Creative Servs. v. The Hartford Fire Ins. Co.
| Decision Date | 07 July 2022 |
| Docket Number | Civil Action 20-cv-11720-ADB |
| Parties | CREATIVE SERVICES, INC., Plaintiff, v. THE HARTFORD FIRE INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
CREATIVE SERVICES, INC., Plaintiff,
v.
THE HARTFORD FIRE INSURANCE COMPANY, Defendant.
Civil Action No. 20-cv-11720-ADB
United States District Court, D. Massachusetts
July 7, 2022
MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
ALLISON D. BURROUGHS U.S. DISTRICT JUDGE
Plaintiff Creative Services, Inc. (“CSI”) brings this action against its insurer, Defendant The Hartford Fire Insurance Company (“Hartford”), alleging breach of contract based on Hartford's denial of coverage under CSI's commercial business owner's insurance policy (the “Policy”). [ECF No. 1 (“Compl.”)]. Currently before the Court are the parties' cross-motions for summary judgment. [ECF Nos. 16 (CSI), 24 (Hartford)]. Although the Court recognizes the adversity that businesses have confronted during the COVID-19 pandemic and is sympathetic to CSI's position, the Court must find in Hartford's favor based on the reasoning in the recent ruling of the Supreme Judicial Court of Massachusetts (“SJC”) in Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d 1266 (Mass. 2022) and three related holdings from the First Circuit.
Accordingly, CSI's motion, [ECF No. 16], is DENIED, and Hartford's motion, [ECF No. 24], is GRANTED.
I. BACKGROUND
A. Factual Background
Unless otherwise noted, the following facts are undisputed.[1]
CSI is a Massachusetts corporation that conducts commercial background screening. [ECF No. 31-1 at 1]. Hartford is a Connecticut corporation that provides insurance. [Id.]. The Policy covered CSI properties in Mansfield, Massachusetts; Chapin, South Carolina; Providence, Rhode Island; and Warrensville Heights, Ohio (the “Covered Premises”) for the period from October 19, 2019 through October 19, 2020. [Id. at 2, 4].
On March 23, 2020, the Governor of Massachusetts issued COVID-19 Order No. 13 (the “Massachusetts Order”). [ECF No. 17-2]. Pursuant to the Massachusetts Order, non-essential businesses, such as CSI, were required to “close their physical workplaces and facilities . . . to workers, customers, and the public as of 12:00 noon on March 24, 2020 and [could] not re-open to workers, customers, or the public before 12:00 noon on April 7, 2020.” [Id. at 2]. On March 31, 2020, the Governor replaced the April 7, 2020 end-date with May 4, 2020. [ECF No. 17-3 at 2-3]. The Governors of Ohio and South Carolina issued similar orders (together with the Massachusetts Order, the “Shutdown Orders”). [ECF No. 1-5 (initial Ohio order); ECF No. 1-6 (Ohio order extending end-date); ECF No. 1-7 (initial South Carolina order); ECF Nos. 1-8, 1-9 (subsequent South Carolina orders)]. CSI alleges that the Shutdown Orders forced it to close and suspend operations at its Mansfield, Massachusetts, Warrensville Heights, Ohio, and Chapin, South Carolina locations from March 23, 2020 through May 24, 2020.
[Compl. ¶¶ 13, 16, 21, 23]. On May 1, 2020, CSI requested coverage under the Policy, which Hartford denied. [ECF No. 31-1 at 7].
B. Procedural Background
On September 18, 2020, CSI sued Hartford, alleging that Hartford breached its obligations under the Policy by denying coverage. [Compl. ¶ 39.]. Specifically, CSI maintains that, due to the Shutdown Orders, it experienced a “direct physical loss and access to [the Covered Premises] covered under the [P]olicy.” [Id. at 1]. After Hartford answered, [ECF No. 11], CSI moved for summary judgment, [ECF No. 16], and Hartford opposed and cross-moved, [ECF No. 24]. On May 21, 2021, this case was stayed by agreement of the parties pending resolution of the appeal in Legal Sea Foods, LLC v. Strathmore Ins. Co., No. 21-1202 (1st Cir. 2022), involving similar facts. [ECF No. 52]. Legal Sea Foods was in turn stayed pending resolution of yet another similar matter before the SJC, Verveine. On April 21, 2022, the SJC issued its decision in Verveine, 184 N.E.3d 1266, and a decision from the First Circuit in Legal Sea Foods followed thereafter, 36 F.4th 29 (1st Cir. June 3, 2022). On June 13, 2022, this Court lifted the stay on the instant action. [ECF No. 58]. The parties have filed oppositions, replies, notices of supplemental authority, and responses thereto, see [ECF Nos. 26, 31, 32, 33, 34, 37, 38, 39, 40, 41, 42, 43, 50, 53, 55, 57], and the dueling motions are ripe for resolution.
II. DISCUSSION
A. Massachusetts Law Governs
As a preliminary matter, the Court must decide which state's law governs the terms of the Policy. Neither party points to a choice-of-law provision in the Policy, and, based on the Court's review, there does not appear to be one. CSI asserts diversity jurisdiction. [Compl. ¶ 3]. “When exercising diversity jurisdiction, federal courts apply the choice-of-law rules of the forum state.”
Alharbi v. Theblaze, Inc., 199 F.Supp.3d 334, 360 (D. Mass. 2016) (citing In re Volkswagen & Audi Warranty Extension Litig., 692 F.3d 4, 17 (1st Cir. 2012)). Under Massachusetts' choice-of-law rules, “the rights created by a contract of casualty insurance are to be determined by the local law of the State that the parties to the insurance contract understood would be the principal location of the insured risk during the term of the policy, unless some other State has a more significant relationship . . . .” Clarendon Nat. Ins. Co. v. Arbella Mut. Ins. Co., 803 N.E.2d 750, 753 (Mass. App. Ct. 2004). Although the Policy covers properties in four different states, the Court finds that the principal location of the insured risk is Massachusetts. First, CSI's principal place of business is in Massachusetts. [ECF No. 31-1 at 1]. Second, the Mansfield, Massachusetts location clearly accounts for the bulk of the value insured by the Policy. Compare [ECF No. 17-1 at 17-18 (insuring Massachusetts building for approximately $1.1 million, personal property inside the building for $340,300, computers and media for $150,000)], with [id. at 19-20 (not insuring South Carolina building, and insuring personal property inside the building for only $50,000 and computers and media for only $25,000)], [id. at 21-22 (not insuring Rhode Island building or computers and media, and insuring personal property inside the building for only $1)], and [id. at 23-24 (not insuring Ohio building or computers and media, and insuring personal property inside the building for only $31,400)]. Accordingly, the Court finds that Massachusetts law governs the Policy.
B. The Policy Does Not Provide Coverage
Under Massachusetts law,
[t]he interpretation of an insurance contract is a question of law. It is no different from the interpretation of any other contract, and [courts] must construe the words of the policy in their usual and ordinary sense. [Courts] read the policy as written and are not free to revise it or change the order of the words. Every word in an insurance contract must be presumed to have been employed with a purpose and must be given meaning and effect whenever practicable, without according undue
emphasis to any particular part over another. If in doubt, [courts] consider what an objectively reasonable insured, reading the relevant policy language, would expect to be covered. Finally, [a]ny ambiguities in the language of an insurance contract are interpreted against the insurer who used them and in favor of the insured.
Bos. Gas Co. v. Century Indem. Co., 910 N.E.2d 290, 304-05 (Mass. 2009) (final alteration in original) (citations and internal quotation marks omitted). “An ambiguity ‘arises when there is more than one rational interpretation of the relevant policy language,' but ‘is not created simply because a controversy exists between parties, each favoring an interpretation contrary to the other.'” Kamakura, LLC v. Greater N.Y. Mut. Ins. Co., 525 F.Supp.3d 273, 279-80 (D. Mass. 2021) (quoting Bos. Gas, 910 N.E.2d at 305 n.32). In insurance disputes, “[t]he insured bears the initial burden of ‘prov[ing] that the loss [is] within the description of the risks covered.'” Highlands Ins. Co. v. Aerovox Inc., 676 N.E.2d 801, 804 (Mass. 1997) (second and third alterations in original) (quoting Tumblin v. Am. Ins. Co., 182 N.E.2d 306, 307-08 (Mass. 1962)).
CSI argues that it is entitled to coverage under the “Business Income” provision of the Policy because it suffered a “direct physical loss . . . of property at the [Covered Premises],” within the meaning of the Business Income provision, when it could no longer physically use its property because of the Shutdown Orders. [ECF No. 17 at 6-14].[2] Hartford counters that CSI is
not entitled to coverage because it experienced no “direct physical loss of or physical damage to its property” and that the Shutdown Orders do not constitute a “direct physical loss” of any property. [ECF No. 26 at 12-22].
The “Business Income” provision of the Policy states that
[Hartford] will pay for the actual loss of Business Income [CSI] sustain[s] due to the necessary suspension[3] of [its] “operations”[4] during the “period of restoration”. The suspension must be caused by direct physical loss of or physical damage to property at the [Covered Premises],[5] including personal property in the open (or in a vehicle) within 1,000 feet of the [Covered Premises], caused by or resulting from a Covered Cause of Loss.
[ECF No. 17-1 at 45].
The question, therefore, is whether the suspension of CSI's operations was “caused by direct physical loss of or physical damage to property at the [Covered Premises].” Because the SJC answered this question in the negative in Verveine, this Court must do the same, with the result that CSI's claim is effectively foreclosed.
In Verveine, the owners of three restaurants challenged the denial of their property insurance claims for losses resulting from the COVID-19 pandemic. 184 N.E.3d at 1270. Affirming the trial court's dismissal of plaintiffs' claims against their insurer, the SJC concluded that the policy term “direct physical loss of or...
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