Sarno Realty, Inc. v. Selective Ins. Co. of the Se.

SARNO REALTY, INC. a/k/a SARNO REALTY; MASS CABINETS, INC.; and NORTHEASTERN SCALE LUMBER COMPANY, INC. a/k/a NORTHEASTERN SCALE LUMBER COMPANY, Plaintiffs, v. SELECTIVE INSURANCE COMPANY OF THE SOUTHEAST, Defendant.

Civil Action No. 20-10924-FDS

United States District Court, D. Massachusetts

March 31, 2022

MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT, DEFENDANT'S MOTIONS TO EXCLUDE TESTIMONY, AND PLAINTIFFS' MOTION TO STAY

F. DENNIS SAYLOR IV CHIEF JUDGE, UNITED STATES DISTRICT COURT

This is a dispute concerning insurance coverage after a fire. Plaintiffs Sarno Realty, Mass. Cabinets, Inc., and Northeastern Scale Lumber Company, Inc. have sued Selective Insurance Company of the Southeast, alleging breach of contract and violations of Mass. Gen. Laws ch. 93A. The specific dispute arises out of a policy endorsement that provides coverage for increased costs to the extent they “result[] from enforcement of an ordinance or law.”

The parties have cross-moved for summary judgment. Defendant has also moved to exclude the testimony of two experts for plaintiffs, John Constance and Bryan Murphy. For the reasons set forth below, the Court will grant defendant's motion for summary judgment, and deny plaintiffs' motion to the same extent. In light of the disposition of the motions for summary judgment, the Court will deny as moot defendant's motions to exclude testimony and plaintiffs' motion to stay.

I. Background

A. Factual Background

The following facts are as set forth in the record and are undisputed except as noted.

1. The Parties

Sarno Realty, Inc., Mass. Cabinets, Inc., and Northeastern Scale Lumber Company, Inc., are three corporations owned and operated by Michael Sarno. (Sarno Dep. 9). The companies are located at 99 Cross Street in Methuen, Massachusetts. (Id. at 10). Sarno Realty owns the property and facility at 99 Cross Street. (Id.). Mass. Cabinets manufactures commercial and residential cabinets for general contractors. (Id. at 11). Northeastern Scale Lumber manufactures miniature wood moldings for dollhouses and model train layouts. (Id.).

Selective Insurance Company of the Southeast is an insurer that issued a commercial insurance policy to plaintiffs. (Def. Ex. 3; Pls. Ex. 1).

2. The Facility

The facility at 99 Cross Street has both manufacturing and office space. (See Sarno Dep. 106). It was built in approximately 1967 and is about 20, 000 square feet in area. (Id. at 12, 20; Def. Ex. 2, 2).

The facility is equipped with, among other things, a fire-sprinkler system, a fire-alarm system, a paint-booth system, a glue-booth system, a Titan makeup air unit, a dust-collection system, and overhead Modine heaters. (Pls. Ex. 6).

The dust-collection system gathers sawdust from the woodworking process. The original system was installed in the 1970s. (Sarno Dep. 19-20). Prior to the fire, it was working properly, and no code violations or safety concerns were ever identified. (Id. at 24, 53). In 2013, Mass. Cabinets hired Dustpipe.com, LLC to replace a rotted exterior pipe. (Sarno Dep. 25-26).

The invoice describes the work performed as “[r]epairs to the present old cyclone unit and the storage tank/cyclone of the building central dust collection system.” (Def. Ex. 5). Sarno characterized the work as “a repair to the existing system, central dust collection.” (Sarno Dep. 26). The repairs cost $6, 545. (Def. Ex. 5). Plaintiffs did not replace the entire dust-collection system, and no representative of the city at that time required it. (Sarno Dep. 32). They also did not seek a building permit from the city. (Id.). Sarno did not know whether the dust-collection system was code compliant after completing the 2013 repairs because he was “not a code expert.” (Id. at 34-35).

The facility also contains hanging heaters manufactured by Modine. (Quinlan Dep. 30, 41-42). Prior to the fire, a city gas inspector named James Quinlan visited the facility and expressed concern about having open-flame Modine heaters with “that much dust collection.” (Id. at 21-24). According to Sarno, another gas inspector later told him that the heaters could be turned back on. (Sarno Dep. 55-57). The heaters were in service prior to the fire, and no further safety concerns were identified. (Id.).

3. The Insurance Policy

From January 1, 2017, to January 1, 2018, Sarno Realty, Mass. Cabinets, and Northeastern Scale Lumber were insured under a commercial insurance policy issued by Selective. (Pl. Ex. 1).

Central to this dispute is an endorsement entitled “ElitePac Property Extension Endorsement.” (Id. at 122). The endorsement “modifies insurance provided under . . . [the] Building and Personal Property Coverage Form.” (Id.). It provides as follows:

Ordinance or Law

The Increased Cost of Construction Additional Coverage is deleted and replaced by the following Ordinance Or Law Coverage Extension:

You may extend the insurance that applies to Building as follows:

1. If there is direct physical loss or damage to described premises caused by or resulting from a Covered Cause of Loss we will pay the following to the extent it results from enforcement of an ordinance or law:

. . .

c. Coverage C. The increased cost to:

(1) Repair or reconstruct damaged portions of the same building; and/or

(2) Reconstruct or remodel undamaged portions of the same building, whether or not demolition is required.

However:

(1) This coverage applies only if the restored or remodeled building is intended for similar occupancy as the current building, unless such occupancy is not permitted by zoning or land use ordinance or law.

(2) We will not pay for the increased cost of construction if the building is not repaired, reconstructed or remodeled.

. . .

2. The ordinance or law must:

a. Regulate the demolition, construction or repair of buildings or establishes zoning or land use requirements at the described premises; and

b. Be in force at the time of loss.

3. We will not pay under this Coverage Extension for:

a. Loss due to any ordinance or law with which:

(1) You were required to comply before the loss, even if the building was undamaged; and

(2) You failed to comply. . . .

(Id. at 127-28). The limit of liability for Coverage C - Increased Cost of Construction is $500, 000. (Id. at 64-66).

4. The Fire

On April 13, 2017, a fire occurred at the facility at 99 Cross Street. (Def. Ex. 4, 1; Sarno Dep. 14-15). It originated on a workbench toward the back of the manufacturing area. (Def. Ex. 4, 5). It was contained to the manufacturing area and later extinguished by the Methuen Fire Department. (Id. at 1; Murphy Dep. 65).

Plaintiffs contend that the fire caused extensive fire, smoke, and water damage to the structure, and that heavy smoke permeated the building. (Dickover Dep. 120, 123). Selective disputes that characterization, stating that damage to the facility was quite limited. For example, the only parts of the dust-collection system damaged by the fire were certain indoor ductwork and individual drops to work stations. (Murphy Dep. 69-70; Sarno Dep. 60; Davis Dep. 36, 41, 49, 61). Sarno was not aware of any fire damage to the sprinkler system in the office area. (Sarno Dep. 63).

5. The Insurance Claim

Plaintiffs retained Petrocelli Public Insurance Adjusters, Inc. to represent them in their insurance claim relating to the fire. (Def. Ex. 14, 4). They submitted an initial property damage claim to Selective on April 13, 2017. (Id.). That same day, a representative from Selective showed up at the facility. (Sarno Dep. 137). After the investigation and adjustment process, Selective paid claims for the building, business personal property/contents, and certain extra expenses. (Def. Ex. 20, 6). To date, it has paid approximately $2, 000, 000 in claims relating to the fire. (Sarno Dep. 137).

Two years later, in April 2019, plaintiffs submitted an “ordinance or law claim” under the policy. (Def. Ex. 15; Pls. Ex. 8). The ordinance or law claim sought the following:

Replacement of Modine hanging heaters: $64, 015.80 Spray booth fire sprinkler installation: $29, 274.85

Sprinkler Upgrades required by code: $60, 043.29

Fire alarm upgrades: $26, 952.85

Electrical - glue booth: $2, 100.00

Refurbish - glue booth: $10, 025.00

Dust Collection system: $316, 659.00

Dust Collection system: $82, 920.00

Dust Collection system: $22, 168.00

Make up air system for spray booth: $46, 500.00

Titan Air unit for the Make up air system for spray booth: $40, 513.00

(Def. Ex. 16). The total amount of the ordinance or law claim was $701, 171.79. (Resp. Req. for Admis. 6).^[1]

Selective retained Brian Vanderhoff of J.S. Held, a construction consulting firm, to provide a repair estimate, including an estimate for damage to the dust-collection system. (Dickover Dep. 36-37; Davis Dep. 35-36; Def. Ex. 18). Based on the J.S. Held estimate, Selective paid plaintiffs for certain repairs to the dust-collection system, including damaged ductwork. (Def. Ex. 20). It also paid for fire-alarm upgrades because they qualified as direct building damage. (Dickover Dep. 81). And it paid $116, 287.85 for the spray booth fire sprinkler, the make-up air system for the spray booth, and the Titan Air unit. (Resp. Req. for Admis. 6).^[2] However, the remaining $383, 712.15 of the $500, 000 limit of liability was (and is) disputed. (Id.).

Selective also retained James Brandon Davis from J.S. Held to perform a code compliance review and analysis. (Def. Ex. 2; Def. Ex. 14, 54). Davis's report concluded that plaintiffs' “[u]pgrades to fire protection and mechanical systems were elective decisions, or were required due to elective decisions, and were not required by building codes, fire codes, or the local authorities having jurisdiction.” (Def. Ex. 2, 1).

On August 20, 2019,...