INS. CO. OF NORTH AMERICA v. PROTECTION MUTUAL INSURANCE

• Decision Date: 09 September 1996
• Docket Number: Civil Action No. 94-12165-NG.
• Citation: 939 F. Supp. 79
• Parties: INSURANCE COMPANY OF NORTH AMERICA, Plaintiff, v. PROTECTION MUTUAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Massachusetts

939 F. Supp. 79

INSURANCE COMPANY OF NORTH AMERICA, Plaintiff, v. PROTECTION MUTUAL INSURANCE COMPANY, Defendant.

Civil Action No. 94-12165-NG.

United States District Court, D. Massachusetts.

September 9, 1996.

COPYRIGHT MATERIAL OMITTED

Jay M. Levin, Ronald B. Hamilton, Cozen and O'Connor, Philadelphia, PA, Gerald W. Motejumas, Lecomte, Emanuelson & Tick, Boston, MA, Stephen A. Cozen, Cozen & O'Connor, Philadelphia, PA, Marie Cheung-Truslow, Lecomte, Emanuelson, Tick & Doyle, Boston, MA, for Insurance Company of North America.

Alan R. Miller, Kathleen E. Maloney, Robins, Kaplan, Miller & Ciresi, Boston, MA, for Protection Mutual Insurance Company.

MEMORANDUM AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

GERTNER, District Judge.

I. INTRODUCTION

On May 23, 1994, a serious fire occurred at the Cardinal Cushing Campus of Good Samaritan Medical Center ("Good Samaritan") in Brockton, Massachusetts. Prior to the fire, Good Samaritan was covered by a policy issued by plaintiff Insurance Company of North America ("INA"). One month before the fire, however, Good Samaritan decided to replace INA's policy with one written by defendant Protection Mutual Insurance Company ("Protection Mutual"). Protection Mutual's policy went into effect as of April 20, 1994, but Good Samaritan's instructions to INA regarding the cancellation date of its existing policy — requesting cancellation "as soon as possible but no later than May 31" — were less than precise.

After learning of the existence of the Protection Mutual policy, INA disclaimed coverage. INA contended that Good Samaritan's purchase of coverage from Protection Mutual had the effect of cancelling the INA policy as of April 20, 1994, the date on which Protection Mutual's coverage commenced. Protection Mutual insisted that INA was liable for a share of the loss. Unable to resolve their dispute, the two insurers agreed that each would pay half of Good Samaritan's claim, while reserving their rights against each other. INA then commenced this action seeking a declaration of the parties' respective liabilities.

Before me now are the parties' cross-motions for summary judgment. INA contends that it is not liable for any of the fire loss because its policy was not in effect at the time of the fire. Alternatively, INA contends that Protection Mutual's policy should be considered primary and therefore must be exhausted before any claim can be made against INA.

Protection Mutual insists that both policies were in effect at the time of the fire and further that INA's policy was primary, thus requiring exhaustion of INA's coverage first. Alternatively, Protection Mutual seeks an order allocating liability between the parties on a pro rata or equal basis.

II. FACTS

The facts are largely undisputed. Good Samaritan Medical Center was created on October 1, 1993 as the result of the merger of two hospitals: Cardinal Cushing General Hospital in Brockton ("Cardinal Cushing") and Goddard Memorial Hospital in Stoughton ("Goddard"). Prior to the merger, Goddard was covered by a property insurance policy issued by Protection Mutual. Cardinal Cushing, however, was insured through an institutional insurance program administered by the Roman Catholic Archdiocese of Boston.

The Archdiocesan Institutional Insurance Program ("the Institutional Program") provided property insurance to numerous institutions affiliated with the Catholic Church in the Boston area, through a combination of self-insurance and an outside carrier. In particular, the Archdiocese was covered by a policy from INA which provided that, in the event of a covered loss, the Archdiocese would be required to pay the first $10,000 of each loss under the Institutional Program while INA would be liable for the excess. In addition, the Archdiocese was required to pay the first $100,000 in annual losses in excess of the $10,000 per loss deductible. Because the INA policy covered only those Archdiocesan affiliates which the Archdiocese "had agreed to insure," the property of affiliated institutions was covered under the INA policy only to the extent those institutions were covered under the Institutional Program.

After the two hospitals merged in 1993, the two "campuses" of the newly formed Good Samaritan continued to be covered by separate insurance. In 1994, however, Good Samaritan's board of directors determined to reevaluate its insurance program with an eye toward consolidating its coverage under a single insurer. It enlisted the services of an insurance consulting firm, Deloitte & Touche, which recommended that Good Samaritan consolidate its coverage with Protection Mutual in order to realize significant premium savings.

Good Samaritan followed this advice and subsequently solicited coverage from Protection Mutual. On April 20, 1994, Protection Mutual amended Good Samaritan's policy to add coverage for the Cardinal Cushing campus. However, Good Samaritan did not immediately move to cancel its coverage under the Institutional Program. It was not until the first week of May that Joseph Ciccolo, Good Samaritan's Controller, called Arthur Powers, the official who administered the Institutional Program for the Archdiocese, to discuss the matter.

During this conversation, Ciccolo advised Powers of Good Samaritan's decision to obtain insurance elsewhere. Although Powers does not recall the conversation in detail, Ciccolo states that Powers asked him whether "Good Samaritan was going to ask for a retroactive adjustment of the premium or a refund."¹ Ciccolo further states that he responded by stating that he "would be remiss as a financial officer if he did not ask for a refund. However he could understand the problems that this is going to cause. So make the cancellation date no later than May 31."

Ciccolo and Powers' conversation was followed by a letter from Michael Sullivan, Good Samaritan's Vice President of Finance, to Powers, dated May 6, 1994. The letter stated, in relevant part: "I am writing this letter to inform you that we wish to cancel certain insurance policies for all entities as soon as possible, but no later than May 31, 1994." On May 13, 1994, Powers wrote back to Sullivan stating:

I was disappointed but not surprised to receive your letter of May 6, 1994 advising this office that you are withdrawing from all lines of the Archdiocesan Risk Management programs. It is unfortunate that you did not see fit to take advantage of the programs offered through this office for the combined operations.

I shall effect cancellation effective May 31, 1994 of:

— Institutional Fire, including Business Interruption

— Comprehensive Boiler and Machinery, including Business Interruption

— Inland Marine — Various

— Automobile Liability/Physical Damage

On the same day, Powers faxed a note to Hal Mackins, an insurance broker at the firm of Marsh and McLennan who handled the Archdiocese's account with INA, instructing him to cancel the policies effective May 31. Mackins, in turn, sent a letter dated May 19, 1994 to Steven Guariglia, the INA account executive who handled the Archdiocese account, requesting that he delete coverage for the Cardinal Cushing campus, effective May 31, 1994.

Four days later, on May 23, 1994, a fire occurred in the boiler room at the Cardinal Cushing campus, causing extensive damage. On the night of the fire, MacKenzie Smith, a member of Good Samaritan's board and the agent through whom Good Samaritan purchased the Protection Mutual policy, advised Protection Mutual of the loss. A Good Samaritan employee also notified the Archdiocese. The next day, on May 24, 1994, Powers arrived to inspect the damage and advised Good Samaritan personnel that INA coverage was still in place.

Two weeks after the fire Powers dramatically changed his position with respect to coverage. By letter dated June 8, 1994, he advised Michael Sullivan that:

Notwithstanding my letter of May 13, 1994, which allowed your office (perceived) extra time to replace those coverages that you requested in your May 6, 1994 letter, please see return premium invoices effective April 20, 1994 following your advice that coverage was actually replaced as of that date.

It follows then, that your late advice putting this office on notice that the Cushing campus experienced a fire in its boiler room the night of May 23, 1994 be denied as a notice of loss since coverage had been replaced as of April 20, 1994. In addition, your office had previously advised Factory Mutual² of the unfortunate fire of May 23rd, 1994 giving clear indication of intent and understanding that Factory Mutual was the insurer for 235 North Pearl Street, Brockton.

Enclosed with Powers' letter were invoices purporting to cancel (and refund premium for) all of Good Samaritan's insurance coverages under the Institutional Program, retroactive to April 20, 1994. Good Samaritan rejected these retroactive cancellations, however, and submitted claims to both INA and Protection Mutual for damage caused by the fire.

On October 7, 1994, Powers once again reversed his position and authorized Hal Mackins, the INA broker, to change the cancellation date on Good Samaritan's coverage back to May 31, 1994. Mackins forwarded this request to Steve Guariglia of INA, but INA refused to comply. Indeed, in January of 1995, INA issued an endorsement to the Archdiocese's policy purporting to cancel coverage for the Cardinal Cushing campus effective April 20, 1994.

III. DISCUSSION

A. Whether Good Samaritan was Covered under the Archdiocesan Institutional Insurance Program as of the Date of the Fire

INA advances three arguments for its position that Good Samaritan was not covered under the Institutional Program as of the date of the fire. First, INA contends that Good Samaritan's act of purchasing substitute insurance from Protection Mutual cancelled its coverage under the Institutional Program as a matter of law. Second, INA asserts that Good Samaritan's request to Arthur Powers to cancel its...