Pac. Indem. Co. v. Lampro

• Decision Date: 24 July 2014
• Docket Number: No. 13–P–1510.,13–P–1510.
• Citation: 12 N.E.3d 1037,86 Mass.App.Ct. 60
• Parties: PACIFIC INDEMNITY COMPANY & others v. Michael LAMPRO & another.
• Court: Appeals Court of Massachusetts

86 Mass.App.Ct. 60

12 N.E.3d 1037

PACIFIC INDEMNITY COMPANY & others¹

v.Michael LAMPRO² & another.³

No. 13–P–1510.

Appeals Court of Massachusetts, Berkshire.

Argued April 1, 2014.

Decided July 24, 2014.

Matthew D. Sweet, Boston, for the plaintiffs.

Jeffrey L. McCormick, Springfield, for Preferred Mutual Insurance Company.

Present: VUONO, MEADE, & CARHART, JJ.

Opinion

MEADE, J.

The plaintiff, Pacific Indemnity Company (Pacific), as subrogee of its insured, Steven and Sue Levkoff, appeals from the entry of judgment for the defendant, Preferred Mutual Insurance Company (Preferred). Pacific and the Levkoffs sued Preferred and its insured, Michael Lampro, principal of the landscaping company Steven Michael Designs (SMD), after SMD damaged the Levkoffs' property while performing tree and brush removal work. On appeal, Pacific claims that the Superior Court judge erred by concluding that the damage to the Levkoffs' property was not covered by SMD's commercial general liability insurance policy. Pacific argues that judgment on the pleadings should not have entered for Preferred on Pacific's G.L. c. 93A claim because, even if the Levkoffs' property damage fell outside of SMD's insurance policy, Preferred's conduct violated G.L. c. 93A. We affirm.

1. Background. In January, 2009, the Levkoffs contracted with SMD to perform landscaping services on their land in Monterey, Massachusetts. The Levkoffs were insured under a homeowners' insurance policy issued by Pacific, and SMD held a commercial general liability insurance policy through Preferred. The Levkoffs planned to build a vacation home on their property, which borders Lake Garfield and is considered an environmentally sensitive area. Prior to contracting with SMD, the Levkoffs presented their building and landscaping plans to the Monterey Conservation Commission (commission). The permits issued by the commission allowed the Levkoffs to pursue their landscaping plans so long as they did so in compliance with environmental regulations.

The Levkoffs and SMD executed a $24,000 contract to remove trees and brush “in accordance with” the commission's permits and the Levkoffs' engineering plans. The contract held SMD “responsible for damage to new or existing work on the project to the lake, improper execution of work or failure to [take] the necessary precautions to prevent damages.” The contract also required SMD to “repair or replace such damage, and also obtain general liability insurance.”

SMD hired a subcontractor to perform the landscaping on the Levkoffs' property. Although a preconstruction meeting was required by the commission, neither SMD nor its subcontractor consulted with the commission before carrying out the work. The subcontractor, for reasons not clear on the record, failed to follow the conditions outlined in the permits or the engineering plans. As the judge noted in his memorandum and order, the subcontractor

“failed to follow the restrictions in cutting the brush and trees and exceed[ed] the scope of work sanctioned by the permits. Instead, [he] cut a swath of trees and brush on the Levkoffs' property down to Lake Garfield.” The land sloping near Lake Garfield was clear-cut, resulting in what the judge described as, “an environmental nightmare for the Levkoffs.” While the damage was extensive, it was confined to the Levkoffs' property. Shortly after the incident, a representative of SMD met with the commission and accepted responsibility for the subcontractor's error. The lakeside slopes required costly remediation. Pacific paid over $100,000 on behalf of the Levkoffs to restore the land.

In July, 2009, Pacific notified SMD and Preferred of its subrogation claim. On March 16, 2010, Pacific sent SMD and Preferred settlement demands pursuant to G.L. c. 93A and G.L. c. 176D, and requested payment of “the full amount of damages.”⁴ Preferred responded the next month and explained that it was still investigating the claim and stressed that the questions of liability and coverage were not clear.

On June 17, 2010, Pacific and the Levkoffs brought an action against SMD and Preferred alleging negligence and breach of contract against SMD for the improper work performed, and two violations of G.L. c. 93A for failure to settle their claim, one against SMD and the other against Preferred. Preferred successfully moved to sever and stay the G.L. c. 93A claim against it.⁵ After the settlement of the first three counts, Preferred filed a motion for judgment on the pleadings pursuant to Mass.R.Civ.P. 12(c), 365 Mass. 754 (1974), to resolve the remaining c. 93A claim.

In a comprehensive and thoughtful memorandum, the judge allowed the motion for judgment on the pleadings and determined that the damages to the Levkoffs' land were excluded, on multiple grounds, from coverage by SMD's insurance policy. First, he held that SMD's faulty workmanship was not an “occurrence” as defined by the policy and, consequently, was excluded from coverage.

Additionally, the judge held that two of the “business risk exclusions” in SMD's insurance policy applied to the damages.

2. Discussion. “A defendant's rule 12(c) motion is ‘actually a motion to dismiss ... [that] argues that the complaint fails to state a claim upon which relief can be granted.’ ” Jarosz v. Palmer, 436 Mass. 526, 529, 766 N.E.2d 482 (2002), quoting from J.W. Smith & H.B. Zobel, Rules Practice § 12.16 (1974). Our review is de novo. Curtis v. Herb Chambers I–95, Inc., 458 Mass. 674, 676, 940 N.E.2d 413 (2011). We accept as true the allegations in the complaint and draw every reasonable inference in favor of Pacific. Ibid.

a. Chapter 93A. Pursuant to G.L. c. 93A, persons engaged in trade or commerce are prohibited from engaging in “[u]nfair methods of competition and unfair or deceptive acts or practices.” G.L. c. 93A, § 2. The law “distinguishes between ‘consumer’ and ‘business' claims, the former actionable under § 9, the latter actionable under § 11.” Frullo v. Landenberger, 61 Mass.App.Ct. 814, 821, 814 N.E.2d 1105 (2004). The plaintiffs' complaint failed to specify whether Pacific's c. 93A claim against Preferred fell under § 9 or § 11. Instead, the plaintiffs claim they are entitled to recovery under both sections. We disagree.

After the clear-cutting, Pacific brought the c. 93A claim against Preferred, “as subrogee of the Levkoffs” and made settlement demands, “as subrogee of the Levkoffs.” Pacific did not bring any claims, in its capacity as an insurance company, against Preferred. See Frost v. Porter Leasing Corp., 386 Mass. 425, 427, 436 N.E.2d 387 (1982) (if a subrogee pays an obligation, “it succeeds to the rights of the party it has paid”). The “bad faith” that Pacific alleges concerned the settlement of the Levkoffs' subrogation claim, a matter related to damage to the Levkoffs' land, not any business activity. Because the Levkoffs were not “engaged in trade or commerce,” we treat the claim as one arising under § 9. See Szalla v. Locke, 421 Mass. 448, 451, 657 N.E.2d 1267 (1995) (“c. 93A[, § 11] requires that there be a commercial transaction between a person engaged in trade or commerce with another person engaged in trade or commerce”).

General Laws chapter 176D, § 3(9), outlines various “acts and omissions” that may constitute an “unfair claim settlement practice.” G.L. c. 176D, § 3(9). Included among them is the assertion made by Pacific that Preferred failed to “effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear.” G.L. c. 176D, § 3(9)(f ). A violation of c. 176D, § 3(9) is explicitly included as actionable conduct under

c. 93A, § 9(1). See Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 754, 610 N.E.2d 912 (1993). While the majority of c. 93A actions in this field involve an insured's attempt to enforce its rights against its own insurer, “the specific duty contained in subsection [3(9) ](f ) [of c. 176D] is not limited to those situations where the plaintiff enjoys contractual privity with the insurer.” Clegg v. Butler, 424 Mass. 413, 419, 676 N.E.2d 1134 (1997).

“Our standard for examining the adequacy of an insurer's response to a demand for relief under G.L. c. 93A, § 9(3), is ‘whether, in the circumstances, and in light of the complainant's demands, the offer is reasonable.’ ” Id. at 420, 676 N.E.2d 1134, citing Calimlim v. Foreign Car Center, Inc., 392 Mass. 228, 234, 467 N.E.2d 443 (1984). A review of the reasonableness of an offer to settle necessarily includes an assessment of the underlying claim, because “a duty to settle does not arise until ‘liability has become reasonably clear.’ ” Id. at 421, 676 N.E.2d 1134. Determining if a claim is covered by the policy is essential to evaluating the reasonableness of the insurer's response to a demand. See Polaroid Corp. v. Travelers Indem. Co., supra, at 763, 610 N.E.2d 912, citing R. Keeton & A. Widiss, Insurance Law § 9.5(b)(1)(i), at 1046 (1988) (“the insurer is liable for any good faith settlement within the policy limits—subject, of course, to the insurer's right to an adjudication that the coverage applied to the loss”). See also Terrio v. McDonough, 16 Mass.App.Ct. 163, 168, 450 N.E.2d 190 (1983).

An insurer may choose to defend its insured but disclaim a duty to indemnify. This is because the “duty to defend is broader than the duty to indemnify.” Doe v. Liberty Mutual Ins. Co., 423 Mass. 366, 368, 667 N.E.2d 1149 (1996). A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, 445 Mass. 502, 527, 838 N.E.2d 1237 (2005). Accordingly, absent contractual provisions to the contrary, where there is no duty to defend, there can be no obligation to indemnify. See A.W. Chesterton Co. v. Massachusetts Insurers Insolvency Fund, supra at 527, 838 N.E.2d 1237.

While virtuous because of its simplicity, the plaintiffs' theory, that “liability is clear” because SMD took responsibility for the clear-cutting, ignores the difference between identifying a responsible tortfeasor and asserting a...