Clarendon Nat'l Ins. Co. v. Phila. Indem. Ins. Co.

954 F.3d 397

CLARENDON NATIONAL INSURANCE COMPANY, Plaintiff, Appellant,

v.PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant, Appellee.

No. 19-1212

United States Court of Appeals, First Circuit.

April 1, 2020

John W. Dennehy, Nashua, NH, with whom Dennehy Law was on brief, for appellant.

David W. Zizik, Providence, RI, with whom Sulloway & Hollis PLLC was on brief, for appellee.

Before Torruella, Lynch, and Kayatta, Circuit Judges.

TORRUELLA, Circuit Judge.

In this diversity case, Clarendon National Insurance Company ("Clarendon") appeals the district court's entry of summary judgment against its claim that Philadelphia Indemnity Insurance Company ("Philadelphia") breached its contract with Lundgren Management Group, Inc. ("Lundgren") when Philadelphia declined to tender a defense to Lundgren, whom Philadelphia had insured from 2007 to 2008. Lundgren had assigned these claims to Clarendon. The district court determined that because the property damage allegations were excluded by the prior policy period exclusion, the complaint did not give rise to a duty to defend. Furthermore, Clarendon challenges the summary dismissal of its additional claims for contribution and alleged violations of Massachusetts General Laws, chapters 93A and 176D, which the district court concluded should also be dismissed because they were premised on the incorrect notion that Philadelphia had breached its duty to defend. After careful consideration, we affirm.

I. Background

A. Factual Background

Clarendon, a New York corporation, provided indemnity insurance to Lundgren, a building management corporation, from June 24, 2004, to June 24, 2005. Subsequently, Philadelphia, a Pennsylvania corporation, provided insurance for Lundgren from September 1, 2007, to September 1, 2008. Philadelphia's insurance policy with Lundgren contained the following provision that excludes coverage for damage beginning prior to the inception of the insurance policy:

b. This insurance applies to "bodily injury" and "property damage" only if:

....

(3) Prior to the policy period, no insured listed ... and no "employee" authorized by you to give or receive notice of an "occurrence" or claim, knew that the "bodily injury" or "property damage" had occurred, in whole or in part. If such a listed insured or authorized "employee" knew, prior to the policy period, that the "bodily injury" or "property damage" occurred, then any continuation, change or resumption of such "bodily injury" or "property damage" during or after the policy period will be deemed to have been known prior to the policy period.

On February 12, 2009, Denise Doherty ("Doherty"), a resident in a Lundgren-managed building, filed a complaint in the Superior Court for Suffolk County, Massachusetts, against the Admirals Flagship Condominium Trust ("Admirals"), certain named trustees of Admirals, Lundgren, and Construction by Design, LTD ("CBD"). In the complaint, Doherty asserted negligence claims against Lundgren stemming from alleged water infiltration into her condominium. On April 29, 2009, Doherty filed an amended complaint that proffered new factual information and asserted additional claims of misrepresentation, nuisance, trespass, and breach of contract under Massachusetts law ("the Underlying Complaint").

According to the Underlying Complaint, in February 2002, Doherty purchased a condominium unit in a building owned by Admirals. Admirals contracted with Lundgren to serve as the property manager of the building. In turn, Lundgren contracted CBD to maintain and repair the building. "During the year 2004[,] leaks developed in the roof above [Doherty's] unit and/or the exterior area of the structure just below the roof line." Doherty alleged that subsequent repairs to the ceiling were "not made in a timely or appropriate manner." In 2005, a Lundgren employee notified Doherty that the threshold leading to her condominium's deck was rotting. In February 2006, Doherty discovered a mushroom and water infiltration on "said threshold" and notified Lundgren. At that time, Lundgren asked CBD to replace the rotting threshold. According to Doherty, CBD "did not do this repair in a timely manner and left the debris exposed in [her] bedroom."

On March 10, 2006, Gordon Mycology Laboratory, Inc., hired by Lundgren to conduct mold testing, "issued a report disclosing the presence of hazardous mold in unsafe levels in [Doherty's] unit caused by water intrusions and chronic dampness." Doherty complained that although Lundgren had assured her that the mold problem would be resolved, the cleanup was "ineffectual." According to Doherty, "Lundgren ... promised [her] that [CBD] would stop the leaks into the unit but it [did] not [do] so." On September 2, 2008, Doherty's doctor ordered her to leave the condominium and not to return unless the mold was eliminated and the leaks were repaired.

Doherty alleged that she suffered damages as a result of the defendants' actions, including adverse health effects, loss of personal belongings, loss of her home, loss of value to her condominium unit, and loss of income.

On June 30, 2009, shortly after the Underlying Complaint was filed, Lundgren tendered the defense of the Underlying Complaint to Philadelphia. In a letter dated July 24, 2009, Philadelphia denied coverage. It stated that "there are no allegations in the complaint that occurred within our policy period." In addition, it stated that the "damages sought in this matter pertain to exposure to mold," yet, "the policy specifically excludes ‘property damage’ ... and any damages that result from ‘fungi’ as defined in the policy"¹ (hereinafter the "mold exclusion"). Clarendon, on the other hand, financed the defense of Lundgren with a Reservation of Rights to exclude mold and fungus damage.

On October 7, 2014, North American Risk Services, Clarendon's third-party claims administrator, demanded that Philadelphia contribute to the cost of defending Lundgren. After the Doherty case eventually settled, Philadelphia again denied Clarendon's claim for contribution in a letter dated November 3, 2014, admitting that "potentially" the mold exclusion did not apply to the allegations in the Underlying Complaint, but insisting that "the alleged damage occurred prior to the inception of [Philadelphia]'s policy, ... during the Clarendon policy period." On or about March 17, 2015, Clarendon received an assignment from Lundgren of all the claims arising from the Doherty matter.

B. Procedural Background

On November 29, 2017, Clarendon filed suit against Philadelphia in the Superior Court for Suffolk County, Massachusetts, based upon Philadelphia's denial of coverage to Lundgren. Clarendon brought three claims: "Contribution" (Count I), "Breach of Contract" (Count II), and "93A/176D Violations" (Count III). In essence, Clarendon's complaint stated that Philadelphia breached its contract with Lundgren when it "improperly denied coverage for defense and indemnity," failed to contribute "its pro rata share for either coverage," and "failed to investigate the matter." On December 21, 2017, Philadelphia removed the case to the United States District Court for the District of Massachusetts.

The parties agreed to discovery in phases. Discovery Phase I was for the purpose of collecting information related to Philadelphia's duty to defend Lundgren, and later phases were scheduled for remaining issues in the case. On May 21, 2018, Philadelphia served its Rule 26(a)(1) initial disclosures on Clarendon. Clarendon did not provide its initial disclosures and did not conduct any discovery. Philadelphia then filed a motion for summary judgment on July 2, 2018, which Clarendon opposed. On January 8, 2019, the district court granted summary judgment for Philadelphia on all claims. Clarendon Nat'l Ins. Co. v. Phila. Indem. Ins. Co., No. 17-12541, 2019 WL 134614, at *4 (D. Mass. Jan. 8, 2019). Regarding the breach of contract claim -- which was premised on the allegations that Philadelphia breached its contract with Lundgren when it "improperly denied coverage for defense and indemnity" -- the court noted that Philadelphia's policy only covered damages caused by "bodily injury" or "property damage" that occurred during the policy period, and that did not result from the "continuation, change or resumption" of "bodily injury" or "property damage" "deemed to have been known prior to the policy period." Id. at *3 (citation omitted). The court further noted that the Underlying Complaint alleged damages that began in 2004, "well before the beginning of Philadelphia's policy period on September 1, 2007," and continued throughout the years. Id. Accordingly, the court concluded that the damages were not covered by Philadelphia's policy. Id.

The court also rejected Clarendon's contention that the Underlying Complaint could be read to suggest that the original leaks arising prior to the policy period were adequately repaired and "new leaks" had arisen during the period of Philadelphia's policy, reasoning that the Underlying Complaint clearly states that "the leaks and resulting problems were continuous throughout the relevant period," and "Philadelphia's policy also excludes coverage for damage that resumes during the policy period if the damage began and was known before the period." Id. Furthermore, the court noted that the Underlying Complaint "does not allege that Lundgren's repair efforts were ever successful at abating the leaks entirely, [or] even temporarily, such that leaks occurring during the policy period could have been considered new leaks." Id. The court concluded that, because the Underlying Complaint did not contain allegations " ‘reasonably susceptible of an interpretation that they state’ a claim covered by Philadelphia's policy," Philadelphia did not have a duty to defend or indemnify its insured and, thus, Clarendon's breach of contract claim failed. Id. at *4 (quoting Cont'l Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 461 N.E.2d 209, 212 (1984) ).

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