Audubon Hill S. Condo. Ass'n v. Cmty. Ass'n Underwriters of Am., Inc.

82 Mass.App.Ct. 461

975 N.E.2d 458

AUDUBON HILL SOUTH CONDOMINIUM ASSOCIATION

v.COMMUNITY ASSOCIATION UNDERWRITERS OF AMERICA, INC.

No. 11–P–1546.

Appeals Court of Massachusetts, Middlesex.

Argued June 4, 2012.

Decided Sept. 20, 2012.

James E. Grumbach, Wellesley, for the plaintiff.

William T. Kennedy (Christine M. McPhee with him) for the defendant.

Present: VUONO, SIKORA, & FECTEAU, JJ.

SIKORA, J.

These cross appeals present a dispute over insurance coverage. Audubon Hill South Condominium Association (Audubon or association) sued its insurer, Community Association Underwriters of America, Inc. (CAU), to establish coverage of damage to one of its units from the subsidence or tilt of a foundational slab. At the conclusion of discovery, each party moved for summary judgment. Audubon insisted that the computation of the amount of loss by a statutorily mandated ¹ panel of referees resolved not only the value of the loss, but also the question of its coverage. CAU contended that the information resulting from discovery placed the loss outside the coverage terms of the governing policy. A judge of the Superior Court granted summary judgment in favor of CAU. On appeal we consider the proper scope of the reference or referee process mandated by G.L. c. 175, § 99; the coverage terms of the policy; the proper use of a motion for reconsideration authorized by Rule 9D of the Rules of the Superior Court (2004); and the propriety of the denial of CAU's motion to amend its answer to assert counterclaims. Those considerations lead to an affirmance of the judgment in favor of CAU and of the order denying reconsideration.

Background. 1. Facts. The following facts emerge from the summary judgment record as undisputed. We reserve certain details for analysis of the parties' arguments. For the year June 1, 2006, through May 31, 2007, CAU provided a comprehensive “Condominium Policy” to Audubon. Coverage included, among other risks, loss or damage to the association's buildings and grounds.² When owner Marilyn Barstow moved into her unit in September of 2005, she had noticed a slight depression or “little dip” in the flooring at her front entryway and in the kitchen.³ Over the course of her residence during the next seventeen months she detected an additional depression in the floor of the master bedroom.⁴ Finally, as she was cleaning the unit in March of 2007, she saw that the kitchen flooring beneath the refrigerator was separating from the baseboard.She reported her observations to the association president.⁵ He inspected the flooring at all three points, and promptly caused the association manager, project architect, and a consulting engineer to examine the problem. Still during March, 2007, Audubon submitted its claim to CAU. It recited that a “[b]roken [p]ipe under the basement slab has caused [the] slab to sink several inches.”

In April an engineer investigated the claim for CAU. He concluded that the subsidence of the foundational slab had likely resulted from an ongoing leak of a water pipe below the affected unit and that it had continued undetected “for an extended period of time.” ⁶ Consequently, in May, CAU reported to Audubon that its investigation indicated that the continuing leakage had eroded supporting soil below the slab and caused it to settle over time. It concluded that gradual settlement resulting from movement of water or earth was a risk not covered by the condominium policy.

In June of 2007, Audubon's consulting engineer submitted written opinions specifying that “hydro-compaction related to a leak in [a] water pipe” five feet below had caused a two-inch deflection (sinking) of a 150–square–foot basement slab along the foundational wall. He opined also that the slab had cracked and deflected “suddenly” rather than by gradual settlement because it “did not crack in the vicinity of the water leak” and did not sink “slowly to fill the void formed by the consolidated soils.” He did not explain the causal connection between the location of the cracks and the pace of the sinking.

Because the parties could not agree on the value of the loss (i.e., the cost of repair or replacement of the floor of the damaged unit), in accordance with G.L. c. 175, § 99, Twelfth, and the conforming provision of the policy, ⁷ they submitted that question to a panel of three referees. Prior to the hearing, counsel for CAU served each referee (and Audubon) with a letter reserving the issue of coverage and liability from the reference.⁸ The referees found the amount of the loss to be $63,909.

2. Procedure. That determination did not produce a settlement. Audubon launched the present action in Superior Court upon claims for breach of the policy contract, declaratory judgment, reformation, and violation of G.L. c. 176D and G.L. c. 93A. CAU continued to resist the claim as uncovered. By a detailed memorandum of decision of the parties' cross motions for summary judgment, the judge concluded that the referees' decision had no effect upon the issue of liability and that the policy excluded coverage of Audubon's claim. Summary judgment entered in favor of CAU. Audubon moved for reconsideration. The judge denied the motion. Audubon has appealed from the summary judgment and from the order denying reconsideration. CAU has cross-appealed; it challenges the judge's denial of its motion to amend its answer by addition of counterclaims charging Audubon with bad faith litigation.

Analysis. Because we are working with the same factual materials available to the motion judge, we review the allowance of summary judgment de novo. See Miller v. Cotter, 448 Mass. 671, 676, 863 N.E.2d 537 (2007); Kennie v. Natural Resource Dept. of Dennis, 69 Mass.App.Ct. 158, 161, 866 N.E.2d 983 (2007), S.C.,451 Mass. 754, 889 N.E.2d 936 (2008). We ask whether the evidence, in the light most favorable to the party losing the contest of cross motions, and the controlling law entitle the prevailing party to judgment. See Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120, 571 N.E.2d 357 (1991); DiLiddo v. Oxford St. Realty, Inc., 450 Mass. 66, 70, 876 N.E.2d 421 (2007). As with contracts generally, the interpretation of the unambiguous terms of an insurance policy is a matter of law for the trial court and then the reviewing court. See Cody v. Connecticut Gen. Life Ins. Co., 387 Mass. 142, 146, 439 N.E.2d 234 (1982); Clendenning v. Worcester Ins. Co., 45 Mass.App.Ct. 658, 660, 700 N.E.2d 846 (1998). If the issue of interpretation and application of the policy requires fact finding, we ask whether the opposing party has any “reasonable expectation” of proving the essential elements of its claim at trial. Kourouvacilis v. General Motors Corp., 410 Mass. 706, 716, 575 N.E.2d 734 (1991).

1. Scope of the reference process. Audubon's first argument requires the coordinated application of the two main provisions governing the claim reference procedure. Under G.L. c. 175, § 99, Twelfth, a Massachusetts standard form policy insuring against property damage by fire (one of the risks covered by the CAU policy) must include a provision of the following language: “In 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 the amount ... shall be referred to three disinterested [referees] ...; and the award in writing by a majority of the referees shall be conclusive and final upon the parties as to the amount of loss or damage, and [the] reference, unless waived by the parties, shall be a condition precedent to any right of action in law or equity to recover for [the] loss.” Ibid., as appearing in St.1951, c. 478, § 1. See G.L. c. 175, § 100 (specifying the process of referee selection). In elaboration, G.L. c. 175, § 101E, states that “[a] company which ... joins in reference proceedingsshall not thereby be held to have waived any legal defense to the claim [subject to] the reference proceedings ... and [the] proceedings shall fix only the amount of the loss sustained by the insured ... unless both parties shall agree in writing that the reference ... shall proceed under the provisions of [G.L. c. 251, the Uniform Arbitration Act].”

Audubon argues that CAU failed to dispute the meaning of the terms of the policy and therefore conceded the issue of liability as the insurer had done in Augenstein v. Insurance Co. of N. Am., 372 Mass. 30, 36–38, 360 N.E.2d 320 (1977). For several reasons, that position cannot withstand the comparison of the Augenstein circumstances to the present case. Augenstein claimed a theft of jewelry from his house and under a homeowner's policy sought the maximum recovery of $50,000. The carrier denied coverage because it did not believe that a loss had occurred. Id. at 31, 360 N.E.2d 320.

The claim went to the reference process. The insurance company did not invoke any terms of coverage against Augenstein, but submitted its challenge to the occurrence of the loss to the referees. They found the loss to be genuine and to be worth the policy limit of $50,000. Ibid. Augenstein then sued the company in Superior Court upon the merits of the claim and upon the alleged conclusive force of the reference award. Id. at 31–32, 360 N.E.2d 320. A jury found against him on the merits. A judge rejected the conclusive effect of the award. Id. at 32–33, 360 N.E.2d 320. On appeal, the court reinstated the award as presumptively conclusive because the company had not raised or reserved any issue of interpretation or application of the policy for the courts, and had left the factual question of the occurrence of the loss to the referees.⁹Id. at 34, 36–38, 360 N.E.2d 320.

Here, with consistent emphasis CAU maintained that the terms of the policy placed the loss outside its coverage. Its original claim denial letter of May 22, 2007, to Audubon took that stance. CAU's reservation of rights letter stated seven times in five paragraphs that it was withholding all issues of liability from the...