Santos et al v. Preferred Mutual Insurance Company
Filing
47
Judge Michael A. Ponsor: MEMORANDUM AND ORDER entered. As follows: For the reasons stated, Defendants Second Motion for Summary Judgment (Dkt. No. 41 ) and Defendants Supplemental Motion for Summary Judgment (Dkt. No. 44 ) are hereby DENIED. Plaintiffs manifestly possess a more than trial-worthy claim. The clerk will now schedule the case for a final pretrial conference. It is So Ordered. See the attached memo and order for complete details. (Lindsay, Maurice)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
JOSE F. SANTOS and
MARIA SANTOS,
Plaintiffs,
v.
PREFERRED MUTUAL INSURANCE
COMPANY,
Defendant.
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C.A. No. 12-cv-30060-MAP
MEMORANDUM AND ORDER REGARDING
DEFENDANT’S SECOND MOTION FOR SUMMARY JUDGMENT
AND DEFENDANT’S SUPPLEMENTAL MOTION FOR SUMMARY JUDGMENT
(Dkt. Nos. 41 & 44)
May 12, 2014
PONSOR, U.S.D.J.
I.
INTRODUCTION
Plaintiffs, Jose and Maria Santos, have brought suit
under Mass. Gen. Laws ch. 93A against their insurer,
Defendant Preferred Mutual Insurance Company.
Plaintiffs
also assert claims for breach of contract and breach of the
implied covenant of good faith and fair dealing.
These
allegations stem from Defendant’s treatment of Plaintiffs
following a 2011 oil tank explosion in their basement.
The pending summary judgment motions focus on a narrow
question: Have Plaintiffs satisfied the conditions precedent
to filing suit?
Defendant contends that it is entitled to
judgment in its favor because Plaintiffs failed to refer the
matter to an independent board of referees and because they
initially failed to attend an examination under oath.
However, because Defendant ultimately waived the former
requirement and because Plaintiffs did ultimately sit for an
examination under oath, the court will deny Defendant’s
Second Motion for Summary Judgment (Dkt. No. 41), as well as
Defendant’s Supplemental Motion for Summary Judgment (Dkt.
No. 44).
II. BACKGROUND1
A.
The Parties and the Policy
Plaintiffs, Jose and Maria Santos, a married couple,
owned a home together in Ludlow, Massachusetts.
Defendant,
a mutual insurance company organized in and operating out of
New York, insured Plaintiffs’ residence beginning in 2007.
The relevant policy for this litigation, policy No.
PHO0100761814, covered Plaintiffs for the period of November
1, 2011, to November 1, 2012.
The policy, in addition to its substantive provisions,
contained a number of procedural requirements in the event
of a claim.
Two are relevant.
First, a claimant, upon
request of the insurer, was required to “submit to an
1
Unless otherwise noted, the facts are drawn from the
parties’ submissions and the exhibits referenced therein.
(Dkt. Nos. 41, 42, 44, & 45.)
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examination under oath in matters connected with the loss or
claim.”
(Policy, Dkt. No. 41, Ex. 2.)
Second, the policy
stated, “If there is a disagreement as to the dollar amount
of the loss . . . [t]he dispute will be referred to a three
member board of referees.
Their decision as to the amount
of loss will be binding.”
(Id.)
The policy precluded suit
against Defendant unless “all the terms of th[e] policy have
been complied with.”
B.
(Id.)
The Explosion and the Immediate Aftermath
On November 3, 2011, Alves Fuels delivered heating oil
to Plaintiffs’ home.
Shortly after the delivery, Mrs.
Santos was doing laundry in her basement when the oil tank
exploded.
The explosion spewed oil into the air, onto the
floor, on a number of personal items, and covered Mrs.
Santos.
The oil quickly spread throughout the basement.
Mr. Santos immediately called 911, and the Ludlow
police and fire departments responded.
Mr. Santos then
called Joe Salvador, owner of Alves Fuels, and Western Mass
Environmental, LLC (“WME”), to assist with the oil spill.
Around 11:00 a.m., WME arrived with a vacuum truck and began
to suction the oil out of the basement.
It also removed
sections of the structure of the home and personal property
that had been soaked in oil.
In total, WME removed nine
barrels of oily material and personal property.
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They then
installed a ventilation system in the residence in an
attempt to address a significant air quality problem.
C.
Plaintiffs’ Dealings with Defendant
On the day after the explosion, Mr. Santos notified
Defendant of the incident by reporting it to one of
Defendant’s local agents, Connie Doughty of Your Choice
Insurance.
Doughty informed Mr. Santos that his insurance
would cover the costs for lodging, food, and other relevant
expenses incurred as a result of the accident.
Relying on
that, Plaintiffs temporarily moved to the Quality Inn &
Suites in Ludlow.
During the following week, Doughty arranged for
Plaintiffs to meet another representative of Defendant, Wade
Loud of LaMarche Associates, to discuss the accident.
Loud
and Doughty instructed Plaintiffs to prepare and submit a
list of items that had been damaged by the spill.
The two
agents also accompanied Plaintiffs to the residence to
inspect the damage.
They left Plaintiffs with the
impression that Defendant would fully compensate them for
the accident.
On November 12, 2011, Plaintiffs, having received
nothing from their insurance carrier and being unable to
afford the hotel any longer, moved back into their
residence.
They provided Loud with documentation of the
expenses for the lodging, along with a list of the personal
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property damaged.
Subsequently, Loud, on behalf of Defendant, informed
Alves Fuel that Defendant would provide coverage and assume
responsibility.
Defendant also retained Tighe and Bond of
Westfield Massachusetts to study the contamination of the
residence.
Tighe and Bond removed samples of the basement
floor and found them to be severely contaminated.
Following
this disclosure, Defendant instructed Tighe and Bond to stop
its activities and refused to pay for its work.
On January 13, 2012, over two months after the
explosion, Loud again confirmed, this time in writing, that
Defendant would pay for Plaintiffs’ losses.
At that point,
however, Defendant had still not done so, nor had it taken
any other action to aid Plaintiffs.
In late January 2012, Plaintiffs continued to smell
fumes in their home.
In the absence of assistance from
Defendant, Plaintiffs contacted Jack Jemsek, a Massachusetts
Licensed Site Professional.
On January 25, 2012, Jemsek
tested the air in the residence and found that it posed an
imminent threat to Plaintiffs’ health.
Jemsek then told
Plaintiffs to vacate the residence and reported the
situation to the Massachusetts Department of Environmental
Protection.
As a result, Plaintiffs moved back to a hotel,
and on February 2, 2012, the Department of Environmental
Protection issued a “Notice of Noncompliance” to Plaintiffs
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and Alves Fuels.
Meanwhile, on January 27, 2012, Plaintiffs’ counsel
wrote to Defendant, pursuant to Mass. Gen. Laws ch. 93A, §
9(3), demanding relief for its unfair business practices and
seeking confirmation that Defendant would cover the damages.
Defendant failed to respond to this 93A letter.
On February
8, 2012, Defendant stated that it would continue its
investigation into the matter.
A few days later, Defendant met with Plaintiffs at
their residence to review the list of damaged items.
According to Plaintiffs, Defendant’s representative
challenged, threatened, and verbally abused Plaintiffs until
they were obliged to ask him to leave.
On March 2, 2012,
Plaintiffs submitted another itemized statement of costs and
damages to Defendant.
D.
Litigation
On March 20, 2012, Defendant’s counsel requested that
Plaintiffs sit, at a mutually agreeable time, for an
examination under oath.
At that point, Defendant had not
provided any reimbursement to Plaintiffs, nor had it taken
any steps to abate the damage at the residence.
Defendant,
however, had not indicated that it was, in any specific way,
contesting coverage and/or the amount of loss.
As a result of Defendant’s inaction, six days later,
Plaintiffs filed this suit alleging: (I) breach of contract;
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(II) a violation of the implied covenant of good faith and
fair dealing; and (III) a violation of Mass. Gen. Laws ch.
93A.
In their complaint, Plaintiffs also included a fourth
count seeking a declaratory judgment that Defendant was
obligated to provide coverage for Plaintiffs’ personal
property, reasonable costs, and attorney’s fees.
On May 29, 2012, Defendant sent Plaintiffs a letter
informing them that it was continuing to investigate its
obligations under the first-party coverage provisions of the
policy.
However, with respect to the “liability and medical
payments to others” provision of the policy, Defendant
stated, “Please know that your policy contains a pollution
exclusion that was in place at the time of this occurrence.
Therefore, [Defendant] is unable to provide you with any
coverage for this loss.”
(Dkt. No. 21, Ex. 6.)
On June 8, 2012, Defendant scheduled an examination
under oath for June 21, 2012.
Plaintiffs’ counsel informed
Defendant that Plaintiffs were unavailable at that time.
Plaintiffs’ counsel also requested, to save resources, that
the examinations occur simultaneously with the depositions
of Plaintiffs in this case.
Despite explicit knowledge that
Plaintiffs were not able to attend their examination on June
21, 2012, Defendant, without notifying Plaintiffs, convened
a pro forma examination on June 21, 2012, at which
Plaintiffs were not present.
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Less than a week later, on June 27, 2012, the parties
appeared for a scheduling conference in front of Magistrate
Judge Kenneth P. Neiman.
Plaintiffs’ counsel argued that
Defendant should simultaneously hold the depositions and
examinations under oath.
request.
(Dkt. No. 8.)
The court, however, denied that
As a result, Defendant conducted
the examinations under oath of Mr. Santos on July 17, 2012,
and Mrs. Santos on July 19, 2012.
Defendant has not raised
any objection respecting the adequacy of Plaintiffs’ answers
or their conduct at the examinations.
On September 25, 2012, more than ten months after the
explosion, Defendant finally made some payments to
Plaintiffs under the Personal Property and Additional Living
Expense provisions of the policy.
Then on October 19, 2012,
Defendant provided some funds under the Residence Coverage
provision.
When Defendant made these payments, it included
a reference to policy language that required Plaintiffs, if
they disagreed with the amount of loss, to refer the matter
to a three-member board of referees.
Defendant did not,
however, specifically indicate that it was contesting any
loss claim; rather, it informed Plaintiffs that it was
continuing to investigate the matter.
Subsequently,
Plaintiffs cashed the checks.
In February 2013, Defendant filed its first Motion for
Summary Judgment, arguing that Plaintiffs had failed to
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refer the dispute over the amount of loss to a panel of
referees and therefore were barred from bringing suit.
(Dkt. No. 18.)
The court denied that motion without
prejudice, but stayed the case pending a referral.
No. 28.)
(Dkt.
That panel commenced its review on June 24, 2013,
and found the total amount of loss to be $68,358.31.2
On October 25, 2013, Defendant, still relying on the
theory that Plaintiffs had failed to refer their claim to a
three-member panel, filed its Second Motion for Summary
Judgment.
(Dkt. No. 41.)
At oral argument, Defendant also
insisted that summary judgment was appropriate because
Plaintiffs failed to be examined under oath –- a point for
which the court requested supplemental briefing.
43.)
(Dkt. No.
The matter was then taken under advisement.
III.
DISCUSSION
Summary judgment is appropriate when there are no
genuine issues of material fact and the movant is entitled
2
Though the amount of loss may be under $75,000, the court
maintains diversity jurisdiction over the case. First,
Plaintiffs have asserted a colorable claim for treble
damages under Mass. Gen. Laws ch. 93A, a potential award
that can be included in calculating the amount in
controversy. See, e.g., Youtsey v. Avibank Mfg., Inc., 734
F. Supp. 2d 230 (D. Mass. 2010); F.C.I. Realty Trust v.
AETNA Cas. & Sur. Co., 906 F. Supp. 30 (D. Mass. 1995).
Second, the amount in controversy is examined by looking at
the facts at the time the complaint was filed –- a potential
amount Plaintiffs reasonably established to be above
$75,000. See Spielman v. Genzyme Corp., 251 F.3d 1, 5 (1st
Cir. 2001)(citation omitted).
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to judgment as a matter of law.
Fed. R. Civ. P. 56(a).
Critically in this case, the court must view the facts in
the light most favorable to the non-moving party, drawing
all reasonable inferences from those facts in that party’s
favor.
Pac. Ins. Co., Ltd. v. Eaton Vance Mgmt., 369 F.3d
584, 588 (1st Cir. 2004).
In the absence of a dispute over
a genuine issue of material fact, summary judgment is
appropriate.
Reich v. John Alden Life Ins. Co., 126 F.3d 1
(1st Cir. 1997).
Defendant argues that it is entitled to summary
judgment based on two theories.
First, Plaintiffs failed to
refer the dispute over the amount of loss to a board of
referees as required under the policy.
Second, Plaintiffs
failed to sit for an examination under oath.
For the
reasons discussed below, neither argument comes within
shouting distance of being persuasive.
A.
Referral Under ch. 175, § 99, and Waiver
The referral procedure at issue in the policy has its
genesis in Mass. Gen. Laws ch. 175, § 99.
That section
provides the standard language -- disturbingly anachronistic
-- for insurance companies to use.
It states, “In the case
of loss under this policy and a failure of the parties to
agree as to the amount of loss, it is mutually agreed that
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the amount of such loss shall be referred to three
disinterested men [sic].”
Mass. Gen. Laws ch. 175, § 99.
The Supreme Judicial Court has interpreted this requirement,
“unless waived by the parties, [to be] a condition precedent
to recovery upon the policies, if the parties failed to
agree upon the amount of loss.”
Molea v. Aetna Ins. Co.,
326 Mass. 542, 544 (1950); see also Emp’rs’ Liab. Assurance
Corp., Ltd.
v. Traynor, 354 Mass. 763 (1968).
Defendant’s contention is relatively simple: this
language was in the policy, and Plaintiffs, before bringing
suit, failed to refer the matter to a three-person board of
referees.
They once more failed to refer the matter after
Defendant made a partial payment.
Though the referral language is a condition precedent
to suit, controlling authority makes it clear that the
obligation is not sacrosanct.
The First Circuit, in McCord
v. Horace Mann Insurance Company, 390 F.3d 138 (1st Cir.
2004), noted that an insurer could waive the provision.
Though the McCord court did not find waiver in that specific
case, it still affirmatively cited cases where “an absence
of evidence that the insurer disputed the amount of loss”
indicated waiver.
Id. at 144, citing, Goodman v. Quaker
City Fire & Marine Ins. Co., 241 F.2d 432, 436 (1st Cir.
1957); Moran v. Phoenix Ins. Co., 7 Mass. App. Ct. 822
(1979).
Indeed, as Massachusetts’ courts have recognized,
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“the right to reference, like the right to arbitration, may
be found to have been waived by the failure to properly and
timely assert the right.”
Anthony v. Amica Mut. Ins. Co.,
10 Mass. L. Rptr. 256, 1999 WL 513958 at *2 (Mass. Super.
May 13, 1999).
The waiver need not be explicit, Moran v.
Phoenix Ins. Co., 7 Mass. App. Ct. 822 (1979), and the
burden of proving waiver is on the party seeking to rely
upon it.
McCord, 390 F.3d at 143.
Here, Plaintiffs have presented undisputed evidence
that Defendant did not contest the amount of loss until well
after this suit was filed on March 26, 2012.
The first
indication that Defendant may have been contesting the issue
occurred on March 20, 2012, when it requested that
Plaintiffs be examined under oath.
Even then, however,
Defendant did not indicate that it would be disputing
Plaintiffs’ stated amount of loss, despite the fact that it
had enjoyed more than four months to conduct an
investigation.
It was not until May 29, 2012, after Plaintiffs filed
this suit, that Defendant formally told Plaintiffs that it
was disputing some liability.
Even at this time, however,
Defendant offered no explicit objection to the stated amount
of loss and noted that it was continuing to investigate its
liability under the first-party coverage provisions of the
policy.
(Dkt. No. 42, Ex. 11.)
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It was not until September 2012, six months later, that
Defendant impliedly contested the amount of loss when it
paid over funds that were less than the amount Plaintiffs
claimed.
Even at this time, though, Defendant stated that
it was still conducting an investigation into the matter and
that the payment was not final.
(Dkt. No. 42, Ex. 12.)
Critically, no evidence in this record suggests that
Defendant objected to Plaintiffs’ stated amount of loss
prior to that time.
Given these facts, Defendant’s argument amounts to a
claim that the complaint should be dismissed because
Plaintiffs failed to anticipate a dispute over the amount of
loss that Defendant itself said nothing about.
In failing
to object to the amount of Plaintiffs’ claim in a reasonable
period of time after it was submitted –- or even in a
reasonable period of time after this suit was filed -Defendant’s inaction implicitly waived the referral
requirement, rendering dismissal inappropriate.
See, e.g.,
Fall River v. Aetna Ins. Co., 219 Mass. 454, 458 (1914);
Lancaster v. Gen. Accident Ins. Co. of Amer., 32 Mass. App.
Ct. 925, 926 (1992); Moran, 7 Mass. App. Ct. at 824-25.
If it gave credit to Defendant’s argument, the court
would be saying that any policyholder making a claim against
an insurance company would be required to invoke the threemember review procedure whenever a dispute over the amount
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of loss was hypothetically possible at some future point, or
risk dismissal of any claim.
Prudent policy holders would
be required to request the referral in every case, and
clever insurers would be rewarded for folding their arms and
keeping mum about their intentions, as Defendant did for
nearly a year here.
This is not the law.
The other problem with Defendant’s position is that it
sweeps too broadly.
Only two of Plaintiffs’ claims even
relate to the amount of loss –- the breach of contract claim
and the request for a declaratory judgment.
The theory of
this case, however, is more fundamentally about the unlawful
and abusive process Defendant imposed on Plaintiffs once
they submitted a claim –- essentially that it left two of
its policyholders, people of very modest means, twisting in
the wind while it dithered about the amount of the loss and
made inconsistent statements about whether it would provide
coverage at all.
This portion of the complaint, offered
primarily under Ch. 93A, would proceed regardless of the
amount of loss.
At a minimum then, summary judgment as to
the entire complaint would be inappropriate.
As a legal matter, Defendant waived the requirement
that Plaintiffs refer the matter to a panel of referees
before filing suit.
As a practical matter, that referral
has also now taken place in any event, and the case can
continue to move forward.
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B.
Examinations Under Oath
Defendant’s second theory, one presented at oral
argument and pursued in supplemental memoranda, is that
Plaintiffs failed to subject themselves to examinations
under oath as required by the insurance policy.
It is
undisputed that “submission to an examination, if the
request is reasonable, is strictly construed as a condition
precedent to the insurer’s liability.”
Mello v. Hingham
Mut. Fire Ins. Co., 421 Mass. 333, 337 (1995).
In this case, Defendant asserts, Plaintiffs failed to
submit to an examination before they filed suit, despite a
request by Defendant on March 20, 2012.
Plaintiffs,
according to Defendant, failed to attend the examination on
the June 21, 2012, date Defendant arranged.
Both failures,
Defendant insists, represent a breach of a condition
precedent to suit, requiring dismissal of this case.
At
best, the argument runs, Plaintiffs can re-file their case
following dismissal.
This argument is peculiar.
Defendant does not dispute
that it provided Plaintiffs the opportunity to be examined
at a “mutually convenient date,” (Dkt. No. 41, Ex. 3), and
that Plaintiffs notified it that the first date was
inconvenient.
Moreover, Defendant does not dispute that
Plaintiffs did indeed sit for the examinations in July 2012.
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Given these undisputed facts, two interrelated points
resolve the issue.
First, the examination under oath is a
condition for liability, not a bar to suit.
Mass. at 336.
See Mello, 421
The court is not aware of a case that
requires the examination to occur before suit is filed.
In
fact, it appears to only serve as a final bar to liability
where the examination does not occur before trial, or where
the plaintiff refuses to cooperate during the examination
itself.
See, e.g., Id. at 336.
With that as a baseline, taking Defendant’s version of
events as true, the record undisputedly illustrates that the
requirement was complied with fully on July 17 and 19, 2012.
Notably, Defendant does not contend that Plaintiffs were
evasive at the examinations, or that they failed to
cooperate in good faith.
Contra Hanover Ins. Co. v. Cape
Cod Custom Home Theater, Inc., 72 Mass. App. Ct. 331
(2008)(finding that the requirement was not satisfied where
the plaintiff refused to answer questions, withheld relevant
documents, and subsequently walked out of the examination).
Under the circumstances here, no bar to liability emerges,
and the case can move forward.
IV. CONCLUSION
For the foregoing reasons, Defendant’s Second Motion
for Summary Judgment (Dkt. No. 41) and Defendant’s
Supplemental Motion for Summary Judgment (Dkt. No. 44) are
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hereby DENIED.
Plaintiffs manifestly possess a more than
trial-worthy claim.
The clerk will now schedule the case
for a final pretrial conference.
It is So Ordered.
/s/ Michael A. Ponsor
MICHAEL A. PONSOR
U. S. District Judge
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