Certain Underwriters at Lloyd's v. Walley

457 F.Supp.3d 1

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, SUBSCRIBING TO POLICY NO. XSZ98911, Plaintiff,

v.Alexander WALLEY and Erin Lynn Matis, Defendants.

C.A. No. 1:18-cv-12454

United States District Court, D. Massachusetts.

Signed May 1, 2020

Filed May 4, 2020

MEMORANDUM AND ORDER

WOLF, D.J.

The court has received the attached February 26, 2020 Magistrate Judge's Report and Recommendation on Plaintiff's Motion for Judgment on the Pleadings. The Magistrate Judge recommends denying plaintiff's motion. The matters as to which plaintiff objected have been reviewed de novo. See 28 U.S.C. § 636(b)(1)(B) & (C) ; Fed. R. Civ. P. 72(b)(3) ; Díaz-Alarcón v. Flández-Marcel, 944 F.3d 303, 310 (1st Cir. 2019). Plaintiff's objection to the heating issue was previously raised in its initial briefing and the Magistrate Judge addressed that contention. Further, the court notes that although plaintiff in its initial briefing assumed rather than argued that the property was unoccupied, the occupancy issue was also directly addressed by the Magistrate Judge. The court finds the Magistrate Judge's Report and Recommendation to be thorough, thoughtful, and persuasive.

Accordingly, it is hereby ORDERED that:

1. The attached Report and Recommendation (Dkt. No. 23) is ADOPTED and INCORPORATED pursuant to 28 U.S.C. § 636(b)(1)(C).

2. Defendant's Motion for Judgment on the Pleadings (Dkt. No. 15) is DENIED.

3. This case is returned to the Magistrate Judge for pretrial purposes.

REPORT AND RECOMMENDATION ON PLAINTIFF'S MOTION FOR JUDGMENT ON THE PLEADINGS

CABELL, U.S.M.J.

I. INTRODUCTION

Plaintiff Certain Underwriters at Lloyd's, London, Subscribing to Policy No. XSZ98911 ("Lloyd's"), has brought an action for a declaratory judgment that it has no duty to pay on an insurance claim submitted by defendant homeowners Dr. Alexander Walley and Erin Lynn Matias. The defendants in turn seek a declaratory judgment that Lloyd's is obligated to pay, and counterclaim for breach of contract and violation of the Massachusetts consumer protection statute. The plaintiff moves for judgement on the pleadings. (D. 15). For the reasons explained below, I recommend that the motion be DENIED.

II. RELEVANT FACTUAL BACKGROUND

The facts are taken from the pleadings and set out in a light most favorable to the defendants as the non-moving party. See R.G. Financial Corp. v. Vergara-Nunez , 446 F.3d 178, 182 (1st Cir. 2006). The defendants own a second home on Martha's Vineyard, Massachusetts ("the property"), which the plaintiff insured. (D. 1, Complaint ¶ 8-9).

The home is heated by a propane-fired, forced hot water heating system that requires electricity to operate. (Id. ¶ 13). On January 4, 2018, a large winter storm caused the home to lose power. (Id. ¶ 11). The defendants were not there at the time. (D. 6, Ans. & Countercl., Exhibit 1, 93A Demand Letter at 3). However, the defendants had been at the home less than two weeks before the power loss. The defendants do not rent the property and use it throughout the year without "winterizing" it. ( Id. ).

Dr. Walley's parents live next door to the home and are full-time, year-round Vineyard residents. They checked on the property on "virtually a daily basis" and in fact were the ones who notified the defendants of the power loss. ( Id. ).

The defendants had their professional property caretaker visit the home after learning of the power loss. (Id. at 4). The caretaker, after consulting with the defendants, drained the water from the domestic water lines but did not drain the heating system. ( Id. ). The caretaker's experience suggested that it was not necessary to drain the heating system because the heating system was charged with glycol (anti-freeze).

The property was left without power until March 10, 2018. On that day the caretaker successfully reactivated both the water and electric supply to the property. (D. 1, Complaint ¶ 17-18). The caretaker also tried to reactivate the heating system but it would not start. ( Id. ).

The defendants later received a call from Dr. Walley's sister indicating that the property had "flooded". ( Id. ).

The defendants filed an insurance claim but the plaintiff denied the claim on the ground that the claim was excluded from coverage. The plaintiff made this determination based on a provision that excludes coverage due to the:

Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a household appliance, or by discharge, leakage or overflow from within the system or appliance caused by freezing. This exclusion applies only while the dwelling is vacant, unoccupied, or being constructed, unless you have used reasonable care to:

(1) Maintain heat in the building; or

(2) Shut off the water supply and drain the system and appliances of water.

(D. 1, Complaint at ¶ 22).

III. LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the pleadings at any time "after the pleadings are closed," if it does not delay trial. Fed. R. Civ. P. 12(c). A motion for judgment on the pleadings allows the court to consider the factual allegations "in both the complaint and the answer," but is "governed by the same standard as a Rule 12(b)(6) motion to dismiss." Calixte v. David , 320 F. Supp. 3d 294, 297 (D. Mass. 2018) (citing Perez-Acevedo v. Rivero-Cubano , 520 F.3d 26, 29 (1st Cir. 2008).

Because such a motion calls for an assessment of the merits of the case at an embryonic stage, the court must view the facts contained in the pleadings in the light most favorable to the nonmovant. R.G. Fin. Corp. v. Vergara-Nunez , 446 F.3d 178, 182 (1st Cir. 2006). Judgment is therefore appropriate only "if the uncontested and properly considered facts conclusively establish the movant's entitlement to a favorable judgment." Aponte–Torres v. University of P.R. , 445 F.3d 50, 54 (1st Cir. 2006).

IV. ANALYSIS

Parsed, the insurance policy disclaims coverage for loss (1) due to freezing in a dwelling that is (2) vacant or unoccupied, unless (3) the insured has used reasonable care to maintain heat in the building or shut off the water supply and drain the system of water. In moving for judgment on the pleadings, Lloyd's argues that the exclusion provision applies because (1) the damage to the defendants' residence was caused by leakage or overflow from "freezing" at the property, (2) the property was "vacant" or "unoccupied", and (3) the defendants did not "maintain heat in the building" or "drain" the heating system of water. As discussed below, judgment on the pleadings is not appropriate because the record does not conclusively demonstrate that the property was "vacant or unoccupied." Even assuming it did, it is not clear under Massachusetts precedent that the defendants failed to take reasonable steps to prevent loss to the property.

On Whether the Dwelling was "Vacant" or "Unoccupied"

As noted above, the freezing exclusion provision applies only "while the dwelling is vacant, unoccupied, or being constructed." Stated differently, the exclusion provision does not apply -– and coverage therefore may exist -- if the dwelling was not vacant or was occupied. That is what the defendants contend here. They assert that the property was fully furnished, that they used it throughout the year, that they had been at the property just two weeks before the storm and power outage, and that the property was "checked on" "virtually on a daily basis" by Dr. Walley's father, who lived next door. (D. 6, Ans. & Countercl., Exhibit 1, 93A Demand Letter at 3). As such, the defendants argue, the property was not vacant or unoccupied, even if no one was physically present at the time of the loss, because the property was being regularly used and monitored.

Lloyd's has not disputed these factual assertions and fails to address the argument at all in either its initial or reply brief. Even were it to do so, the court is constrained to accept the defendants' factual allegations as true, and finds that those facts are sufficient at this early juncture to support the defendants' assertion that the dwelling was not vacant and/or was not unoccupied, particularly where the property was a second home. See e.g., Chow v. Merrimack Mut. Fire Ins. Co. , 83 Mass. App. Ct. 622, 630, 987 N.E.2d 1275 (2013) (citing with approval jury instruction defining the term "unoccupied" in an identically worded exclusion provision to mean that "no person is presently utilizing the premises as a dwelling," but clarifying that "a building may be unoccupied for short periods of time...as in the case of a vacation home, and every time you leave your house you are not leaving it in a state that the law would say is unoccupied every time you walk out the door.").

Discovery will flesh out the extent to which the property was actually being used. But because the freezing exclusion does not apply if the dwelling was not vacant or was occupied, and because the defendants have for now asserted facts which if true would appear to support such a finding, it follows that the plaintiff has not met its burden of showing the applicability of the freezing exclusion. See Brazas Sporting Arms, Inc. v. American Empire Surplus Lines Ins. Co. , 220 F.3d 1, 4 (1st Cir. 2000).

On Maintaining Heat in the Home

Even assuming the plaintiff were able to show the dwelling was vacant or unoccupied, the freezing exclusion provision still would not apply if the defendants took "reasonable care" to "maintain heat in the building."¹ As noted above, the defendants did not maintain heat in the building but they did (through their caretaker) add anti-freeze to the system. Lloyd's argues that this act was insufficient to bring the defendants within the ambit of the exception to the exclusion provision where the plain language of the policy narrowly defines the steps one must take and does not include adding anti-freeze as an option.

In support of their argument, the plaintiff relies on an Arkansas state appeals court decision...