Mutual Real Estate Holdings, LLC d/b/a Re/Max Elite v. Houston Casualty Company et al

Filing 47

///ORDER granting 30 Motion for Summary Judgment. So Ordered by Magistrate Judge Landya B. McCafferty. (gla)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE

Mutual Real Estate Holdings,
LLC, d/b/a RE/MAX Elite
v.

Civil No. 10-cv-236-LM

Houston Casualty Company and
Lexington Insurance Company

O R D E R
In a case that has been removed from the New Hampshire
Superior Court, Mutual Real Estate Holdings, LLC (“Mutual”)
petitions for a declaratory judgment that it, and any agents
working for it, are entitled to coverage under insurance
policies issued by Houston Casualty Company (“Houston”) and
Lexington Insurance Company (“Lexington”).
Lexington’s motion for summary judgment.

Before the court is

Mutual objects.

For

the reasons that follow, Lexington’s motion for summary judgment
is granted.
Summary Judgment Standard
Summary judgment shall be granted “if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to a judgment as a matter of law.”
Civ. P. 56(a).

Fed. R.

Background
The following facts are undisputed.
estate agency.

Mutual is a real

In the summer of 2008, Ronald and Deborah

Desrosiers hired Laurie Norton, one of Mutual’s agents, to serve
as their buyers’ agent.

In July of 2008, Norton showed the

Desrosiers a property that the Desrosiers ultimately purchased.
In a letter dated July 8, 2009, the Desrosiers informed
Norton of their belief that Norton had misrepresented the
condition of the property they purchased and had “made
statements that . . . were not completely truthful.”
Mot. Summ. J., Ex. B (doc. no. 30-3).

Resp’t’s

The Desrosiers also asked

Norton to “advise [them] of any liability insurance [she] may
have personally and also [Mutual] on the above issues.”

Id.

Norton and Mutual denied liability in a July 14, 2009, letter
from counsel.
At the time Mutual received and responded to the
Desrosiers’ letter, and until August 31, 2009, it was covered by
a policy of miscellaneous professional liability insurance
issued by Lexington.

Mutual’s policy also included a separate

endorsement for accident insurance.
The professional liability policy’s “Insuring Agreement”
section provides, in pertinent part:

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The Company will pay on behalf of the Insured Damages
for which the Insured becomes legally obligated to pay
because of any Claim first made against the Insured
during the Policy Period and reported in writing to
the Company pursuant to the terms of this policy,
within the Policy Period, or to the extent applicable,
the Basic . . . Reporting Period. . . .
Resp’t’s Mot. Summ. J., Ex. G (doc. no. 30-8), at 13 (emphasis
in the original).

In the “Notice of Claims” subsection of its

“Conditions” section, the professional liability policy
provides:
(1)

As a condition precedent to any right to coverage
afforded by this policy, the Insured must give
written notice to the Company of any Claim as
soon as practicable after such Claim is first
made during the Policy Period or 30 day Basic
Reporting Period . . . (if applicable), and as
otherwise required by this policy, to:
Attention: Claims manager
Lexington Insurance Company
100 Summer Street
Boston, MA 02110-2103

(2)

If the Insured becomes aware of any circumstance
which may subsequently give rise to a Claim
against the Insured and, during the Policy Period
or, if applicable, the Basic Reporting Period
. . . gives the Company written notice of:
a.

the nature and date of the specific Wrongful
Act;

b.

the names of potential claimants;

c.

the injury or consequences which have or
might result therefrom; and

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d.

the manner in which the Insured first became
aware of the potential for a Claim
therefrom, then any Claim subsequently made
against the Insured arising out of such
Wrongful Act shall be deemed to have been
made during the Policy Period or, if
applicable, the Basic Reporting Period
. . . .

Id. at 18-19 (emphasis in the original).

Finally, another

subsection of the policy’s “Conditions” section describes the
“Basic Reporting Period” as follows:
If this policy is not renewed for any reason or is
cancelled for any reason other than non-payment of
premium or deductible, a Basic Reporting Period is
automatically provided without additional charge.
Coverage is extended to include Claims arising out of
a Wrongful Act which occurred prior to the end of the
effective date of such cancellation or non renewal and
not before the Retroactive Date stated in Item 7. of
the Declaration; and are otherwise covered by this
policy, provided the Claim is first made against the
Insured during Policy Period and reported to the
Company within 30 days after the end of the effective
date of such cancellation or non renewal.
Id. at 20 (emphasis in the original).
Mutual did not inform Lexington of the Desrosiers’ July 8
letter, notwithstanding the fact that the Desrosiers themselves
expressly raised the issue of insurance coverage.

On August 14,

2009, the Desrosiers filed a complaint against Norton with the
New Hampshire Real Estate Commission (“Commission”).

By letter

dated August 26, 2009, the Commission provided Norton with a
copy of the Desrosiers’ complaint against her.

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Norton responded

to the Commission by letter dated September 1, 2009.

Mutual,

however, did not report the Desrosiers’ complaint to Lexington.
By letter dated October 30, 2009, counsel for the
Desrosiers contacted counsel for Mutual and asked whether Mutual
and Norton would be willing to waive formal service of a writ
the Desrosiers were planning to file against them.

On November

4, Mutual informed its insurance agent of the Desrosiers’
impending suit.

Mutual’s insurance agent, in turn, notified

Houston Casualty Company, which had issued Mutual a policy of
professional liability insurance covering the period from August
31, 2009, through August 31, 2010.

Houston denied coverage on

grounds that Mutual had knowledge of the wrongful act on which
the Desrosiers’ suit was based before the inception date of the
policy it issued Mutual, thus barring coverage.
On the same day Mutual received Houston’s denial of
coverage, December 23, 2009, Mutual notified Lexington of the
Desrosiers’ claims.

Lexington, in turn, denied coverage, on

grounds that it issued Mutual a “claims made and reported”
policy and Mutual did not report the Desrosiers’ claims until
after the Basic Reporting Period had ended on September 30,
2009.

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Based on the foregoing, Mutual filed a petition for
declaratory judgment.

In its petition, Mutual asks the court to

declare that the professional liability policies issued by both
Houston and Lexington were “in full force and effect at the time
of the reported incident,” and that those policies provide
liability and indemnification for it and any agent working for
it within the scope of his or her affiliation.
Discussion
Under New Hampshire law, “[i]n a declaratory judgment
action to determine the coverage of an insurance policy, the
burden of proof is always on the insurer, regardless of which
party brings the petition.”

Brickley v. Progressive N. Ins.

Co., 160 N.H. 625, 627 (2010) (quoting Carter v. Concord Gen.
Mut. Ins. Co., 155 N.H. 515, 517 (2007)).
Lexington moves for summary judgment, arguing that the
unambiguous terms of the professional liability policy it issued
Mutual bar coverage under the circumstances of this case.
Substantively, it argues that it issued Mutual a “claims-made”
policy, and that Mutual did not report the Desrosiers’ claims
during the Policy Period or the subsequent thirty-day Basic
Reporting Period.

Mutual does not challenge the factual basis

for Lexington’s argument, i.e., that it reported the Desrosiers’

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claim after the end of the Basic Reporting Period.

Rather,

Mutual argues that its policy from Lexington was not a “claimsmade” policy but was an “occurrence” policy, under which
Lexington is obligated to show prejudice before it can deny
coverage on grounds of an insured’s untimely report of a claim
against it.

Accordingly, resolution of the motion before the

court turns on a single question of law: whether the policy
Lexington issued to Mutual was a “claims-made” or an
“occurrence” policy.

See Progressive N. Ins. Co. v. Argonaut

Ins. Co., 161 N.H. 778, 780 (2011) (“The interpretation of
insurance policy language, like any contract language, is
ultimately an issue of law for [the] court to decide.”).
With regard to the principles that guide the interpretation
of insurance-policy language, the New Hampshire Supreme Court
has recently explained:
We look to the plain and ordinary meaning of the
policy’s words in context. Policy terms are construed
objectively, and when the terms of a policy are clear
and unambiguous, we accord the language its natural
and ordinary meaning. When an insurance policy’s
language is ambiguous, however, and one reasonable
interpretation favors coverage, we construe the policy
in the insured’s favor and against the insurer.
Progressive, 161 N.H. at 781 (citing Marikar v. Peerless Ins.
Co., 151 N.H. 395, 397 (2004)).

When interpreting an insurance

policy, a court should “construe the language as would a

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reasonable person in the position of the insured based upon a
more than casual reading of the policy as a whole.”

Brickley,

160 N.H. at 627 (quoting Hartley v. Elec. Ins. Co., 154 N.H.
687, 688 (2007)).

Ambiguity exists when “more than one

reasonable interpretation is possible,” id. (quoting Catholic
Med. Ctr. v. Exec. Risk Indem., Inc., 151 N.H. 699, 701 (2005)),
but courts should “not . . . perform amazing feats of linguistic
gymnastics to find a term ambiguous,” id. (citation omitted).
As noted, the key question in this case is whether the
policy at issue is a “claims-made” policy or an “occurrence”
policy.

If the policy is a “claims-made” policy, Lexington

correctly denied coverage based upon Mutual’s failure to report
the Desrosiers’ claim until after the end of the Basic Reporting
Period; if the policy is an “occurrence” policy, then Mutual is
not necessarily disqualified from coverage based upon when it
reported the Desrosiers’ claim.
A “claims-made” policy “provide[s] liability coverage for
claims that are made against the insured and reported to the
insurer during the policy period.”

Catholic Med. Ctr., 151 N.H.

at 703 (quoting Bianco Prof’l Ass’n v. Home Ins. Co., 144 N.H.
288, 296 (1999)) (emphasis added).

Thus, under a “claims-made”

policy, “by failing to timely notify the insurer of a potential

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claim, the insured[ ] forfeit[s] coverage.”

Id.

In contrast,

“[a]n occurrence-based policy is one ‘in which coverage is
triggered by the occurrence of a negligent act or omission
during the coverage period . . . .’”

Benson v. N.H. Ins. Guar.

Ass’n, 151 N.H. 590, 596 (2004) (quoting Bianco, 144 N.H. at
296).

As explained more fully in the seminal New Hampshire case

on this issue:
Claims-made policies provide liability coverage for
claims that are made against the insured and reported
to the insurer during the policy period. See Concord
Hosp. v. N.H. Medical Malpractice Joint Underwriting
Assoc., 137 N.H. 680, 683 (1993).
There is no requirement that an insurance company
prove it was prejudiced due to lack of notice
under a claims made policy. This is because,
unlike an occurrence policy in which coverage is
triggered by the occurrence of a negligent act or
omission during the coverage period, a claims
made policy provides coverage when the act or
omission is discovered and brought to the
attention of the insurer, regardless of when the
act or omission occurred.
Insurance Placements, Inc. v. Utica Mut. Ins. Co., 917
S.W.2d 592, 597 (Mo. Ct. App. 1996) (citation
omitted); see also Zuckerman v. Nat. Union Fire Ins.,
495 A.2d 395, 406 ([N.J.] 1985). Claims-made policies
necessarily include a presumption that the insurer
suffers prejudice when the insurer does not receive
timely notice of the claim during the policy period,
preventing the insured from seeking coverage under
subsequent policies. See Chas. T. Main v. Fireman’s
Fund Ins., 551 N.E.2d 28, 30 ([Mass.] 1990).
When a claims-made policy obligates an insured to
give notice upon receiving knowledge of any act or

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omission that “could reasonably be expected” to be the
basis of a claim, it in effect accelerates a future
claim to bring it within the current policy period.
See National Union Fire Ins. v. Baker & McKenzie, 997
F.2d 305, 306 (7th Cir. 1993). The insurer in turn
obligates itself to treat the reported potential claim
as an actual one that must be insured when it becomes
actual in fact. See id.
Bianco, 144 N.H. at 296 (parallel citations omitted).
Regarding how to tell the difference between a “claimsmade” policy and an “occurrence” policy, the New Hampshire
Supreme Court has noted:
[O]ur classification of a policy as occurrence-based
has not turned upon the presence or absence of that
term. Instead, our classification of a liability
policy as either occurrence-based or claims-made has
consistently centered upon the differentiation in
notice requirements outlined in Bianco: specifically,
whether the policy provides coverage for claims based
on an event occurring during the policy period,
“regardless of whether the claim or occurrence itself
is brought to the attention of the insured or made
known to the insurer during the policy period”
(occurrence-based), or for claims that are made
against the insured and “reported to the insurer
during the policy period” (claims-made).
Bates v. Vt. Mut. Ins. Co., 157 N.H. 391, 397-98 (2008)
(citation omitted) (emphasis added by Bates); see also Concord
Hospital, 137 N.H. at 683 (“The JUA policies . . . are not
‘claims made’ simply because they say they are.

‘Claims made’

is a category of policies that contain certain provisions;

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without those provisions, no amount of labelling can make these
policies ‘claims made’ or induce us to treat them as such.”).
Bates provides a good example of what an “occurrence”
policy looks like.

In that case, the policy provided: “We will

pay medical expenses . . . for ‘bodily injury’ caused by an
accident . . . provided that . . . [t]he expenses are incurred
and reported to us within one year of the date of the accident.”
157 N.H. at 395 (emphasis in the original).

Here, by contrast,

the relevant policy language states: “The Company will pay on
behalf of the Insured Damages for which the Insured becomes
legally obligated to pay because of any Claim first made against
the Insured during the Policy Period and reported in writing to
the Company pursuant to the terms of this policy, within the
Policy Period.”

Based on the relevant policy provisions, see

Bates, 157 N.H. at 398; Concord Hospital, 137 N.H. at 683, the
professional liability policy Lexington issued Mutual cannot
reasonably be interpreted to be an “occurrence” policy.

Thus,

it is, unambiguously, a “claims-made” policy.
Mutual’s argument to the contrary suffers from two major
flaws.

First, while asking the court to disregard various

headings and other language that identifies the policy as a
“claims-made” policy, Mutual completely disregards Section I,

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the substantive section of the policy titled “Insuring
Agreement,” which includes the language quoted in the previous
paragraph.

Ignoring the “Insuring Agreement” section is not a

reasonable way to interpret the policy.

Then, Mutual appears to

treat the “Notice of Claim” subsection of Section V – which
requires claims to be reported to Lexington, in writing, “as
soon as practicable” – as if it were the insuring agreement,
rather than the description of a condition precedent.

That too,

is an unreasonable way to construe the policy.
Read in the manner in which a reasonable person in Mutual’s
position would construe the policy as a whole, based upon a
more-than-casual reading, Sections I and V.B. do two different
things.

Section I says what is covered, i.e., claims that are

made against an insured and reported to Lexington during the
Policy Period or the Basic Reporting Period, while Section V.B.
says what an insured must do once a claim has been made against
it, i.e., report the claim in writing as soon as practicable
(but before the end of the Basic Reporting Period).

Ignoring

Section I and construing the condition stated in Section V.B. as
the operative insuring agreement are precisely the kind of
verbal gymnastics the New Hampshire Supreme Court has repeatedly
cautioned against.

See Brickley, 160 N.H. at 627.

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Mutual’s other attempts to create ambiguity are also
unavailing.

First, the professional liability policy does

contain several provisions, such as Sections V.B.(2) and V.C.,
that soften the sharp edges of the “claims-made” provision by
deeming certain seemingly untimely claims to have been made
during the Policy Period.

Those provisions, however, actually

support Lexington’s position rather than Mutual’s.

If the

policy were indeed an “occurrence” policy rather than a “claimsmade” policy, there would be no need for provisions related to
what counts as a claim made during the Policy Period.

In short,

the policy’s accommodation for occurrences taking place in the
Policy Period that could later ripen into Claims (Section
V.B.(2)) and its accommodation for Related Claims (Section V.C.)
do not trump the Insuring Agreement and transform the policy
from a “claims-made” policy into an “occurrence” policy.
Moreover the fact that a completely separate accident-insurance
endorsement has an occurrence-based insuring agreement says
nothing about the insuring agreement in the professional
liability portion of the policy.
Because the professional liability policy Lexington issued
Mutual is, unambiguously a “claims-made” policy, and it is
undisputed that Mutual did not report the Desrosiers’ claims to

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Lexington until after the end of the Basic Reporting Period,
Lexington is entitled to judgment as a matter of law that Mutual
is not entitled to professional liability coverage from
Lexington for the Desrosiers’ claims.
Conclusion
For the reasons given above, Lexington’s motion for summary
judgment, document no. 30, is granted.
SO ORDERED.

__________________________
Landya McCafferty
United States Magistrate Judge

August 30, 2011
cc:

Christopher H.M Carter, Esq.
Sarah A. Kutner, Esq.
Aidan M. McCormack, Esq.
Mark D. Morrissette, Esq.
Danielle L. Pacik, Esq.
Ralph Suozzo, Esq.

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