Rubenstein v. Royal Ins. Co. of America

• Decision Date: 27 May 1998
• Docket Number: No. 98-P-1650,98-P-1650
• Citation: 694 N.E.2d 381,44 Mass.App.Ct. 842
• Parties: Paul R. RUBENSTEIN & others, 1 trustees, v. ROYAL INSURANCE COMPANY OF AMERICA.
• Court: Appeals Court of Massachusetts

Page 381

694 N.E.2d 381

44 Mass.App.Ct. 842

Paul R. RUBENSTEIN & others, ¹ trustees, v. ROYAL INSURANCE COMPANY OF AMERICA.

No. 98-P-1650.

Appeals Court of Massachusetts Suffolk.

Argued Nov. 6, 1997.

Decided May 27, 1998.

Alan B. Rubenstein, Boston (Donald R. Pinto, Jr., with him), for plaintiffs.

Molly H. Sherden, Boston, for defendant.

Laura A. Foggan and Daniel E. Troy, Washington, DC, and Rosanna Sattler, Boston, for Insurance Environmental Litigation Association, amicus curiae, submitted a brief.

Before PERRETTA, KASS and GREENBERG, JJ.

GREENBERG, Justice.

During the demolition of former textile mill buildings in Newton, Security Mills Limited Partnership (SMLP) discovered leakage of number six fuel oil from an abandoned 15,000 gallon underground tank. To recover damages, the general partners of SMLP brought a civil action in April, 1989, against the trustees of Security Mills Realty Trust (trustees), from whom SMLP had purchased the property in 1985. The trustees in turn brought a declaratory judgment action against various insurance companies, seeking a declaration that the insurance companies had a duty to defend and indemnify the trustees in the SMLP action.

We summarize the facts, largely undisputed, from the judge's findings. The trustees owned property in Newton from 1922 to 1985. In 1985, the trustees sold the property to SMLP. In 1988, SMLP discovered that fuel oil had leaked out of an underground tank on the property, contaminating the soil surrounding the tank. SMLP brought a civil action against the trustees in April of 1989, seeking damages under G.L. c. 21E, §§ 4 & 5, and G.L. c. 93A, § 11.

During the time the trustees owned the property, they purchased insurance from six different insurance companies. ² After the SMLP suit was filed, the trustees requested that each insurer assume defense of the suit. All of the insurers declined, except Wausau Underwriters Insurance Company (Wausau), which, under a reservation of rights, agreed to advance the trustees their legal fees and expenses in defending the SMLP suit up to a maximum of $150 per hour.

In March of 1990, the trustees filed a declaratory judgment action against Liberty Mutual Insurance Company (Liberty Mutual), Royal Insurance Company (Royal), Commercial Union Insurance Company (Commercial Union), Lumbermens Mutual Casualty Company (Lumbermens), and Continental Casualty Company (Continental), seeking a declaration that the named insurers had a duty to defend and indemnify the trustees in the SMLP suit. In June of 1991, the trustees settled the SMLP suit for $425,000. By the time of the settlement, Wausau had paid $261,902.84 in legal fees and expenses in defending the trustees in the SMLP suit. The trustees themselves paid $17,886.70 in legal fees and expenses, representing the amount charged to the trustees over the $150 per hour paid by Wausau.

In October of 1991, a judge of the Superior Court determined that Lumbermens had a duty to defend the trustees in the SMLP suit. Because none of the other insurers' policies had been located, the judge did not decide whether the other insurers had a similar duty. By December of 1993, the trustees had settled their claims against Liberty Mutual and Commercial Union, two of the so-called "lost policy" insurers. In addition, Continental had stipulated that it had in fact issued a policy to the trustees. Thus, only Royal disputed that it had issued policies to the trustees.

Following a jury-waived trial in December of 1993, the same judge concluded that Royal had issued policies to the trustees covering the period from 1969 to 1977, only one of which, policy 516688 (effective 1969-1972), did not include a pollution exclusion clause. In October of 1994, the same judge determined that under policy 516688, Royal had a duty to defend the trustees in the SMLP suit. In November of 1994, there was a jury trial, presided over by the same judge, to determine factual issues that would govern resolution of the question whether Royal had a duty to indemnify the trustees in the SMLP suit. The judge then heard supplemental testimony on the trustees' claim to recover the unreimbursed defense costs (i.e., the $17,886.70 not paid by Wausau).

In a thirty-six page memorandum, the judge carefully worked her way through the issues. Based upon the jury's verdict, the judge found that the SMLP claims were covered under one of the four policies issued by Royal to the trustees and that Royal was obligated to indemnify the trustees for the full amount of the settlement payment to SMLP. However, she reduced the amount of Royal's indemnity obligation by the amount the trustees had received from the other settling insurers. She also found that the trustees were entitled to recover those defense costs not advanced by Wausau. Finally, she denied the trustees' motion for an award of attorney's fees and costs for prosecuting the declaratory judgment action.

The trustees appeal from so much of the judgment as allows reduction of Royal's indemnity obligation and the denial of attorney's fees. In its cross appeal Royal argues that the judge erred (1) in finding that the trustees had proven the existence and terms of the missing policy in question; (2) in concluding that Royal had a duty to defend; (3) in adopting an "exposure" trigger of coverage theory; (4) in failing to allocate damages among the various insurers and years of coverage; and (5) in failing to apply exclusions contained in the policy to bar the trustees' claims. We affirm the judgment except as to the denial of attorney's fees.

1. Sufficiency of the evidence of the existence of the policy. Royal steadfastly denied having issued any policies to the trustees and the trustees tried in vain to locate the policies in question. In December, 1993, the judge conducted a bench trial limited to that issue. In her memorandum of decision, she assumed, without deciding, that the trustees had the burden to prove the existence and contents of the missing policies by clear and convincing evidence. On that basis, she concluded that the trustees had demonstrated that Royal had issued four liability insurance policies to the trustees between October 30, 1969, and October 5, 1977, and that only one policy (516688), a three-year policy that expired on October 30, 1972, did not exclude pollution. On appeal, Royal argues that there was insufficient evidence to establish the existence and terms of that policy.

As a threshold matter, we consider whether something more than a preponderance of the evidence is required to determine the existence and contents of a lost or missing policy. Might the standard of proof be clear and convincing evidence? In three cases cited by Royal in support of its argument that the more stringent standard should prevail, there was a strong likelihood that fraud or wrongdoing existed. See Coghlin v. White, 273 Mass. 53, 55, 172 N.E. 786 (1930), quoting from Newell v. Homer, 120 Mass. 277, 280 (1876) (proof of contents of a will must be "strong, positive and free from doubt"); Stone v. Essex County Newspapers, Inc., 367 Mass. 849, 870 n. 10, 330 N.E.2d 161 (1975). For Federal cases that apply a higher burden of proof, see Emons Indus., Inc. v. Liberty Mut. Fire Ins. Co., 545 F.Supp. 185, 188 (S.D.N.Y.1982); Boyce Thompson Inst. for Plant Research v. Insurance Co. of N. America, 751 F.Supp. 1137, 1140 (S.D.N.Y.1990). Contrast Remington Arms Co. v. Liberty Mut. Ins. Co., 810 F.Supp. 1420, 1423-1426 (D.Del.1992) (rejecting the clear and convincing test).

Generally the existence of an insurance policy is proven by documentary evidence. That a policy has been lost or destroyed does not mean that its existence and contents may not be reconstructed from business records, underwriter's folios, or billings of the insurance company to the insured. The evidence used to establish the existence and terms of the missing policies is in large part evidence in possession of the party against whom it is being offered. The more burdensome standard of proof of clear and convincing evidence ought not to be required.

Our view comports with other cases which disfavor a heightened standard of proof except in quasi criminal circumstances. See Guardianship of Roe, 383 Mass. 415, 422-423, 421 N.E.2d 40 (1981) (holding that a higher standard of proof is required when person will suffer stigma comparable to that of criminal conviction and face loss of liberty); Medical Malpractice Joint Underwriting Assn. of Mass. v. Commissioner of Ins., 395 Mass. 43, 46, 478 N.E.2d 936 (1985) (holding that higher standard of proof is needed only "in a very limited number of cases where 'particularly important individual interests or rights are at stake' "). See also Employers' Liab. Assur. Corp., Ltd. v. Hoechst Celanese Corp., 43 Mass.App.Ct. 465, 485, 684 N.E.2d 600 (1997) (mentions the presence of the "careful and thoughtful argument for preserving the preponderance rule in lost policy matters" in Remington Arms Co. v. Liberty Mut. Ins. Co., 810 F.Supp. at 1423-1426).

In this case, the judge heard extensive testimony concerning the lost policies including trustee Paul Rubenstein's recollection of purchasing insurance through Boit, Dalton & Church, an insurance agency. Admitted in evidence was a schedule of insurance prepared by Boit, Dalton & Church showing that the trustees were covered by Royal insurance policy 516688, effective October 10, 1969, to October 30, 1972. ³ Specimen forms of the type of policy used by Royal at the time were submitted in evidence. Internal company memoranda forwarded to underwriters stated that pollution exclusion provisions were not in effect when policy 516688 was in place and that riders needed to be attached to all such policies. Two employees of Royal recalled being involved when the policy in question was written.

Our review of the record shows that the judge's findings and conclusions regarding the missing policies met the...