Innovative Mold Sols. v. The Hanover Ins. Grp.
| Decision Date | 27 September 2022 |
| Docket Number | 20-P-1236 |
| Court | Appeals Court of Massachusetts |
| Parties | INNOVATIVE MOLD SOLUTIONS, INC. v. THE HANOVER INSURANCE GROUP, INC., & others.[1] |
Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule 23.0, as appearing in 97 Mass.App.Ct. 1017 (2020) (), are primarily directed to the parties and therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore represent only the views of the panel that decided the case. A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass.App.Ct. 258, 260 n.4 (2008).
The issues presented in this appeal stem from a dispute over insurance coverage. The plaintiff, Innovative Mold Solutions Inc. (IMS), commenced this action against its insurers, The Hanover Insurance Group, Inc., The Hanover Insurance Company and Citizens Insurance Company of America (collectively, Hanover),[2] to recover damages IMS incurred as a result of Hanover's declination to defend and indemnify IMS against a qui tarn complaint (the complaint).[3] The complaint, which was filed in the United States District Court for the District of Connecticut, alleged that IMS and two other entities violated the False Claims Act (FCA), 31 U.S.C. §§ 3729 et seq., in connection with a government contract to manufacture a certain product used by the United States Army.[4] As we discuss in more detail later, Hanover maintained that it had no duty to defend or indemnify IMS on the ground that the complaint sought damages because of the submission of false claims for payment to the United States government and did not seek damages because of "property damage" caused by an "occurrence," defined in the policies to mean an "accident."
On cross motions for summary judgment, a judge of the Superior Court ruled that Hanover had a duty to defend IMS but left the calculation of damages and the claim for violation of G. L. c. 93A and G. L. c. 176D for an evidentiary hearing.[5] A different judge of the Superior Court held a trial on those issues and awarded IMS $59,984.21 in damages on IMS's claims for breach of contract and breach of the implied covenant of good faith and fair dealing. The judge further found that Hanover did not violate c. 93A or c. 176D. Both IMS and Hanover have appealed.
Even if we were to assume that the complaint sought damages because of property damage within the meaning of the policies, that property damage was not caused by an "occurrence." Consequently, Hanover had no duty to defend or indemnify IMS under the policies, and summary judgment should not have entered in favor of IMS. Rather, judgment should have entered in favor of Hanover. Given our conclusion, we need not address most of the issues raised in IMS's appeal.[6]
Background. Citizens Insurance Company of America issued consecutive commercial line policies to IMS, effective January 1, 2011, to January 1, 2013. The commercial line policies provided as follows: The commercial line policies applied to bodily injury or property damage "caused by an 'occurrence,'" which the commercial line policies defined as "an accident, including continuous or repeated exposure to substantially the same harmful conditions." The Hanover Insurance Company issued consecutive commercial umbrella policies to IMS, effective January 1, 2011, to January 1, 2013, that contained similar provisions.[7]
On or about February 15, 2012, IMS was served with the complaint, which included the following allegations. The United States government awarded ITT Corporation (ITT) a contract to supply the United States Army with a certain product. The contract required the product to comply with detailed drawing and specification requirements. Compliance with those requirements was so important that, before the contract was awarded, the product "under[went] a rigorous qualification process in which the government examine[d] the product in detail -- including the materials and process used to manufacture it --and 'qualifie[d]' it as a product that the government [was] willing to purchase." The contract also required that "[a]ny changes after initial baseline submittal" be submitted to the government for approval.
The complaint included the following additional allegations. IMS, a subcontractor on the project, manufactured power supply cases for the product. Initially, IMS manufactured the power supply cases using the qualified materials and process. Then, beginning in November 2007, IMS made undisclosed changes to the following: (1) the composition of an adhesive material and (2) the process for applying the adhesive material. The changes made by IMS caused defects with the final product. At some point in time, ITT learned of the changes but continued to (1) supply the product and (2) certify that the product was manufactured using the qualified materials and process. Later, ITT disclosed the changes but misrepresented their ramifications.
Discussion. We review the summary judgment ruling that Hanover had a duty to defend and indemnify IMS de novo. See Vermont Mut. Ins. Co. v. Poirier, 490 Mass. 161, 164 (2022). "We focus principally on the duty to defend, because '[i]t is axiomatic that an insurance company's duty to defend is broader than its duty to indemnify.'" Marculetiu v. Safety Ins. Co., 98 Mass.App.Ct. 553, 560 (2020), quoting Boston Symphony Orch., Inc. v. Commercial Union Ins. Co., 406 Mass. 7, 10 (1989).
In deciding whether a liability insurer has a duty to defend, we compare the underlying complaint with the policy terms: "if the allegations of the complaint are 'reasonably susceptible' of an interpretation that they state or adumbrate a claim covered by the policy terms, the insurer must undertake the defense." Sterilite Corp. v. Continental Cas. Co., 17 Mass.App.Ct. 316, 318 (1983) . "The process is not one of looking at the legal theory enunciated by the pleader but of 'envisaging what kinds of losses may be proved as lying within the range of the allegations of the complaint, and then seeing whether any such loss fits the expectation of protective insurance reasonably generated by the terms of the policy." Boston Symphony Orch., Inc., 406 Mass. at 12-13, quoting Continental Cas. Co. v. Gilbane Bldg. Co., 391 Mass. 143, 147 (1984). "The underlying complaint need only state a claim that gives rise to a possibility of recovery under the policy, rather than a probability of such recovery." Omega Flex, Inc. v. Pacific Employers Ins. Co., 78 Mass.App.Ct. 262, 266 (2010). "However, when the allegations in the underlying complaint lie expressly outside the policy coverage and its purpose, the insurer is relieved of the duty to . . . defend" (quotation and citation omitted). Timpson v. Transamerica Ins. Co., 41 Mass.App.Ct. 344, 347 (1996).
IMS focuses on the allegation in the complaint that the changes to the adhesive material caused defects with the final product. IMS argues that (1) the problems amounted to property damage and (2) the property damage was caused by an accident because IMS did not intend to cause the problems with the final product. Hanover argues that regardless whether the complaint alleged property damage, the complaint did not seek damages because of that property damage, and instead sought damages because of the alleged false claims for payment. Hanover further argues that the complaint did not allege an accident. As previously noted, we need not resolve whether the complaint sought damages because of property damage or because of false claims for payments. Even if we assume that the complaint sought damages...
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