CONTRACTOR LAW & INSURANCE COVERAGE ISSUES IN MASSACHUSETTS

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I. BODILY INJURY


Workers’ Compensation   

Workers’ compensation insurance is mandatory for employers in Massachusetts.  See M.G.L. c. 152.  Workers’ compensation is provides an exclusive remedy for an employee injured during the course of his or her employment and further protects negligent co-workers from liability in tort.  M.G.L. c. 152, § 24.  Employers that fail to maintain workers’ compensation coverage, in violation of the law, become strictly liable in tort for any personal injuries sustained by employees.  M.G.L. c. 152, § 66.  Employers that engage in “willful misconduct” can become liable for “double” compensation; in the case of such a finding, the workers’ compensation carrier must pay the double benefits to the injured employee, and may then seek to recover the additional payments from the employer.  M.G.L. c. 152, § 28.

General Contractors are statutorily responsible for providing worker’s compensation benefits for uninsured subcontractors.  M.G.L. c. 152, § 18.  Accordingly, General Contractors often require that subcontractors provide them with certificates of insurance as proof that such coverage has been purchased.  See Comm. v. Gall, 789 N.E. 2d 586 (Mass. App. Ct. 2003).

Indemnity  

A subcontractor cannot be required to indemnify a contractor or any party for injury to person or damage to property not caused by that subcontractor.  M.G.L. c. 149, § 29C.  This statute does not prohibit contractual indemnity arrangements in which the subcontractor aggress to assume the indemnity obligations for the entire liability, where both the subcontractor and the general contractor or owner are negligent.  Henson v. New Boston Garden Group, 667 N.E. 2d 907 (Mass. App. Ct. 1996).

Wrongful Death

A suit for damages for wrongful death is permitted by M.G.L. c.229, § 2.  Only the legal representative – the executor or administrator of the estate – may bring an action for recovery of damages.  M.G.L. c. 229.

Damages for wrongful death are specified by statute.  The estate is entitled to recover fair monetary value of the decedent to the persons entitled to receive the damages recovered, including, but not limited to, compensation for the loss of the reasonably expected net income, services, protection, care, assistance, society, companionship, comfort, guidance, counsel, and advice of the decedent to the persons entitled to the damages recovered.  M.G.L. c. 229, § 2; Davis v. Walent, 16 Mass. App. Ct. 83 (1983).

In addition to the fair monetary value of the decedent and reasonable funeral and burial expenses, the estate may recover for the conscious pain and suffering of the decedent before death.  M.G.L. c. 229, § 6; Keyes v. Construction Service, Inc., 340 Mass. 633 (1960).

Finally, punitive damages (in an amount not less than $5,000) are available in wrongful death actions, where it is proven that the decedent’s death was caused by the malicious, willful, wanton or reckless conduct of the defendant or by the gross negligence of the defendant.  M.G.L. c. 229, § 2.

Duty to Provide A Safe Workplace

General Contractor

A general contractor has a duty to provide a safe workplace under the State Building Code.  454 CMR § 10.03(1)(a).  Corsetti v. Stone Co., 396 Mass. 1, 9 (1985); St. Germaine v. Pendergast, 411 Mass. 615, 620-21 (1992); see also 780 CMR 109.1.1, 3006.1, and 3000.2.1. A violation of the State Building Code, as alleged and if proven, is some evidence of negligence, but it is not dispositive on the issue.  St. Germaine, 411 Mass. at 621.

Owner

An owner also has a duty to provide a safe workplace under the state building code.  454 C.M.R. § 10.03(1)(b).  An owner or occupant of property, generally, owes a duty of reasonable care to all persons on the property.  Dilaveris v. W. T. Rich Co., 39 Mass. App. Ct. 115, rev. granted, 421 Mass. 1105 (1995).

An owner can be civilly liable for damages for failure to comply with the above provisions of the State Building Code.  M.G.L. c. 143 § 51.  This liability, however, does not attach to residential homes.  Repucci v. Exchange Realty Co., 321 Mass. 571 (1949).

Employer

An employer has the same duty to provide a safe workplace under the state building code.  454 C.M.R. § 10.03(1)(b)

If an employer retains a right to control, including a right to initiate and maintain safety measures, that employer must exercise such control with reasonable care for the safety of others.  Corsetti v. Stone Company, 396 Mass. 1 (1985).

An employer of an independent subcontractor owes a duty to exercise reasonable care for the protection of others, and may be liable for its own negligence in connection with the work to be done insofar as it in fact gave directions for the work, furnished equipment for the work, or retained control over any part of the work.  Id. at 9-10.  Evidence of such a duty may be found in the general contract or in the contract with the subcontractor. Dilaveris, 39 Mass. App. Ct. at 117.

Indemnity

Indemnity provisions in construction contracts are void in accordance with M.G.L. c. 149 § 29C only when the injury is “not caused by the subcontractor or its employees.”  Collins v. Kiewet Construction Co., 40 Mass.App.Ct. 796, 799 (1996).

The statute “does not preclude full indemnification when an indivisible injury is caused by the negligence concurrently attributable both to the indemnitee, and by the terms of the indemnity agreement, to the indemnitor. “  Id.

 

II. PROPERTY DAMAGE

Implied Warranties

New Construction

Adopting the reasoning of many jurisdictions, the Supreme Judicial Court of Massachusetts has formally recognized a cause of action against a builder for an implied breach of habitability.  Albrecht v. Clifford, 436 Mass. 706 (2002).  The purpose of this law is to protect a purchaser of a new home from latent defects that create “substantial questions of safety and habitability.”  In general, a home that is unsafe because it deviates from “fundamental aspects of the applicable building codes,” or is “structurally unsound,” or “fails to keep out the elements because of defects of construction” would breach the implied warranty.

In the Albrecht case, the Court declined to state whether a second or subsequent purchaser could state a claim for breach of this implied warranty against the builder within the applicable statute of limitations.

The implied warranty is independent and collateral to the covenant to convey, and survives the passing of title to and taking possession of the real estate.  It cannot be waived or disclaimed, because to permit the disclaimer of a warranty protecting a purchaser from the consequences of latent defects would defeat the very purpose of the warranty.

The implied warranty does not apply to the purchase or sale of unfinished homes, where the parties may choose to waive or disclaim all warranties.  In addition, the implied warranty does not make the builder an “insurer” against any and all defects in a home, impose on the builder an obligation to deliver a perfect house, or protect against mere defects in workmanship, minor or procedural violations of the applicable building codes, or defects that are trivial or aesthetic.  It is not intended to affect a buyer’s ability to inspect a house before purchase, to condition the purchase on a satisfactory inspection result, or to negotiate additional express warranties.

To establish a cause of action for breach of the implied warranty of habitability a plaintiff will have to demonstrate that (1) he purchased a new house from the defendant-builder-vendor; (2) the house contained a latent defect; (3) the defect manifested itself only after its purchase; (4) the defect was caused by the builder’s improper design, material, or workmanship; and (5) the defect created a substantial question of safety or made the house unfit for human habitation. The claim must be brought within the three-year statute of limitations and the six- year statute of repose set forth in M.G. L. c. 260, §  2B.

Construction Contracts (generally)

There is an implied warranty in construction contracts to do a workmanlike job and to use reasonable skill.  George v. Goldman,  333 Mass. 496 (1956).

Indemnity

Any provision in a contract for construction reconstruction [or] alteration on any building or structure…or any real property…which requires a subcontractor to indemnify any party for injury or damage to property not caused by the subcontractor or its employees, agents, or sub-contractors, shall be void.”   Brown v. Koch Membrane Systems, Mass. App. Div. 210 (2001), citing M.G.L. c. 149, § 29C.

Validity of indemnity under M.G.L. c. 149, § 29C depends on specific language of a provision and not on facts or the degree of fault.  Bjorkman v. Suffolk Construction Co., 679 N.E. 2d 559 (1997).

Unfair and Deceptive Trade Practices

Generally

Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are unlawful.  M.G.L. c. 93A, § 2.  Chapter 93A provides a remedy for any consumer or person engaged in trade or commerce who suffers a real or personal loss on an account of another person engaged in trade or commerce, if that loss results from an unfair method of competition or is a deceptive act or practice.  A person or entity injured as a result of such unfair trade practice may bring an action in an appropriate court for damages.

There are two types of claims under chapter 93A.  Consumers have the right to bring claims under M.G.L. c. 93A, § 9.  Persons or entities engaged in trade or commerce may also bring 93A claims, but under section 11 of the statute.  There are significant differences between the two statutes, including the steps necessary to assert claims, the standard of proving a violation, and the amount of damages awarded.

To claim a violation of section 9, a consumer must send a formal demand letter to the respondent.  At least thirty days prior to the filing of an action, a written demand for relief, identifying the claimant and reasonably describing the unfair or deceptive act or practice relied upon and the injury suffered, shall be mailed or delivered to any prospective respondent. Any person receiving such a demand for relief who, within thirty days of the mailing or delivery of the demand for relief, makes a written tender of settlement which is rejected by the claimant may, in any subsequent action, file the written tender and an affidavit concerning its rejection and thereby limit any recovery to the relief tendered if the court finds that the relief tendered was reasonable in relation to the injury actually suffered by the petitioner. In all other cases, if the court finds for the petitioner, recovery shall be in the amount of actual damages or twenty-five dollars, whichever is greater; or up to three but not less than two times such amount if the court finds that the use or employment of the act or practice was a willful or knowing violation of said section two or that the refusal to grant relief upon demand was made in bad faith with knowledge or reason to know that the act or practice complained of violated said section two.

For the purposes of this chapter, the amount of actual damages to be multiplied by the court shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence, regardless of the existence or nonexistence of insurance coverage available in payment of the claim. In addition, the court may award such other equitable relief, including an injunction, as it deems to be necessary and proper.  Finally, if the court finds in any action commenced under section 9 that there has been a violation of section 2, the petitioner shall, in addition to other relief provided for by section 9 and irrespective of the amount in controversy, be awarded reasonable attorney’s fees and costs incurred in connection with the action.  The Court shall, however, deny recovery of attorney’s fees and costs incurred after the rejection of a reasonable written offer of settlement made within thirty days of the mailing or delivery of the written demand for relief required.

The mailing of this formal demand is a prerequisite to any action under section 9 of chapter 93A.  Entrialgo v. Twin City Dodge, Inc., 368 Mass. 812 (1975); Spilios v. Cohen, 38 Mass. App. Ct. 338 (1995).

In a section 11, “business to business” case, there is no requirement of a written demand for relief.  The burden of proof, however, is higher in a section 11 case than in a section 9 case.  To establish a section 11 violation, the plaintiff must prove that that the conduct of the defendant “attain(s) a level of rascality that would raise an eyebrow of someone inured to the rough and tumble world of commerce.”  Lewings, Trustee v. Forbes & Wallace, Inc., 8 Mass. App. Ct. 498 (1979).  Plaintiff must prove that the conduct constituted immoral, unethical, oppressive, or unscrupulous behavior that would cause substantial injury to consumers, competitors, or other business people.  P.M.P. Associates, Inc. v. Globe Newspaper Co., 366 Mass. 593 (1975).

Damages in a section 11 case are very similar to those in a section 9 case, with one notable exception: if the court finds for the petitioner, recovery shall be in the amount of actual damages; or up to three, but not less than two, times such amount if the court finds that the use or employment of the method of competition or the act or practice was a willful or knowing violation of said section two.  This differs from section 9, where the Court is empowered to award nominal damages of $25 where there are no actual damages.  Accordingly, a plaintiff must prove damages in a section 11 case in order to recover attorney’s fees and costs; a section 9 plaintiff, by contrast, only needs to prove the unfair and deceptive act or practice.

The amount of actual damages to be multiplied by the court in a section 11 case shall be the amount of the judgment on all claims arising out of the same and underlying transaction or occurrence regardless of the existence or nonexistence of insurance coverage available in payment of the claim. In addition, the court may award such other equitable relief, including an injunction, as it deems to be necessary and proper. The respondent may tender with his answer in any such action a written offer of settlement for single damages. If such tender or settlement is rejected by the petitioner, and if the court finds that the relief tendered was reasonable in relation to the injury actually suffered by the petitioner, then the court shall not award more than single damages.

If the court finds, in any action under section 11, that there has been a violation of section 2, the petitioner shall, in addition to other relief provided for by this section and irrespective of the amount in controversy, be awarded reasonable attorneys’ fees and costs incurred in said action.

In order to bring an action under either section 9 or section 11 of chapter 93A, the alleged violation must have occurred primarily or substantially within the Commonwealth of Massachusetts.

Unfair Methods of Competition and Unfair and Deceptive Acts and Practices in the Business of Insurance

Massachusetts has enacted an entire statute to address the issue of unfair trade practices in the business of insurance.  See M.G.L. c. 176D, § 1 et seq.  Although the statute creates no private cause of action in favor of private litigants, Pariseau v. Albany Intern. Corp., 822 F. Supp. 843 (D. Mass. 1993),  private actions for violations of chapter 176D nay be made through a claim under chapter 93A.  See G.L. c. 93A, § 9(1).

Much of chapter 176D is regulatory in nature.  From the consumer standpoint, the most common claims under chapter 176D arise under section 3(9), which addresses “unfair claim settlement practices.”  Subsection (f) of this statute provides that it is an unfair claim settlement practice (and therefore a violation of M.G.L. c. 93A) for insurers to fail to “effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.”

The ramifications of an insurer’s violation of this statute can be substantial.  If a consumer (i.e., M.G.L. c. 93A, § 9 claimant) successfully proves that an insurer violated this statute, he or she would be entitled to “actual damages.”  In this context, actual damages usually represents the “lost use” of the funds, from the date when the insurer should have made an offer until the date when payment is actually made (typically following a settlement or a judgment against the insured), plus reasonable attorney’s fees and costs.  Yeagle v. Aetna Casualty & Surety Co., 42 Mass. App. Ct. 650 (1997).

If the Court, however, finds that the insurer’s use of unfair claims settlement practices was “willful or knowing,” the measure of damages changes drastically.  In that instance, the underlying judgment, and not “lost use,” becomes the baseline measure of damages.  The Court will start with the judgment amount, double or treble it, and then add reasonable attorney’s fees and costs.  See Clegg v. Butler, 424 Mass. 413, 423 (1997).

III. DAMAGES


Economic Losses

Purely economic losses are unrecoverable in tort and strict liability actions in the absence of personal injury or property damage.  FMR Corp. v. Boston Edison Co., 415 Mass. 393, 395  (1993). See Garweth Corp. v. Boston Edison Co., 415 Mass. 303, 305 (1993); Bay State-Spray & Provincetown S.S., Inc. v. Caterpillar Tractor Co., 404 Mass. 103, 107 (1989). However, where the pecuniary losses sustained by a plaintiff result from physical harm to property proximately caused by a defendant’s alleged negligence, such plaintiff has a right to recovery. See Priority Finishing Corp. v. LAL Constr. Co., 40 Mass. App. Ct. 719, 721 (1996); Newlin v. New England Tel. & Tel. Co., 316 Mass. 234, 237 (1944).

Offer of Settlement

Rule 68 of the Massachusetts Rules of Civil Procedure provides that a party may make an offer of judgment.  The Rule provides that the party receiving the offer may serve an acceptance within ten (10) days.  If this Offer of Judgment is rejected or if no response is served within ten days, the offer will be deemed to have been withdrawn.

If the Judgment, exclusive of interest from the date of this Offer, obtained by the plaintiff against the party making the offer is not more favorable than the amount offered in the Offer of Judgment, the plaintiff becomes liable for costs incurred by the defendant after the making of this offer.

Frivolous Claims

By statute in Massachusetts, the Superior Court is empowered to hold a hearing and to make a separate and distinct finding that all or substantially all of the Plaintiff’s claims in this matter were wholly insubstantial, frivolous, and not advanced in good faith.  The statute provides that:

Upon motion of any party in any civil action in which a finding, verdict, decision, award, order or judgment has been made by a judge or justice or by a jury, auditor, master or other finder of fact, the court may determine, after a hearing, as a separate and distinct finding, that all or substantially all of the claims, defenses, setoffs or counterclaims, whether of a factual, legal or mixed nature, made by any party who was represented by counsel during most or all of the proceeding, were wholly insubstantial, frivolous and not advanced in good faith. The court shall include in such finding the specific facts and reasons on which the finding is based.

If such a finding is made with respect to a party’s claims, the court shall award to each party against whom such claims were asserted an amount representing the reasonable counsel fees and other costs and expenses incurred in defending against such claims.

M.G.L. c. 231, § 6F.

This statutory provision ameliorates the consequences of the so-called “American rule,” which denies a prevailing party recovery of legal fees incurred in litigation, and instead serves to discourage insubstantial and frivolous actions.  Masterpiece Kitchen & Bath v. Gordon, 425 Mass. 325 (1997); see also Miaskiewicz v. Le Tourneau, 12 Mass. App. Ct. 880 (1981).

Once a defendant establishes that a Complaint lacks merit and obtains a dismissal, she may proceed to avail herself of remedies afforded by Rule 11 and this statute, which may include costs, damages, and attorney’s fees.  U.S. Funding, Inc. v. Bank of Boston Corp., 28 Mass. App. Ct. 404 (1990).

Pre-judgment Interest

Massachusetts provides the right to pre-judgment interest.  In tort actions, where a verdict is rendered, a finding made, or an order for judgment made for pecuniary damages for personal injuries to the plaintiff or for consequential damages, or for damage to property, there shall be added by the clerk of court to the amount of damages interest thereon at the rate of twelve per cent (12%) per year from the date of commencement of the action  M.G.L. c. 231, § 6B.

In actions based on contracts, upon finding judgment for money damages, the clerk of the court will add interest at a rate of twelve percent (12%) per year from the date of the breach.  M.G.L. c. 231 § 6C.

The right to pre-judgment interest in contract actions extends to claims under construction-subcontractor  contracts.  J.C. Higgins Co., Inc. v. Bond Bros., Inc., 791 N.E. 2d 367 (Mass. App. Ct. 2003).

Pre-Judgment interest is designed to make the Plaintiff whole for money lost during the time it was owed.  See Connecticut Valley Sanitary Waste Disposal, Inc. v. Zielinski, 763 N.E. 2d 1080 (Mass. 2002).  See also Fontaine v. Ebtec Corp., 613 N.E. 2d 881 (Mass. 1993).

Post-judgment Interest

Every judgment bears post-judgment interest.  This interest is calculated at the same rate per year as provided for pre-judgment interest in the judgment.  M.G.L. c. 235, § 8.

Post-judgment interest is calculated on the amount of the entire judgment, because failure to do so would result in inadequate damages, as the cost of delay in receiving money would not be recognized.  City Coal Company of Springfield, Inc. v. Noonan, 424 Mass. 693 (1997).

Punitive Damages 

Punitive damages are not allowed in Massachusetts unless specifically authorized by statute.  The wrongful death statute allows for punitive damages, where the death resulted from the malicious, willful, wanton or reckless conduct of the defendant or by gross negligence.  Punitive damages are also allowed in certain claims based on unlawful discrimination.

As previously discussed, chapter 93A provides a type of punitive damage, in the form of doubling or trebling the underlying judgment, plus an award of reasonable attorney’s fees and costs.  See discussion of Unfair and Deceptive Trade Practices.

Joint and Several

In determining the pro rata shares of tortfeasors in the entire liability, their relative degrees of fault shall not be considered.  M.G.L. c. 231B, § 2.  This is often referred to as the “one percent rule,” because in a joint tortfeasor situation, if one tortfeasor is 99% liable and the other only 1% liable, they must both contribute to the award on a pro rata basis.  In addition, the Plaintiff can elect to recover the full award against any liable Defendant.  This presents practical problems where the least culpable Defendant is the only party with insurance or the ability to satisfy the judgment.

When a release is given in good faith to one of two or more persons liable in tort for the same injury:

(a)        It does not discharge any of the other tortfeasors from liability for the injury, but it does reduce the claim against the others to the extent of any amount stipulated by the release, or in the amount of the consideration paid for it, whichever is the greater; and

(b)       It discharges the tortfeasor to whom it is given from all liability for contribution to any other tortfeasor.

M.G.L. c. 231B, § 4; Noyes v. Raymond, 28 Mass. App. Ct. 186 (1990).

Comparative Negligence

Comparative Negligence divides damages among all negligent parties, based upon each party’s degree of fault.  Plaintiff’s comparative negligence over 50% precludes recovery, up to which point it reduces recovery on a pro rata basis.  M.G.L. c. 231, § 85.  The defense of assumption of risk has been abolished in all actions.  The burden of alleging and proving negligence which serves to diminish a plaintiff’s damages or bar recovery under this section is upon the person who seeks to establish such negligence.  The plaintiff shall be presumed to have been in the exercise of due care.

IV. LIMITATIONS ON ACTIONS

 

Statute of Limitations

Actions of Contract to Recover for Personal Injury – 3 years.  M.G.L. c. 260 § 2A.

Actions in Tort—3 years.  M.G.L. c. 260 § 2A.

Breach of Contract – 6 years.  M.G.L. c. 260 §2.

Breach of Contract for Sale – 4 years.  M.G.L. c. 106 §2-725.

Statute of Repose

The statute of repose for design professionals is 6 years.  M.G.L. c. 260 § 2B.  The statute bars claims against design professionals made more than six years following the ‘substantial completion of [an] improvement [to real property] and the taking of possession for occupancy by the owner.

The statue is applicable to any professional who performs specialized acts of expertise for design and construction used to make improvements on pieces of real property.”  Fine v. Huygens, DiMella,, Shaffer, & Associates, 783 N.E.2d 842,846 (2003).

The statute was enacted by the legislature in order to limit the liability of architects, engineers, and all those involved with the design and construction of real property.  Klein v. Catalano, 386 Mass. 701 (1982).

V. COVERAGE ISSUES

 

Interpretation of the Insurance Contract

Under Massachusetts law, the interpretation of an insurance contract is not a question of fact for the jury.  Jefferson Ins. Co. of New York v. City of Holyoke, 23 Mass. App. Ct. 472, 475 (1987).  Rather, the responsibility of construing the language of an insurance contract is a question of law for the court.  Save-Mor Supermarkets, Inc. v. Skelly-Detective Serv., Inc., 359 Mass. 221, 226 (1971).  Massachusetts courts approach any question of policy construction with the basic premise that an insurance policy is a contract and is to be construed, in the first instance, like any other written contract.  Id. at 226.  Thus, the court’s dominant purpose is to attempt to determine the intent of the parties by examining the language of the policy, read as a whole.  Falmouth Nat’l Bank v. Ticor Title Ins. Co., 920 F. 2d 1058, 1061 (1st Cir. 1990).

Duty to Defend and Duty to Indemnify                   

An insurer’s duty to defend against a liability claim is determined by the allegations in the Complaint.  Fessenden Sch., Inc. v. American Mut. Liab. Ins. Co., 289 Mass. 124, 130 (1935).  The duty to defend arises when the facts alleged in the complaint, or known (or readily knowable) by the insurer, place liability within the coverage of the policy.  Terrio v. McDonough; Hartford Fire Ins. Co., 16 Mass. App. Ct. 163, 167 (1983).

The duty to defend is broader than the duty to indemnify.  W.R. Grace Co. v. Maryland Cas. Co., 33 Mass. App. Ct. 358, 364 (1992).  If the allegations embodied in the Complaint are “reasonably susceptible” of an interpretation that they state a claim covered by the policy, the insurer must undertake the defense.  Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 146 (1984).  An insurer has no obligation to defend, however, when the allegations of a complaint describe with precision conduct which the insurance policy expressly excludes from coverage.  Terio, 16 Mass. App. Ct. at 168.  Where the allegations in the complaint lie expressly outside the policy coverage and its purpose, the insurer may even be relieved of the duty to investigate.  Timpson v. Transamerica Insurance Co., 41 Mass. App. Ct. 344, 350 (1996).

An insurer must indemnify its insured when a judgment within its policy coverage is rendered against the insured. The duty to defend is antecedent to, and independent of, the duty to indemnify.  Boston Symphony Orchestra, Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10, 545 N.E.2d 1156 (1989).

Trigger

In Massachusetts, trigger of coverage is both a contract question and a question of law.  “Trigger rulings should be derived from the operative language of the policy, as opposed to the judicial gloss placed on similar language in analogous cases.”  United Technologies Corp. v. Liberty Mut. Ins. Co., 1993 WL 818913 (Mass. Sup. Court).

Occurrence 

The term “occurrence” is typically defined as an “accident . . . which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”  Under Massachusetts law, the term “accident” is to be given its ordinary meaning, which is usually “an event occurring by chance or unintentionally.”  Smartfoods v. Northbrook Prop. & Cas., 35 Mass. App. Ct. 239 (1993).

Breach of Contract

Many general liability policies exclude coverage for contractual liability.  Coverage for contractual liability is available only where the agreement is an “insured contract,” as defined by the policy, or where the insured would face that liability in the absence of the contract.

Property Damage

The burden of showing that the property was damaged within the coverage of the policy is on the insured.  The general rule is that the event giving rise to coverage under an occurrence-based policy is the happening of the actual property damage, and not the causative act.  In other words, the time of the “occurrence” of an accident within the meaning of an indemnity policy is not the time the wrongful act was committed, but the time when the complaining party was actually damaged.  Trustees of Tufts University vs. Commercial Union Insurance Co., 616 N.E.2d 68 (Mass. 1993).

Work Product Exclusions

Coverage for faulty workmanship is usually not available under the commercial general liability form.  See, e.g., Commerce Ins. Co. v. Betty Caplette Builders, 420 Mass. 87, 91-92 (1995); Donovan v. Commercial Union Insurance Company, 44 Mass. App. Ct. 596, 599-602 (1998).  Our Supreme Judicial Court has reasoned contractors are able to purchase builder’s risk policies or performance bonds to protect against damage to their product.  The Court has distinguished this type of coverage from comprehensive general liability insurance, which “insures against another form of risk in the insured-contractor’s line of work, i.e., injury to people and damage to other property caused by a faulty product or work.”  Caplette, 420 Mass. at 93.  The “injury to products” exclusion is meant to deny coverage in situations where the insured or its subcontractor “has caused damage to the product, work, property or structure.”  The purpose of this exclusion is to prevent the insured from using its product liability coverage as a form of property insurance, to cover the cost of repairing or replacing its own defective products or work.  Id. at 91-92 (citing 2 R. Long, Liability Insurance §11.09(2) (1993)).

The Massachusetts Appeals Court has noted that commercial general liability policies “should not serve as a guaranty of the quality and suitability of the insured’s products: these risks are of a kind that the insured may be expected to bear itself,” including risks which relate to the repair or replacement of faulty work.  Sterilite Corp. v. Continental Cas. Co., 17 Mass. App. Ct. 316 (1983).  Where the contractor’s faulty workmanship damages the very property which had to be replaced, there is no coverage under the commercial general liability policy.  Donovan v. Commercial Union Insurance Company, 44 Mass. App. Ct. 596, 600 (1998).

Massachusetts Courts have also affirmed the denial of coverage under the “impaired property” exclusion.  The Appeals Court has stated that “the effect of the ‘impaired property’ exclusion is to bar coverage for loss of use claims (1) when the loss was caused by the insured’s faulty workmanship; and (2) when there has been no injury to the property aside from the incorporation of the insured’s faulty work itself.”  Dorchester Mutual Fire Insurance Company v. First Kostas Corporation, 49 Mass. App. Ct. 651, 654 (2000).

Additional Insured Issues       

The naming of an “additional insured” does not extend the nature of the substantive coverage originally given by the policy, but merely gives to other persons the same protection afforded to the principal insured.  Wyner v. North Am. Specialty Ins. Co., 78 F.3d 752  (1st Cir. 1996); Turnpike Authority v. Perini Corp., 349 Mass. 448 (1965).

Certificates of Insurance

A liability insurer for construction contractors is assumed to understand the critical role of certificates of insurance in obtaining public contracts.  The furnishing of such certificates, verifying the existence of coverage, is a necessary part of servicing such insurance.  O’Connell v. Reliance Ins. Co., 50 Mass. App. Ct. 334, 336 (2000).

Late Notice 

An insurance company shall not deny insurance coverage to an insured because of failure of an insured to seasonably notify an insurance company of an occurrence, incident, claim or of a suit founded upon an occurrence, incident or claim, which may give rise to liability insured against unless the insurance company has been prejudiced thereby.  M.G.L. c. 175, § 112.       

Other Insurance

In Mission Ins. Co. v. United States Fire Ins. Co., 401 Mass. 492 (1988), the Supreme Judicial Court of Massachusetts discussed three types of “other insurance” clauses: pro rata, escape, and excess.  Pro rata clauses provide that if other insurance is available to the insured, the policy containing the pro rata clause will contribute to the loss in the proportion that its policy limit bears to the total limit of all available policies.  Escape clauses provide that, if there is other insurance available to the insured, the policy containing the escape clause will pay no benefits.  Excess clauses provide that, if there is other insurance available to the insured, the policy containing the excess clause will pay no benefits until such other insurance is exhausted. See generally 8A J.A. Appleman, Insurance Law and Practice §  4906, at 345-350 (rev. ed. 1981).

The Court noted that the majority of courts have “embraced a humanistic rule of construction — insurance clauses that conflict are to be reconciled and interpreted upon the determination of the sense and meaning of the terms the parties used.”  This approach generally has resulted in giving excess clauses preference to escape and pro rata clauses and declaring mutual repugnancy where either excess or escape clauses appear in both policies.  Id. at 496.

The Mission Insurance decision further noted that, when mutual repugnancy occurs, each insurer should be “required to contribute to the loss, for to give effect to both clauses would result in no coverage for the insured.” Mission Insurance, 401 Mass. at 496 n.4.  In that particular case, which involved a conflict between two excess clauses, the Court concluded that that “repugnancy” existed, and that the insurers had to contribute equally to the loss.  Id. at 499.

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