Subcontract Multiplier Cap—both to be decided under New York law. The core question, now reserved for the merits, is whether a loss cap buried in the Policy’s definitions section can legally limit Callahan’s recovery when no such limitation appears in the Declarations, where all other financial conditions are disclosed. New York contract law has its own doctrines for addressing ambiguous policy language and illusory coverage. However, the New York remedies do not carry the punitive multiplier that Massachusetts law provides under Chapter 93A.
Takeaways for Insurance Professionals
For agents and brokers placing SDI coverage with surplus lines carriers, this decision is a pointed reminder that the choice-of-law clause is not boilerplate to be scanned and initialed. Six words—“any controversy or claim… arising out of or in any way related to”—were the difference between an insured with treble-damages leverage and an insured with a straight contract claim. The breadth of that language, not merely its existence, is the operative question when Massachusetts statutory remedies are at stake. A clause that merely “governed and construed” the agreement would likely have left Chapter 93A intact.
For construction managers purchasing SDI coverage, the Declarations page is not a complete map of the Policy’s financial terrain. In Callahan’s case, the mechanism that reduced a $3.83 million loss to a $951,950 payment was found not in the Declarations—where the Each Loss limit, the Aggregate limit, the Each Loss deductible, the Co-Payment deductible, and the Minimum Aggregate deductible are all disclosed—but in the Policy’s definition of “Loss” itself. Reading the definitions section of any SDI policy with the same attention paid to the Declarations is no longer optional advice.
For the industry more broadly, the question of whether a Subcontract Multiplier Cap buried in a policy’s definitions section—rather than disclosed in the Declarations alongside every other financial limitation—is enforceable under New York law remains to be answered. The court’s ruling on the merits will be worth watching.
Callahan, Inc. d/b/a Callahan Construction Managers v. Arch Specialty Insurance Company, Civil Action No. 1:25-cv-10412-IT (D. Mass. February 27, 2026)
Owen Gallagher is the publisher of Agency Checklists and a Massachusetts attorney focusing on insurance coverage and regulatory matters. He can be reached at (617) 598-3801. Initial consultations are complimentary.
The views expressed are solely those of the author. The author does not represent any party to the matters discussed in this article.
